Cloud computing: the tipping point for distribution?

Man walking up staircase to the sky

For decades the IT industry has operated effectively on a well-understood two tier system comprising distributors and resellers, with each having clearly-defined roles and responsibilities. However, cloud-based technology is fundamentally changing the distribution landscape, not just for the distributors and resellers, but for vendors and end-users too.

Cloud is here to stay

According to the Cloud Industry Forum, by the end of 2013, more than 75 percent of UK businesses will be using at least one type of cloud service. The Forum has also forecast that, of existing cloud users, 80 percent will increase their spending on cloud computing during the same period. Moreover, research firm Gartner predicts that by the end of 2013 the size of the cloud computing market worldwide will be $150bn. So it’s fair to say that it’s more than a passing fad. It’s here to stay and it’s having a fundamental impact on the way organisations select, architect and deploy their IT.

Shifting landscape

As a distributor of next-generation cloud-based technologies, I must confess to having a vested interest in the positive evolution of an industry model that has remained largely unchanged for years.

From the vendor’s perspective, the increasingly widespread acceptance of technology solutions developed for the cloud has opened up the market. Historically the domain of the big IT brands with massive marketing muscle and deep pockets have dominated the market, but this new world of distribution is not concerned with, or constrained by, infrastructure and physical bits of tin. Next-generation, agile, start-up vendors now have a real shot at success. For these cloud-based technologies, the barriers to entry are well and truly shattered.

From the reseller’s point of view, cloud-based technology solutions are delivering shorter, less complex sales cycles with solutions that are easy to install and immediately available. The days of on-premise solutions with lengthy and costly implementation periods are over.

From the distributor’s point of view, more than ever in the current economy, there is a need to be truly ‘value-add’. Resellers need a distributor that can add value to them by assisting in creating new revenue opportunities from both products and services. Distributors need to find these new, innovative and disruptive technologies that their reseller community can take to market quickly and efficiently whilst retaining high margins and differentiating themselves from their competition.

Every silver lining has a cloud

The potential fly in the ointment is that the very issue that makes cloud computing so appealing is also what makes it so disruptive to the traditional delivery of hardware and software technologies, because it changes both the supply and consumption side of the distributor model. After all, if you look at it from the vendor’s point of view, cloud-based IT solutions tend to be less complex, relatively easier to sell than on-premise solutions, and don’t require massive up-front investment. So why not sell directly to the customer and cut out the distributor and reseller all together?

As the old adage goes, if you do what you always do, you’ll get what you always get. Distributors and resellers are waking up to the fact that they need to radically change their approach to avoid their roles becoming redundant.

New business models

The cloud aggregation model promoted by some distributors is a good example of how things are changing. Effectively they are offering platforms that allow their resellers to aggregate cloud services from multiple vendors on a single billing platform. The ‘solution stack’ approach is another great example. Here the distributor ‘groups’ complementary technologies together which can be sold stand-alone, bundled or sold as a partner branded managed service, enabling resellers to create their own, bespoke solution that meets the needs of their end-users.

Services revenue is the new maintenance

However, to my mind there’s an even bigger opportunity in the shape of today’s next-generation technologies that offer a combination of cloud-based solutions with hardware, virtualised offerings or simply a pure cloud hosted option. This ‘hybrid middle ground’ is where the next big opportunity lies for distributors and the landscape is changing from box shifter, to one of offering managed services and cloud services.

By tapping into this ‘hybrid middle ground’ distributors can offer solutions that have a very low operating cost versus traditional on-premise solutions with a high capital expenditure cost. And by adopting a business model that’s built around managed and cloud-based services, distributors can create an ‘annuities’ model, where subscription effectively becomes the new maintenance. Selling batches of products or one-time services is so ‘yesterday’. This new model means distributors can sell monthly services either fixed-fee or utility-based. Now that’s real value-add.

I’d offer a note of caution here though, because although the annuities model represents a solid business opportunity for some distributors, it won’t work for all. These exciting hybrid offerings need a ‘new breed’ of distributor – one that’s nimble and agile, and can adapt to an ever changing market landscape. Having the ability to help these next-generation vendors carve out a market position (and cut through the noise of competitive offerings) is vital. As is the business know-how to commercialise them with wrap-around services delivered via the subscription-based model. And the final piece of the puzzle is the marketing muscle needed to stimulate demand and help build a solid, qualified pipeline. These three factors will determine which distributors will succeed in the hybrid middle ground, and those that will fall by the way side.

Whichever business model is chosen, the underlying offering has to be about real value-add on both sides of the distribution model, whether that’s helping a next-generation vendor to break into the UK market, or it’s helping a reseller create and deliver a branded managed service to their customers. Take a look at your business model. Are you doing all you can to maximise the cloud opportunity?

Adam Davison is director at Cloud Distribution