Channel opportunities in a cloudy world

Much has been written about the impact of the cloud on existing IT channels and many vendors are struggling with the thorny questions of how to transition, or in some cases jettison, their existing channel partners that have got them to where they are today.

However the focus on what to do with the existing channel has perhaps led some to neglect the new channel opportunities that exist in a cloud-based world. As a result newer start-ups, unencumbered by the legacy channel, have the potential to steal a march on existing vendors, not just through technology innovation, but also by channel innovation. As traditional channel roles such as inventory management, financing and on-site implementation become less important, new skills and assets come to the fore. This opens up opportunities for vendors to work with new types of partners that bring different value to the table.

 Here are just a couple of the changes that I see in play at the moment....

 Trusted brands become important routes to market

While it would have been very difficult to imagine a brand owner like Virgin or Easy or Lloyds TSB becoming a VAR in the old on-premise world, it takes far less of a leap to imagine those organisations reselling SaaS products under their own brand. I believe selling SaaS on an own-label basis through established, trusted brands will be an increasingly important route to market for a number of reasons:

1) The technical barriers to being a reseller of technology-based services are diminishing rapidly, so it’s far easier for large companies to leverage their brand equity in these areas,

2) As brand owners are increasingly transact with their customers online it is an easier progression to extend into other online services,

3) The low price-points of many cloud-based services means vendors are forced to find low costs routes to market, something companies with large customer bases and established marketing channels can offer,

4) Perceptions of risk are still a barrier to the adoption of cloud-based services, particularly in the SMB market, and trusted brands can help to overcome this barrier.

Some SaaS businesses are already successfully exploiting this model. One example is US firm, PayCycle, providers of SaaS payroll solutions for small businesses, who were acquired by Intuit last year for $170m. They developed successful private-label partnerships with the likes of Capital One and PNC Bank, enabling them to grow far more quickly than they could have done solely under their own brand.

Sector and functional expertise to the fore

Compared with traditional on-premise products, the technical barriers to adoption of cloud-based applications are generally lower. As a result, SaaS providers can focus more of their energies on understanding and addressing the ultimate business need, rather than worrying about how to get the technology installed and working. The sale is less likely to be made to the IT function and more likely to be made direct to business owners.

In addition the economics of the SaaS model make it feasible to develop products addressing the requirements of far narrower market niches, whether defined by industry sector or functional application. Therefore I believe that the value of partners that have deep industry or functional knowledge will increase relative to partners that sell primarily on the basis of strong technical skills. Partners that have in-depth understanding of the business drivers and operational processes within a particular market sector, and can help customers understand how to utilise technology to fix problems, will be highly prized by vendors. We can already see most of the larger application vendors, including the likes of Microsoft, Oracle and SAP, encouraging their existing partners to develop industry specialisations, because they recognise that the sale needs to be based more around end-customer need and less on technology.

If the partners with domain expertise also have trusted advisor status and access to the relevant business decision-makers then their value is increased even further. It was interesting to see the recent announcement that Baker Tilly, one of the largest accounting and consulting firms in the US, are to join NetSuite’s Solution Provider programme. Baker Tilly will be utilising its deep functional expertise to deliver customised accounting and regulatory compliance solutions based on NetSuite’s cloud-based ERP platform.