Resellers: How to make cloud pay

Opinion John Campbell
Mar 16, 2015

In the first of a two part series, NetSuite's John Campbell asks why care about cloud?

Cloud computing is mainstream but you wouldn’t necessarily know that by looking at the offerings in the channel.

Customers are now familiar with the business benefits of cloud computing - lower upfront costs, flexibility, especially the ability to scale capacity up and down, reduced IT resource need for system maintenance, even reduction in the space needed for hardware. As a result cloud services are being considered as an option for just about every aspect of IT expansion and refreshment.

Therefore, you would naturally expect all resellers to have cloud capabilities in their portfolio. However, even a cursory internet search will identify a strong cohort of resellers who simply, “Don’t do cloud”.

The cloud opportunity

I have already outlined some of what customers expect to get from cloud, but what should a reseller expect to gain by having cloud services in the portfolio?

Firstly, more business. At the most basic level; if you have new or existing customers inquiring about cloud and no options to offer, you can’t sell. The customer and their revenue will ultimately go elsewhere. 

With the end of support for Microsoft Server 2003 looming, clients with heavily customised systems face almost a forced reimplementation, so many businesses are revaluating their approach. This presents a huge opportunity for a smart reseller to offer options to their customers and prospects, particularly for clients seeking to escape the trap of forced reimplementation.

Additionally, resellers can open new markets in cloud services by capitalising on existing knowledge and skills. Many system integrators have accumulated a deep understanding of their customer’s businesses in particular sectors and have strong customer relationships across these business areas. Applying this industry expertise to a cloud platform which can be rapidly deployed, to offer international ecommerce capabilities, warehouse management or deliver mobile business capabilities is a game changer for many resellers and can significantly impact business with existing customers.

We work with many partners who having grown their business in this way and have gone on to package their knowledge into vertical industry specific cloud applications – turning their expertise into a high value product.

If this sounds complex, then remember that delivering complex projects with a cloud platform partner can massively reduce risk and support costs. The platform provider takes on responsibility for infrastructure, upgrades, performance and front line software support – freeing the partner to sell and implement systems. This level of SLA backed support is of course a key difference between working with a cloud platform provider and hosting application on Azure, AWS or other commodity cloud services. With commodity cloud, the majority of the risk remains with the system supplier.

Secondly, selling cloud services can deliver stability of revenue in the long term that traditional IT, even with integration and maintenance contracts, cannot offer. Traditional on premise sales is a feast and famine business, with great short term gains, but little or no long term visibility.

Developing a complementary cloud services capability offers short term revenue from sales and high margin implementation services, coupled with long term recurring revenue, a route away from cut throat, low margin box shifting.

This is good news for entrepreneurs investing in distribution. Recurring revenue based on subscriptions takes time to build but offers excellent income visibility. Our CFO predicts within a two percent band. This revenue stability is typically viewed by investors as adding 10x to 25x a business’ valuation compared to peers of equivalent size.

What stops resellers from adding cloud services to their portfolio?

The business case for cloud services is compelling, but there are barriers. Fear is a factor. People have been burned by cloud washed solutions from vendors deceptively rebranding legacy services by associating the word "cloud" with them, and are concerned by the complexity of managing commodity clouds where responsibility for OS patching, connectivity and performance can be unclear.

There is also a fear that offering cloud services alongside traditional IT vendor partners will add commercial risk. Clearly selling cloud services as a direct substitute for on-premise systems and software would change average volumes and perhaps as a result, available commissions and premiums. However, as outlined above, a decision to sell cloud services does not have to be a rip and replace decision; it can be a route to diversification and growth.

The real risks, even for a full transition to a cloud services-only model, are manageable with good business sense and a vendor partner that understands the support required. The key is to understand the cash flow implications, typical sales cycles and implementation times of cloud based services and to develop a plan to build a pipeline and manage the transition.

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John Campbell is EMEA channel director at NetSuite

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