What Does Cloud Computing Mean for the Channel?

Perspec'ves on the Business Model of  the Future:  What Does Cloud Compu'ng Mean for the  Channel?  2010 Sage Insights  Laurie McCabe  Partner, SMB Group  5/26/10 Copyright SMB Group 2010 1

Agenda  •  Pu5ng Cloud Compu:ng in Perspec:ve  •  What Does Cloud Compu:ng Mean for the  Channel?  •  Crea:ng Value in the Cloud: Top Success Factors  •  Summary  •  Q & A  5/26/10 Copyright SMB Group 2010 2

PuDng Cloud Compu'ng in Perspec've  5/26/10 Copyright SMB Group 2010 3

Cloud Compu'ng—PuDng it Simply  •  Cloud compu:ng is a compu:ng model that lets you access soJware,  server and storage resources over the Internet, in a self‐service manner  •  Instead of having to buy, install, maintain and manage these resources on  your own on‐premise servers, you access and use them over the Internet  through a Web browser  •  Some:mes you might need to download a small piece of client code, but  for the most part, the real horsepower is supplied from the cloud  Cloud Computing Data Customer Site Center 5/26/10 Copyright SMB Group 2010 4

But We Can’t Keep Anything Simple!  5/26/10 Copyright SMB Group 2010 5

Cloud Compu'ng Takes Diﬀerent Shapes…  Infrastructure‐as‐a‐ PlaRorm‐as‐a‐Service  SoJware‐as‐a‐Service  Service (IaaS)  (PaaS)  (SaaS)  Amazon EC2,  (AppExchange, Intuit  (Salesforce.com,  OpSource, Rackspace,  Partner PlaRorm,  NetSuite, Success  etc.  MicrosoJ Azure, etc.)  Factors, etc.)  SoJware + Service  Connected Services    “Hybrid” Model   (MicrosoJ, Intuit, Sage, etc.)  5/26/10 Copyright SMB Group 2010 6

Cloud Compu'ng Evolu'on  Workflow- enabled   Business  Process Hubs  Marketplaces  Pre‐integrated  “Cloud”   Cloud/on‐ SaaS  premise  On‐premise  solu:ons  SaaS (Ver:cal  Appliance  solu:ons  “Hybrid”  PaaS  IaaS  SaaS (More  integrated  horizontal  Hosted ASP  solu:ons))  model  Early mul:‐ On‐Premise  tenant SaaS  Client/Server  1990 2000 2005 2010 Wave 3   Wave 1   Wave 2  •  Integrated suites  •  Hybrid  •  Standalone apps  •  Vertical solutions  •  Ecosystems and marketplaces  •  Horizontal solutions  •  PaaS  •  Pre-integration  •  Multi-tenancy as an option  •  IaaS  •  Community access  5/26/10 Copyright SMB Group 2010 7

One Thing is Certain‐‐Cloud Compu'ng   Adop'on is Growing  •  Cloud infrastructure will grow to  116.5 B by 2014: Forrester  •  20% of all businesses will own no  IT assets by 2012: Gartner  •  Cloud compu:ng market growth  28% annually to $126 B by 2012  •  “Hockey s:ck growth for cloud  compu:ng” ‐‐ Steve Ballmer  (Informa0on Week 4‐19‐10)  5/26/10 Copyright SMB Group 2010 8

What’s Fueling Cloud Compu'ng Growth?  Customers  “Faster, Cheaper, Easier”  •  Technology is ge5ng more complex  •  Eliminates capital investments for infrastructure  •  Eliminates ongoing technical managementand update costs   •  Reduces ﬁnancial risks—predictable subscrip:on v. large upfront costs  •  requirements for internal IT exper:se  •  Speeds :me to solu:on value  •  Increases vendor accountability and service   •  Evolves more ﬂexibly  •  Provides connec:vity and collabora:on advantages   Organiza:ons are focused on business results—not on  technology, applica:ons or infrastructure.  IT is a means  to an end—the value of IT lies in how companies can  apply it to meet business objec:ves.  5/26/10 Copyright SMB Group 2010 9

What’s Fueling Cloud Compu'ng Growth?  Vendors  “New revenue streams and more eﬃciencies”  •  Reach and penetrate new markets by lowering costs and reducing  technology barriers to solu:on adop:on  •  Enables easier, faster prospect trials  •  Provides a predictable and stable recurring revenue stream  •  Provides a real‐:me pulse on customer behavior and requirements  •  Enables cross‐selling opportuni:es  •  Centralized controlled  environment reduces support calls and costs   •  More manageable upgrade cycle   SoJware vendors want to capitalize on the Internet,  digital technologies and “the economies of scale and skill”  that cloud and SaaS compu:ng provide.   5/26/10 Copyright SMB Group 2010 10

It’s Going to Be a Hybrid World   for a Long Time  •  Most customers want a blend of  soJware and services   •  Cloud compu:ng will complement  rather than replace tradi:onal on  premise compu:ng solu:ons  o  Security  o  Compliance  o  Network performance   o  Hybrid or soJware plus services  model offers choice and flexibility  o  Beyond a certain number of users,  on‐premise solu:ons can be more  cost effec:ve  o  Reliability (poten:al network/data  center outages)  •  Combina:on of cloud compu:ng,  SaaS, on‐premise and virtualiza:on to  deliver solu:ons  5/26/10 Copyright SMB Group 2010 11

What Does Cloud Compu'ng Mean for the  Channel?  5/26/10 Copyright SMB Group 2010 12

Channel Adop'on of Cloud Compu'ng  Drivers  Inhibitors  Customer/account control‐‐disinterm   edia:on  Customer demand  Compensa:on  Annuity revenues  Selling services inst ead of  soJware  Business consul:ng   opportunity  Limited customiza: on  opportunity  5/26/10 Copyright SMB Group 2010 13

Tradi'onal SoWware Channel Model  •  Indirect channel is an integral part of the sale, delivery and  support of on‐premise business soJware  •  Complements soJware developer with sales, implementa:on,  support and service  •  Tasks are divided and there is limle overlap between soJware  develop and channel roles  Indirect End‐user  SoJware  Channels Customer  Developer  VARs, SIs, Distributors, etc. 5/26/10 Copyright SMB Group 2010 14

Cloud and SaaS Channel Model  •  Cloud compu:ng and SaaS doesn’t align with the tradi:onal IT  channel provider role  •  SaaS or cloud provider delivers many of the things that IT channel  has tradi:onally provided‐‐soJware and hardware sourcing,  installa:on, management, etc.  •  Line is oJen blurred between soJware developer and channel roles  Cloud  Traditional IT End‐user  SoJware  Channels Customer  Developer  Channel 5/26/10 Copyright SMB Group 2010 15

Changes in Partner Role and Opportunity  Task  On premise  Cloud/SaaS  Change in revenue opportunity  License/ Partner as reseller   Partner as catalyst   Smaller ini'al deal sizes (. subscrip'on  Lengthy sales cycle  Shorter sales cycle  5‐1.5x" service sales   High customer IT involvement  Lower customer IT involvement  Upfront revenue, but   10%‐30% margin paid upfront  One 'me referral fee/up to 30%  can be recouped via annuity  ongoing annuity  stream  Implementa'on  Lengthy dura'on (weeks to  Shorter dura'on (days to weeks)  ”Time to value” is generally  and training   months)  Partner doesn’t install anything  shorter  Partner provides product sourcing,  Partner can manage project and may  installa'on, configura'on,  provide training  training  Partner adds value “on top”  Partner adds value “underneath”  Integra'on, data  Integra'ng local on premise  Integra'ng on‐premise with SaaS/ Integra'on of SaaS to on‐ migra'on, etc.   systems  cloud solu'ons—hybrid model  premise, SaaS to SaaS can be  more complex  Business process  Modifying soWware to fit business  Aligning business processes to “best  Favors business, industry  consul'ng  processes  prac'ces”  domain exper'se  Solu'on  OWen extensive  Usually limited to configura'on  Code is usually “locked down”  customiza'on/ configura'on  Add‐ons,  Good opportunity to resell,  Growing opportunity to resell,  Cloud plahorms, APIs, etc.  extensions, etc.   develop and integrate  develop, and integrate  ease and speed development  OVERALL DEAL SIZE  3x – 5x license sale  .5x – 1.5x license/subscrip'on sale  Decreases  5/26/10 Copyright SMB Group 2010 16

Cloud Compu'ng Requires Changes—But   Doesn’t Eliminate the Need for the Channel  Myth! •  Cloud/SaaS vendors have focused  more on direct sales to establish a  strong customer base and  demonstrate viability and scalability  SaaS and Cloud    •  But‐‐direct sales alone can’t fuel the  future growth curve  vendors can eﬀec:vely  •  The cloud and SaaS eliminate/reduce  penetrate the market  technical barriers to adop:on—but  through direct Web  customers s:ll need help to:  o  Evaluate and select the “right”  channels alone  solu:on  o  Tailor the solu:on  o  Integrate legacy and third‐party  solu:ons  o  Adapt business processes   o  Train people  5/26/10 Copyright SMB Group 2010 17

Cloud and SaaS Vendors Need the Channel to  Bridge the Last Mile to Mainstream Customers  •  Early cloud and SaaS growth  fueled by evangelism  •  Direct model works with early  adopters but doesn’t scale for  the mainstream  •  Lacks trusted advisor to help  customers evaluate alterna:ves  •  Doesn’t do enough to address  concerns that many customers  have  •  Overcomes technology barriers  but not lack of business process  exper:se required to extract  business value from the solu:on  5/26/10 Copyright SMB Group 2010 18

Require Channels to Fuel Growth  •  Direct sales costs unsustainable  to inﬂuence, sell and serve the  broader market  •  Cloud and SaaS vendors need  to leverage channel/trusted  advisor rela:onships to scale to  a broader market  •  Vendors need indirect channels  to:  o  Catalyze sales to a broader  market that channels have  served for years  o  Minimize customer churn  o  Op:mize renewal rates  5/26/10 Copyright SMB Group 2010 19

Vendor Channel Programs are S'll Evolving  •  Direct/indirect sales  •  Service and support  •  Compensa:on models  o  Joint customer  o  Referral commission only  services tools  o  Referral + annuity  •  It’s s:ll early  •  Rules of engagement  o  Most are struggling to  formulate a win‐win  •  Billing models  channel formula  •  Channel programs  o  Fight for channel  o  Joint marke:ng and sales  partners will intensify  programs  o  Programs will change  through  o  Educa:on and training  experimenta:on  o  Partner program fees  5/26/10 Copyright SMB Group 2010 20

Crea'ng Value in the Cloud: Top Success  Factors  5/26/10 Copyright SMB Group 2010 21

#1: Think Solu'ons, Not Products  •  Focus on understanding  ShiJ from  customer needs  •  Adjust for the shiW from IT to  business decision makers  solu:ons  •  ShiW mix towards services and  away from license/subscrip:on  reseller to  sales   •  Enhance consulta've sales  solu:ons  skills   •  Deepen business process and  catalyst  industry exper'se  •  Concentrate on customer  results, not technology   5/26/10 Copyright SMB Group 2010 22

#2: Capitalize on Economies of Scale  •  Ramp up lead genera'on  and sales volumes to reach  Prepare for  new customers/markets  •  Add/improve online  smaller deal  marke:ng, telesales, etc.   •  Reformulate skill sets‐‐ sizes and  mul:‐tasking sales and  project managers  faster  •  Reformulate  methodologies and  deployments  approaches for service  delivery   •  Revise compensa'on plans  5/26/10 Copyright SMB Group 2010 23

#3: Think “And” not “Or”  •  Non‐biased advisor to help  educate, assess evaluate  Posi:on for  and select   •  Provide customers with a  a hybrid  “one‐stop shop” for both  on‐premise and cloud  “soJware +  solu:ons  •  Strengthen/develop new   services”  integra'on exper'se  (legacy to SaaS, SaaS to  model  SaaS, etc.) and security  capabili:es   •  Develop virtualiza'on  exper'se  5/26/10 Copyright SMB Group 2010 24

#4: Strengthen Your Role as Trusted Advisor  •  Tailor the solu:on to specific  customer requirements  Customers  •  Hone ver:cal, domain and geo  and local business knowledge  s:ll need  •  Provide flexibility and services  that cloud/SaaS vendor doesn’t  your domain  •  Choice (aggregate apps from  different vendors)  exper:se  •  Data migra:on  •  Integra:on  •  Change management  •  Etc.   5/26/10 Copyright SMB Group 2010 25

#5: Extend the Solu'on  Capitalize on  the growth  customer needs  •  Tailor the solu:on to speciﬁc  opportunity  help customers evaluate/select  •  Become an expert source to  capabili:es for a more  to resell,  •   Provide extensive integra'on  comprehensive solu:on  develop and  services (on premise to SaaS/  SaaS to SaaS)  integrate  •  Develop ver'cal or niche  horizontal func'onality  addi:onal  func:onality   5/26/10 Copyright SMB Group 2010 26

#6: Look for a Channel Friendly Vendor  •  Evaluate strategies, oﬀerings,  pricing, etc.   Cloud and  •  Vet vendors’ partnership DNA  SaaS vendor  •  Reputa:on and trust  •  Direct/indirect channel focus  •  Clear rules of engagement  channel  •  Educa:on to help shiJ business  model and build new skill sets  programs  •  Rewards for high levels of  customer engagement and value  vary  add  •  Par:cipa:on fees  signiﬁcantly  •  Joint marke:ng and sales  programs  •  Customer‐facing tools and  dashboard  5/26/10 Copyright SMB Group 2010 27

#7: Adjust Your Business Model  • Need to align business model with  with vendor(s):   • Referral fees  Align skills,  • Annuity fees  • Renewal fees for contract renewal   metrics, etc.  • Coop marke:ng funds  • Plan for different cash flows  to op:mize  • Smaller, more frequent  compensa:on  • Less money upfront, but  your  “smoother” annuity revenue curve  over :me  opportunity  • Consider crea'ng a separate  organiza'on for cloud/SaaS  business—since it tough to align  skills, compensa:on, metrics, etc.  across these different models  5/26/10 Copyright SMB Group 2010 28

Cloud Compu'ng is an Opportunity   for the Channel  •  Cloud compu:ng and SaaS are not a fad  o  Cloud and SaaS compu:ng vendors are growing more rapidly than  conven:onal soJware businesses  o  Will be the only way some businesses will be able to consume  increasingly complex technology they need to run their businesses  proﬁtably and compe::vely  •  Customers need help in choosing, implemen:ng, tailoring and  managing cloud and SaaS solu:ons  o  Many customers are s:ll confused   o  Cloud compu:ng models are con:nuing to evolve  o  Hybrid model will be the norm for the foreseeable future  •  Indirect channels are cri:cal to fueling future growth   5/26/10 Copyright SMB Group 2010 30

Remember that Customers S'll Need Help!  •  Evalua:ng and selec:ng the “right” solu:on  •  Implemen:ng and tailoring the solu:on to  their speciﬁc business and technical needs  •  Integra:ng third‐party applica:ons to extend  the solu:on  •  Changing business processes   •  Training people to become produc:ve on the  solu:on  5/26/10 Copyright SMB Group 2010 31

Look for the Opportuni'es  1.  Think solu:ons, not products: shiJ from solu:ons reseller to  solu:ons catalyst  2.  Capitalize on economies of scale: prepare for smaller deal  sizes and faster deployments with higher volume strategy  3.  Think “and” not or: Posi:on for a hybrid “soJware +  services” model  4.  Strengthen your role as trusted advisor: customers s:ll need  your domain exper:se  5.  Extend the solu:on: Capitalize on the growth opportunity to  resell, develop and integrate addi:onal func:onality   6.  Look for a channel friendly vendor to partner with: Cloud  and SaaS vendor programs vary signiﬁcantly  7.  Adjust your business model: Align skills, metrics, etc. to  op:mize your opportunity  5/26/10 Copyright SMB Group 2010 32

Thank You!  SMB Group, Inc.  508‐410‐3562  informa:on@smb‐gr.com  Website: www.smb-gr.com Blogs: http://sanjeevaggarwal.wordpress.com http://lauriemccabe.wordpress.com 5/26/10 Copyright SMB Group 2010 33

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What Does Cloud Computing Mean for the Channel?

by SMB Group on May 26, 2010

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What Does Cloud Computing Mean for the Channel? — Presentation Transcript