The Cloud Tipping Point


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“Cloud computing” is far more than just a new delivery model for traditional technology services. The ability for customers, partners, and employees to securely access and share powerful business applications and deeper market data will fundamentally change the structure of many industries and markets.

In this presentation, MarketBridge CEO, Tim Furey, discusses:

- The 5 critical go-to-market actions for an effective cloud-driven process.
- A closer look at the roots of this trend.
- How cloud computing will impact businesses today and in the future.

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The Cloud Tipping Point

  1. 1. The Cloud Tipping Point:Five Critical Go-to-Market Actions for 2012November, 2011Tim Furey, CEO
  2. 2. MarketBridge Cloud Transformation Research Building a Database of Cloud Strategies and Economics With the growth of disruptive technologies such as the cloud, virtualization, mobile communications, and social media, channel executives face a growing number of new challenges. To help our customers navigate the rapidly evolving channel landscape, the MarketBridge/IPED Alliance team has conducted several key studies outlined below. 2010 Q1 Q3 2011 Q1 Q2 Q3 Channel Cloud Migration: Issues Partner Profitability in Hybrid and Trends Cloud Computing Interviews with >100 vendor and Empirical survey of >300 North channel execs American Partners Customer Cloud Adoption: Drivers Mobility in the Cloud: ( & Triggers by Market Segment Partner Revenue Sources Empirical survey of >1,000 Mid-market Empirical survey of >250 North and SMB customers American Partners IaaS Evolution of Technology Delivery Cloud Route-to-Market Migration ( Model: IaaS in the Cloud Vendor Channel Investment Trends Empirical survey of >300 North Blind survey of >50 Cloud Solution American Partners & >300 Customers VendorsSaaS Evolution of Technology Delivery Model: SaaS in the Cloud Empirical survey of >300 North American Partners & >300 Customer © 2011, MarketBridge Corp. | Page 2
  3. 3. The Research BaseCustomers, Channel Partners, Vendors Cloud Cloud Cloud Technology Buyers Channel Partners Technology Vendors >1,500 IT and LOB Execs >500 SPs, ISVs, SIs, VARs >60 Global SW, HW, Network ● Technology buyer panels ● >15,000 Partner Database ● Members of UBM Channel (UBM Channel) Leadership Forum ● Thought and Adoption Leaders ● Emerging new “born-on- ● MarketBridge, IPED Clients the-cloud” SPs Blind Surveys ● Cautious Followers ● New, growing MSPs ● Enterprise, Mid-Market, SMB ● Traditional VARs, SIs, Disti’s, etc. Focus on Go-to-Market Issues, Best Practices, Benchmarks Not Product/Technology Evaluation © 2011, MarketBridge Corp. | Page 3
  4. 4. The Cloud Disrupts Both Technology Delivery and Go-to-Market Business Models Cloud as Disruptive Technology:  Infrastructure moves “off-premise” and consumed “by-the- drink” (e.g. Rackspace) “Hollowing out” of the IT glass house  Software becomes multi-tenant and continuously upgraded (e.g.  Data moves to shared databases (e.g. Jigsaw)  Labor moves to location of best talent/cost value Cloud as Disruptive Go-to-Market Business Model  Revenue mix and streams change dramatically  Marketing and Sales channels (e.g. routes-to-market ) shift significantly “Extreme Makeover”  Cost-to-sell economics must get amortized over longer of Sales & Marketing? periods © 2011, MarketBridge Corp. | Page 4
  5. 5. Industry Current StateAugust 2011 OPEX budgets, rather than CAPEX Less internal support, easing the stress on already reduced IT staffs  Data Center SPs will be focused on building Private Clouds in the Enterprise  Those SPs adopting RECURRING REVENUE PRODUCTS have embraced the model and will flourish Analysts predict spending on cloud could exceed $2B by 2012  Nearly 1/3 of SPs say customers do not see the opportunity: Those SPs will probably fail SMB is most rapid adopter of Cloud: 1/3rd of Mid-sized businesses will deploy some cloud solutions in 2011  Traditional two-tier distribution will evolve and new vendors/providers will become more relevant Telcos: Friend or Foe? © 2011, MarketBridge Corp. | Page 5
  6. 6. Poll Question #1 What Percent of your Business Unit’s Revenues will include a “cloud solution” in 2012?  <15%  15-30%  >30-50%  >50%Note: Cloud would include  Enterprise “virtualization”  Mid-market migration to 3rd party hosting  SMB move to SaaS applications © 2011, MarketBridge Corp. | Page 6
  7. 7. Five Critical Go-to-Market Actions for 20121. Rigorous Segmentation of Markets and Customers2. Building out New Vertical Channel Ecosystems & Solutions3. Transforming Partner Business Models & Practices4. Shifting Sales & Marketing Resource Deployment5. Establishing New Financial Performance & Compensation Models © 2011, MarketBridge Corp. | Page 7
  8. 8. 1. Segmenting Markets and Customers Buying Behavior and Cloud Receptivity Differs Markedly by Customer Segment Examples: ● >10% growth companies 2X more likely Enterprise to adapt cloud solutionsCustomer Type ● <40 year old decision makers 55% more Segment size, likely to adopt cloud solutions growth, profitability ● Non-IT LOB decision-makers projected to SMB “take over” at least 25% of IT budget ● Major upgrades or new IT footprints – e.g. large $$$ spends – increasing New Purchase/ Upgrade Renew/Refresh number of vendor bids and demanding a cloud alternative Buying Scenario ● Highly regulated verticals – health care, financial services – moving to multi- tenant solutions to keep up with regulatory requirements © 2011, MarketBridge Corp. | Page 8
  9. 9. The Cloud Is Changing The Way Customers Buy Technology AndDisrupting The Channel Ecosystem Customers are changing the way they buy IT IT DELIVERY MODELS ALONG THE CLOUD CONTINUUM On-Premise On-Premise Off-Premise Cloud Resale Managed Managed Partner • Distributor • Distributor • Data Center • Cloud Provider Types • VAR • MSP • MSP / BPO • Cloud MSP/ BPO Customer • Resale Margins • Resale Margins • Subscription Fees • Subscription Fees Pricing • Pay for Service • Pay for Service • Pay for Service • Pay for Performance Model Core Value • Tech Refresh • Cost Reduction • Risk Reduction • Business Agility Prop. • Tech Update • Risk Reduction • Specialized Skills • Functional Expertise % of Revenue 2010 2013 51% 41% 22% 22% 20% 23% 15% 8% On-premise product On-premise hosted Off-premise hosted Pure cloud resale IPED CLF Winter 2011, n=303 The different delivery models have different partner models © 2011, MarketBridge Corp. | Page 9
  10. 10. 2. Building New Vertical Solution and Channel Ecosystems Old Model: New Model: Customer Integrates Multiple Vendor Customer Expects Integrated but ConfigurableProducts/Components into Customized Solution Vertical Solution Stacks Software Pro Pro Pro Services Services Services Data Data Data Models Models Models On-PremiseServices Customer Hardware Integrated Vertical Vertical Vertical & Managed SW Apps SW Apps SW Apps BoB Functional SW Platforms (Comms, ERP, CRM, HR, etc.) Data IaaS Platform (virtualization, storage, networking, etc.) © 2011, MarketBridge Corp. | Page 10
  11. 11. CloudSolv The CloudSolv platform will enable us to quickly go to market with a comprehensive stack of hosted services from top cloud providers. Patrick Booth, executive vice president at CCB, a Racine, Wisc.-based solution provider © 2011, MarketBridge Corp. | Page 11
  12. 12. 3. Transforming Traditional Channel Partner Business Models • Traditional VAR model, makes money by integrating & selling hardware, software & services, generally take title to product • Make margin by selling both HW & SW into the customer data center • Little to NO recurring revenue 20% 18% • Making the business transformation to recurring revenue • Selling on-prem solutions + off-prem (across IT delivery continuum) • May have added managed services year ago • Responding to growing customer preferences and making investments in their business to add cloud delivery model 62% (emerging business model still in infancy) • Model based largely from recurring revenue generated via off- premise services. Either made the business transformation or “born-on the web”Source: UBM ChannelXChange Conference2011
  13. 13. All Vendor Total: Use of Distributors, VARs, DMRs is moderately down in favor of HW OEMs & Manufacturers, Hosting SPs, ISVs, Telcos & Retailers/e-tailersTraditional Channels MSP & Consultants experiencing the highest use beyond Disti-VAR, DMR 96% 84% 71% 66% 66% 60% 54% 55% 52% 53% 40% 34% 37% 32% 31% 37% 14% 18% 14% 8% VARs Distributors DMRs/LARs MSP Consultants Hardware Hosting SP ISVs Custom System Other OEMs Builders Hardware Total 2011 Total 2012 ManufacturersNon-Traditional Channels The only non-traditional channel not growing YOY is Telecom Broadband 40% 30% 29% 24% 22% 25% 16% 20% 18% 13% 11% 7% Telecom Carriers Telecom Retailers/e-tailers Cable Companies Financial Institutions Other Carrier/Broadband Servicesn=91 Total 2011 Total 2012Base = All respondentsFor the product categories you selected, which of the following routes to market (i.e., channels) – do you currently use as part of your stated channel strategy, and which onesdo you expect to use in 2012?Source: IPED/UBM Channels CLF Study (August 2011) © 2011, MarketBridge Corp. | Page 13
  14. 14. Channel Partner Profitability:On-premise Resale, Managed or Cloud Services AVERAGE MARGINS BY PRIMARY BUSINESS MODELS MEAN % On-premise product resale On-premise hosted Off-premise hosted Cloud 54.1 47.7 40.3 34.6 34.7 31.0 28.8 AVG GM 26.4 21.9 25.3 22.7 25.3 27.9 26.2 20.5 18.8 20.6 APPROX 15.9 18.9 17.5 25% VAR Consultant Systems Custom System MSP integrator builder BUSINESS MODEL MARGINS MSPs having transitioned to recurring revenue drive close to 50% gross margins in managed and cloud services MSPs even when selling on-premise, resale margins are at or above those VARs primarily selling on-premise in a resale model © 2011, MarketBridge Corp. | Page 14
  15. 15. 4. Shifting Sales & Marketing Resource Deployment Cloud Buyers are “Shopping” well before engagement with Sales ResourcesGo-to-Market Vendor Marketing Sales Channels Service & Support Customer Relationship DevelopmentBuying Process Customer 1. Find 2. Learn 3. Engage 4. Buy 5. Renew/ $$ Upgrade % Buyer Time Spent On-Line 100% 80% 60% Off-Line 40% On-Line 20% 0% Find Learn Engage Buy Re/Upgrade © 2011, MarketBridge Corp. | Page 15
  16. 16. Cloud Buyers Shop on the Cloud Marketing and Sales Enablement must shift toward greater Digital Media EngagementGo-to-Market Vendor Marketing Sales Channels Service & Support Customer Relationship DevelopmentBuying Process Customer 1. Find 2. Learn 3. Engage 4. Buy 5. Renew/ $$ Upgrade Sales Reps © 2011, MarketBridge Corp. | Page 16
  17. 17. Channel Investment to Revenue Ratio is 18.2% of Revenues 59% of the Investment allocated to Headcount & Incentives, 73% including MDF. At what level are vendors investing? Total Channel Investment as a Percent of All Vendor Median Program to Indirect/Influence Revenue: Headcount Dollar Ratio: 10.2% 18.2% 25.1% 1.8 to 1 Networking All Vendor Median Service Provider At the All Vendor Median 18.2%; how is the channel investment being allocated? Mix of Total Channel Investment All channel-related headcount Incentives 36% 23% 14% 12% 9% 5% 1% Demand generation funds (incl. MDF/BDF) Program or other partner marketing (excl. MDF) Infrastructure and operations Free/discounted product education and certification vouchers0% 20% 40% 60% 80% 100% Other •Headcount , Incentives & MDF 73% •Headcount & Incentives 59% © 2011, MarketBridge Corp. | Page 17
  18. 18. Marketing & Sales Enablement Consistently Appears as the#1 Challenge for both Vendors and Channel Partners Total Developing marketing/sales enablement 60% Building/adapting the partner program 49% Recruiting new partners 43% Product pricing models for the channel 43% Transitioning partners to capture IT… 43% Product channel readiness 41% Channel conflict - partner-to-partner 36% Overall disruption of the partner ecosystem 34% Channel conflict - field sales 23% Business planning 23% Education/training of internal staff 20% Building the business case for change 20% Allocating investments 18% Integrating partners of acquisitions* 14% Executive buy-in 9% © 2011, MarketBridge Corp. | Page 18
  19. 19. 5. Establishing New Financial Performance & CompensationModels ● Revenues: Annuity contracts vs one-time What does the Cloud P&L Look Like? transactions ● Gross Margins: Scale/utilization sensitive managed services vs. tradtional product mark-up ● Marketing Expense: Scalable on-line programs and digital assets, collaboration with channels vs. traditional MDF/Co-op TRX incentives ● Sales Compensation: Paying upfront for 3-5 year contract sales vs. lover contract life ● Product Development: Creating eco- system of solution developers for each vertical © 2011, MarketBridge Corp. | Page 19
  20. 20. Poll Question #2: Does your organization have a well-communicated and cross organization – marketing, sales, finance, product development -- operating and financial plan for cloud-based solutions?  Yes  Somewhat  Not at all © 2011, MarketBridge Corp. | Page 20
  21. 21. MarketBlueprint™ -- Cloud Strategies and Solutions for Product, Sales and Marketing Executives Data-Driven Go-to-Market Strategy & Operational Planning 1 2 3 Segment Customers Understand How Build Route-to-Market by Buying Scenarios Segments Prefer to Buy Playbooks by Segment Customer Find Learn Engage Buy Attach Enterprise FIND LEARN ENGAGE BUY ATTACH InteractionCustomer Type Search Segment size, Direct Marketing growth, profitability Social Media SMB Industry Events Offering Marketing Sales Web Site(s) New Purchase/ Upgrade Renew/Refresh Portfolio Channels Channels Inside Sales Buying Scenario 4 5 MarketBlueprint™ Determine Marketing, Establish Financial Sales & Channel Resources Performance PlanMarketing Sales ChannelResources Resources Resources Technology Support © 2011, MarketBridge Corp. | Page 21
  22. 22. THANK YOU Tim Furey Founder & CEO tfurey@market-bridge.comLearn more:Web: www.Market-Bridge.comBlog: www.salesandmarketinganalytics.comTwitter: