Brian Singer's talk from the October 27 Boston Cloud Services Meetup, All things Cloud, SaaS, PaaS, XaaS, Building a Reseller Channel for Cloud Services.

1. © 2015 Orbitera Inc.
Boston Cloud Services Meetup
The Economics of Buying and Selling Cloud
Services Through the Channel
Brian Singer – brian@orbitera.com
October 27, 2015

2. © 2015 Orbitera Inc.
A Bit About Me
• Started Orbitera ~3 years ago
oBackground in Enterprise Software, Cloud
o Trying to figure out how to make it easier for third parties (ISVs, MSPs)
to sell cloud-based services
• Launched billing product for channel providers ~ 2 years ago
• Today ~ 150 channel resellers on the platform
• Experience with AWS, Azure, CenturyLink, SoftLayer, others
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3. © 2015 Orbitera Inc.
Cloud disruption to existing channel economics
• Easier to have a direct relationship with vendors
• Rise of SaaS / Shadow IT
• Focus on recurring revenue vs. the “whale” deal
• Transition to consultative / technical sales by vendors (Microsoft)
• Importance of customer churn in cloud models
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Providers desire a closer relationship with the end-customer 
Relationships with channel providers are less sticky

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How does the channel add value to cloud transactions?
• Products  solutions
• On-boarding / migration
• Managed services
• Procurement and cost optimization
• Renewals and support
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Types of Cloud Services Resold Through the Channel
• IaaS
oLow margin
• PaaS (inc. single-tenant)
oHigh margin
• SaaS (multi-tenant, hosted)
oVariable margin
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How do resellers make money on IaaS?
• Bundle value-added services
oMigration
o Managed service
o Third-party solutions
• Optimization
o Volume
o Pre-pay
• Resale margin from provider
o LOW
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What do the margins look like?
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Resale: 5% – 15%
Optimization:
10% – 20%
Value-added services:
15% – 30%
Typical Blended
MSP margin:
30 - 40%

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Impact of shifting margins on channel providers
• For every dollar spent on cloud, an efficient MSP can make
about forty cents
• Traditional VARs forced to become MSPs
oNot enough money in IaaS to be an order taker with a sales force
• Firms must compete on adding value to the transaction
oCannot compete on price – not enough margin!
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9. © 2015 Orbitera Inc.
Optimization is critical
• Without traditional channel margin to fall back, cloud channel is
dependent on margin from optimization
• Optimization includes
oAggregating bandwidth and storage to get lower prices
o Prepaying for consumption to lock in lower rates (RI’s / Commits)
o Negotiating lower support costs from suppliers
• Operational efficiency is key to achieving / retaining optimization-
based margin
o Margins can be as high as 40% on this!
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Optimization Example
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Channel strategies for IaaS
1. Pass through all IaaS margin, make money solely on value
added services
2. Maintain infrastructure margin, provide low cost or free add-on
services to drive volume
3. Try to make money on infrastructure and on services
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12. © 2015 Orbitera Inc.
What about PaaS?
• What is PaaS?
oAny managed platform that is more than just a VM
o Amazon ECS, Heroku, AWS IOT, etc. – all PaaS
o What about single-tenant managed services? Also PaaS!
• PaaS margins vary wildly
o Rule of thumb – whoever does the work gets the reward
o Selling someone else’s fully managed service – low margin
o Bundling together systems into your own managed service – high
margin! (also higher cost)
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13. © 2015 Orbitera Inc.
Opportunities for channel providers in PaaS
• Managed services wrapped around open source solutions (e.g.
managed Drupal – see Acquia)
• Managing the service catalog of cloud solutions available to the
end-customer
• Straight resell of PaaS (such as reselling IBM Bluemix)
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14. © 2015 Orbitera Inc.
Selling SaaS through the channel?
• Market is developing quickly
o Most SaaS providers start without a channel
o Consolidation is driving change
• Margins are thin
o Volume-based opportunities exist with certain providers
• How does the channel add value in this situation?
o Takes over low margin activities like calling for renewals
o Deals with procurement
o Bundles together multiple solutions!
• Many SaaS vendors just starting to ramp up channel programs
• Services are still critical to this market (see salesforce)
o Tilts market heavily toward value-added-services
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15. © 2015 Orbitera Inc.
Choosing a Cloud MSP
• Understand the economics of the MSP (where do they make their money?)
• Decide where your specific pain points are
o Migration
o Running services
o Security / availability etc.
• Look at who they support, and what certifications they have
o How much have they invested in a provider
• Size is important – but not necessarily in terms of people
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16. © 2015 Orbitera Inc.
Conclusion
• Channel providers play an important, but changing role in cloud
• Margin is shifting from resale to managed services
• Firms that invest in operational efficiency have a huge advantage
• End-users can take advantage economies of scale achieved by
channel providers
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17. © 2015 Orbitera Inc.
Thank You
Brian Singer
brian@orbitera.com