The document discusses the evolving economics of cloud service transactions through channel providers, highlighting the shift from resale to managed services and the importance of operational efficiency in maintaining profitability. It outlines the various cloud service types, their margins, and strategies for providers to add value, including migration and optimization services. The conclusion emphasizes that channel providers are crucial in the cloud ecosystem, adapting to changes in customer relationships and market dynamics.

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

4. © 2015 Orbitera Inc.
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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5. © 2015 Orbitera Inc.
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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7. © 2015 Orbitera Inc.
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%

8. © 2015 Orbitera Inc.
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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11. © 2015 Orbitera Inc.
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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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