Cloud support services business models and adoption by the IT channel

Four basic cloud support services business models are emerging. Find out which one offers the best opportunities for the channel.

The channel has come a long way in the short history of cloud computing: from concerns of the channel's role -- and future -- in a cloud market, to embracing the cloud and thereby growing affinity with customers. As the cloud, combined with mobile computing, social networking and big data analytics, replaces PCs and servers as the next computing platform (collectively referred to as the third platform), IT channel companies face a number of new business opportunities.

"Channel companies, from my perspective, have the greatest opportunity ahead of them. The question is how quickly … they [are] going to embrace it as a mechanism to drive business and retain stickiness with customers," said Jeremy Sherwood, cloud strategist and product manager at ScienceLogic Inc., a Reston, Va.-based provider of IT operations management software. "How you do that is by embracing it -- finding differentiations. Instead of battling Amazon, Google, Rackspace, let me embrace them and fill in the niches [and] the spaces that you don't get from them."

Instead of battling Amazon, Google, Rackspace, [the channel should] embrace them and fill in the niches [and] the spaces that you don't get from them.

Jeremy Sherwood,
cloud strategist and product manager, ScienceLogic

That is exactly what value-added resellers, systems integrators and service providers are doing, by providing what we'll refer to here as cloud support services. In its 4th Annual Trends in Cloud Computing report, which is based on a July survey of 501 technology users and 400 IT channel companies in the U.S., CompTIA describes four cloud-related business models that IT channel companies are adopting: build, provide/provision, manage/support and enable/integrate. While these aren't the only cloud-based business models, they tend to be common ones. It should also be noted that companies can move from one category to another and in no particular order.

That said, the "build" business model has the lowest barrier to entry, according to Carolyn April, director of industry analysis for CompTIA. "It's a natural progression from reselling hardware and software to customers to helping them build a private cloud," April explained. This business model also includes reselling "cloud-in-a-box" offerings. According to the report, about 60% of channel firms that identify themselves as resellers currently offer build services, whereas only 47% of channel companies that identify themselves as services providers offer build services.

While channel companies may find that the 'build' business model fits well with their current offerings, the provide/provision model holds the most promise. According to the report, a third of all respondents believe the provide/provision model has the most growth potential in the next two years -- regardless of whether or not they are currently involved in it.

"We see the most activity in the provide/provision category," April said. This cloud support services business model includes several subcategories: 60% of IT channel companies involved in cloud white label a vendor's cloud offering; another 60% operate their own data center and sell homegrown cloud services; and 54% resell vendor-based cloud services, such as Microsoft Office 365 or Google Apps, according to the survey.

For Wilmington, Del.-based MySherpa, rebranding Software-as-a-Service products has been a win-win for both the managed services provider and its customers. According to Ethan Tancredi, president of MySherpa, the company offers about 10 "cloud bolt-ons." Some are included when customers sign up for MySherpa's services and others are offered as add-ons.

"They provide a lot of flexibility to us, the managed service provider. We get the ability to have a robust product we can offer to customers, and we build the cost into the price of our managed service product," Tancredi said. In terms of benefits to the customer, he said, "We can remove these [technology] components from the organization so that the client's infrastructure doesn't have to be as complex or as expensive, while still giving them the features they need."

More on cloud support services

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Cloud brokerage: The emerging cloud 'middleman'

MSP best practices for the cloud services transition

Like the provide/provision business model, the manage/support model offers IT channel companies the opportunity to build a recurring revenue stream with cloud services. Manage/support includes ongoing management and support of cloud-based services, either as project-based work or in a contractual revenue model, as well as adding, scaling or troubleshooting cloud services as needed. According to CompTIA, a third of channel companies report offering basic services, such as troubleshooting or repairing cloud-based IT, while another six in 10 report offering remote monitoring and management of cloud services that reside in a multicloud environment.

According to the report, "Multicloud management is a solid opportunity area for the channel as myriad cloud apps and other solutions mushroom in the market. Customers are accessing solutions from an array of different providers and data center locations, often with little real handle on the source of these services. Channel firms are optimally positioned to serve as a gatekeeper."

The final cloud support services business model -- enabling/integrating -- gives IT channel companies an opportunity to further increase their revenue over and above recurring services. According to the CompTIA report, the No. 1 source of post-sale dollars for the past three years has been integration work. "Since most solution providers charge customers on a recurring basis for cloud solutions … the project work associated with the Enable/Integrate category allows them to add revenue not included in the base contract," the industry group reports.

More medium-sized channel companies (100 to 499 employees) are offering cloud enabling/integration services than their cohorts, with 66% of companies reporting involvement in this business model, versus 49% of small companies (1 to 99 employees) and 50% of large (more than 500), according to the CompTIA report.

This was first published in January 2014

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