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As channel partners transition to offering cloud computing products, many discover that this shift comes with a set of uniquely different vendor-partner dynamics. These dynamics change the way partners manage business relationships with their vendors, as well as with their customers.
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The transition from a hardware- and software-based sales model to selling cloud services in a subscription model sets the stage for a different approach to vendor relationship management. For partners seeking to strike new relationships with cloud vendors, the shift can mean developing new approaches to their businesses, including adopting new strategies to engage customers, finding a suitable sales and marketing plan, adjusting the way customers are billed, and changing the way services are provided to customers once they've adopted a cloud offering.
"The traditional hardware/software players built their channel programs to support a different set of product distribution, account management and customer support requirements that relied more heavily on the channel partners selling, implementing and supporting their customers," said Jeffrey Kaplan, managing director at THINKstrategies, a consulting firm based in Wellesley, Mass., that provides guidance on migrating from a product-centric to a service-driven business model.
Kaplan noted that companies that were "born in the cloud" have designed their channel programs to support the shared responsibilities of cloud services and don't have legacy channel programs and systems that need to be revamped to address the different go-to-market requirements of today's marketplace.
Who controls the customer account?
As the issue of shared responsibility takes hold in the cloud business model, the question arises: How much control should partners have over customer accounts?
According to Kaplan, because the customer is acquiring cloud services from the partner, the partner still retains the responsibility for account management and customer satisfaction, even though in the cloud business model the partner relinquishes control of service delivery.
For Scott Fluegge, president and general manager of JDL Technologies, an IT solution provider based in Fort Lauderdale, Fla., the type of cloud business model a managed service provider (MSP) adopts will determine how much control over a customer account the company will have.
Fluegge said there are two types of cloud MSP providers -- cloud as a value-added reseller (VAR) and cloud as a provider.
Terry HeddenCEO, Marketopia
In the cloud-as-a-VAR model, the MSP is a badge-holding, shirt-wearing proponent of the vendor it resells. Most common in this model are those that sell Microsoft Azure or Amazon Glacier cloud services. Typically, the MSP is selling on the name recognition of the cloud provider much as it sold on the brand name of the hardware provider in days past.
Fluegge added that in these relationships the vendor retains the power and sets the terms for the MSP. While MSPs can be quite successful, they are the weaker player in the relationship.
In the cloud-as-a-provider model, the MSP builds its cloud as a white-label environment.
"This is where there is a paradigm shift. Instead of selling the brand name of a vendor, the MSP sells their own brand as a service. When they deal with the vendor, it is more as a customer than as a reseller," Fluegge said.
Partners must retain full control over the customer accounts in the cloud business model lest they lose their value to their customers, he said. The cloud vendor may look to limit the MSP's control, but doing so erodes the MSP's ability to add its own value on top of the service provided by the cloud vendor and to act as a true consolidator of IT on the customer's behalf.
"With the cloud-as-a-VAR model, this is a losing battle. The cloud providers are eroding the control available at the client or at the MSP level in subtle ways -- often spinning that loss as a value-add they provide. In some cases, it does make support easier for the MSP, but it also makes it harder for the MSP to show their value," Fluegge said.
In the cloud-as-a-provider model, the opposite occurs. MSPs are in a stronger position because they not only manage the environments but also own them.
"While clients can and do move between cloud providers, it is not as simple as changing MSPs under either the old on-premises IT model or the cloud-as-a-VAR model," he said.
Support from cloud vendors
As channel partners consider the best way to provide value to their customers, they should think about the maturity of cloud vendors' channel programs and develop strategies to avoid potential problems that may arise, said Terry Hedden, CEO at Marketopia, an IT marketing firm based in St. Petersburg, Fla.
"Cloud vendors are simply not as evolved and mature [as traditional vendors] and often fail to adequately empower and support their partners. They often lack tracking mechanisms, deal registration, and training and sales support capabilities compared to the mature programs of [HP Inc. and Hewlett Packard Enterprise] , Cisco, and Microsoft," Hedden said.
Another difference that has significant ramifications at the reseller level is that cloud programs often lack joint marketing fund or market development fund support.
"This is a very significant issue for value-added resellers and MSPs with large software sales, as these funds represent the main source of funding for their marketing and demand-generation services. This has represented yet another hurdle to VARs making the transition to cloud," Hedden said.
Even with these drawbacks, there are advantages for those starting anew in cloud vendors' channel programs.
"Over time, partner programs create hurdles to entry, bureaucracy in execution and unnecessary impediments to value," Hedden said. "Cloud entrants can leverage consultants for expertise on what works and what doesn't and create programs that are empowering, supportive and results-oriented."
Control over cloud performance
Another issue is cloud computing performance. In clients' eyes, MSPs are responsible for system operations, which can present difficulties to the vendor-partner relationship, Fluegge noted.
"In the outsourced cloud model, the MSP has little to no control over the actual performance. They are beholden to the cloud provider for a range of services depending on the relationship and the service," Fluegge said. "In some cases, the MSP has no visibility into the infrastructure and must work through the provider's support desk for the simplest of tasks."
If there is a performance or response issue, customers won't accept that it was the cloud vendor's fault, he added. The channel partner will take all the risk with little of the reward.
"The best way to avoid that issue is to build your own cloud, but doing that has a high cost of entry, is harder to compete on price due to scale, and puts even more in one basket, although the margin opportunity at the transaction level is higher," Fluegge said.
Steps to better cloud vendor relationship management
As channel partners navigate new relationships with their cloud vendor partners, vendors can play a critical role by working with partners to enable them to successfully deliver cloud services, said Paul Cronin, senior vice president and partner at Atrion Corp., an IT services provider based in Flemington, N.J.
Cronin also noted that channel partners entering the cloud business should take the initiative to find out what vendors are offering to avoid any potential issues down the road.
"For a lot of channel partners, it's a new business model. They'll have to answer several questions including: How do they train their sales people to have a different value proposition as they talk about cloud versus on premises? How will they compensate their salesforce differently? And how will they manage microtransactions as opposed to what was more traditional one-time billing," Cronin said.
Among the steps partners must take for successful vendor relationship management when transitioning to a cloud business model are the following:
- Identify the pricing model and make sure your organization and sales team are prepared to be compensated in the way the client will be billed.
- Understand the cloud provider offerings, ability to scale, security capabilities, price model and billing options.
- Make sure the vendor has a rigorous security process and can make findings available to the client to assure there has been due diligence in advance of your introduction.
- Put in place a lifecycle plan for managing the client and cloud partner service-level agreements, adoption and optimizing services. How will the partner make money?
- Create a portfolio with your brand that you can sell to the client that provides value.
- Make sure you have a contract with the cloud provider and review the terms and conditions to insulate you from liability.
If partners are armed with the right training and support, the transition to the cloud should be very profitable, Marketopia's Hedden said. He recommended that partners identify vendors that can provide training on how to create a profitable cloud business model, help generate leads and close them, and create efficient and effective service organizations.
"Look for vendors that understand that their success is tied to your success and put those thoughts into actions," Hedden said. "The days of creating a great product and expecting the channel to sell it are over. Vendors need to become partners with their channel and do everything in their power to ensure that the partner is successful. That is what partners do."
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