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IT Nation 2016: Partners must embark on difficult cloud transition

The adoption of cloud services among traditional channel partner companies was a key theme at this year's IT Nation conference, hosted by ConnectWise.

ORLANDO, Fla. -- While industry executives at this week's IT Nation 2016 conference made the case for channel partners' adoption of cloud services, they also acknowledged that the move is easier said than done.

Arnie Bellini, CEO of ConnectWise, the business software vendor that hosts IT Nation, pointed to cloud services as the No. 1 technology breakthrough available to channel partners today. He cited statistics showing traditional IT spending plateauing over the next few years, while cloud revenue is expected to expand rapidly through 2020. He also cited Forbes data indicating that nearly 80% of small and medium-sized businesses will shift to the cloud by 2020.

"If you want to grow your business, you are going to have to grow it in the cloud," Bellini said, encouraging partners to create practice groups for delivering cloud services to customers.

"They [partners] can't do what they were doing five years ago," said Jamison West, president of Arterian, a cloud solution provider based in Seattle. "People have to evolve their businesses."

If you want to grow your business, you are going to have to grow it in the cloud.
Arnie BelliniCEO, ConnectWise

Arterian made a rapid transition to the cloud. Earlier this year, West sold the managed services component of his business to Aldridge, a managed IT support company. The remaining business, which is now an Aldridge subsidiary, has emerged as a "pure cloud provider" focused on Microsoft services such as Office 365 and Azure.

In contrast, cloud uptake has been fairly slow for many channel companies. TechTarget's Channel Directions survey, among other sources, points to limited cloud adoption. That survey found that more than half of the channel respondents weren't offering any cloud services.

"There are a lot of folks in our industry, in this market, who are not ready," West said.

Cash flow concern

A number of factors can keep partners on the cloud sidelines, but one particularly pressing issue is cash flow.

"Cash flow is the big concern," said Arlin Sorensen, founder and CEO of HTG Peer Groups, which brings channel companies together to explore how the cloud transition can be made. HTG Peer Groups staffed a booth on the IT Nation 2016 conference floor.

Sorensen said channel partners have built their businesses around upfront server sales and associated project revenue. But selling cloud subscriptions to Office 365 and making a few bucks every month isn't a formula that supports the channel's traditional business model.

The recurring revenue stream from cloud sales becomes more attractive when projected out over three to four years, but waiting for those returns presents a problem for partners lacking strong balance sheets, Sorensen explained. As a consequence, a channel partner may have to maintain project revenue as it transitions business to the cloud.

West suggested channel partners make the same Capex to Opex transition that their customers are going through. As more customers' servers end up in the cloud, technology refresh cycles will start to evaporate and an important source of revenue will dwindle.

"It's a big change" for partners accustomed to selling customers "a bunch of servers and … project dollars" every three or four years, West said. "They are fearing a big reduction in professional services."

Kent Erickson, chairman and CEO of Pointivity, a hybrid cloud service provider based in San Diego, said items that were once a source of core partner revenue are disappearing, citing the management of on-premises Microsoft Exchange Server as one example. That revenue must now be replaced in the public cloud. Channel partners need to adjust to a new way of doing business, just as they did when learning how to package and monetize managed services.

"The transition to MSP [managed service providers] has been going on for 10, 15 years," Erickson said. "Now, we are starting that over again to a degree with the cloud."

Erickson is also CEO and president of ChannelCloud, a company that aims to help managed services firms become hybrid IT providers.

New skills needed

Along with cash flow considerations, partners also need to contend with personnel issues, according to executives at IT Nation 2016.

"Traditional engineering skills are very different from what is needed in the cloud," Sorensen said.

"The people who got you here can't get you there," West added. "The skill set is completely different. What we delivered as traditional MSPs was infrastructure and network engineering. Now what we have to deliver is business acumen."

West said channel partners moving to the cloud need to hire new people or retrain existing staff. Some technical elements remain when delivering cloud services, but the emphasis shifts to building interconnected systems and understanding clients' business needs and workloads.

Erickson suggested the move to the cloud calls for smaller, but more specialized, teams.

"You have a need for less people, but those people need to be … more highly skilled," he said.

As difficult as that transition may be, executives at IT Nation were in agreement that it must be done for channel partners to remain viable.

"No one is debating anymore whether the cloud is here to stay," Sorensen said. "They all know they have to go there."

Next Steps

Read more about the channel's cloud metamorphosis

Learn about the emergence of cloud distributors

Find out how channel-vendor relationships change in the cloud

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