cloud-channel insights

Perspec'ves on the Business Model of the Future: What Does Cloud Compu'ng Mean for the Channel?

2010 Sage Insights Laurie McCabe Partner, SMB Group

5/26/10

Copyright SMB Group 2010

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Agenda • Pu5ng Cloud Compu:ng in Perspec:ve • What Does Cloud Compu:ng Mean for the Channel?

• Crea:ng Value in the Cloud: Top Success Factors • Summary • Q & A

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PuDng Cloud Compu'ng in Perspec've

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Cloud Compu'ng—PuDng it Simply • Cloud compu:ng is a compu:ng model that lets you access soJware, server and storage resources over the Internet, in a self‐service manner • Instead of having to buy, install, maintain and manage these resources on your own on‐premise servers, you access and use them over the Internet through a Web browser • Some:mes you might need to download a small piece of client code, but for the most part, the real horsepower is supplied from the cloud Customer Site

Cloud Computing Data Center

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But We Can’t Keep Anything Simple!

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Cloud Compu'ng Takes Different Shapes…

Infrastructure‐as‐a‐ Service (IaaS)

PlaRorm‐as‐a‐Service (PaaS)

SoJware‐as‐a‐Service (SaaS)

Amazon EC2, OpSource, Rackspace, etc.

(AppExchange, Intuit Partner PlaRorm, MicrosoJ Azure, etc.)

(Salesforce.com, NetSuite, Success Factors, etc.)

SoJware + Service Connected Services “Hybrid” Model (MicrosoJ, Intuit, Sage, etc.)

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Cloud Compu'ng Evolu'on Workflowenabled

SaaS (Ver:cal solu:ons PaaS IaaS

On‐Premise Client/Server

1990

SaaS (More integrated horizontal Hosted ASP solu:ons)) model Early mul:‐ tenant SaaS

2000

2005

Wave 1 • Standalone apps • Horizontal solutions • Multi-tenancy as an option

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“Cloud” SaaS On‐premise Appliance “Hybrid”

Business Process Hubs Marketplaces Pre‐integrated Cloud/on‐ premise solu:ons

Wave 2

2010 Wave 3

• Integrated suites

• Hybrid

• Vertical solutions

• Ecosystems and marketplaces

• PaaS

• Pre-integration

• IaaS

• Community access

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One Thing is Certain‐‐Cloud Compu'ng Adop'on is Growing

• Cloud infrastructure will grow to 116.5 B by 2014: Forrester • 20% of all businesses will own no IT assets by 2012: Gartner • Cloud compu:ng market growth 28% annually to $126 B by 2012 • “Hockey s:ck growth for cloud compu:ng” ‐‐ Steve Ballmer (Informa0on Week 4‐19‐10)

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What’s Fueling Cloud Compu'ng Growth?

Customers “Faster, Cheaper, Easier” •

Technology is ge5ng more complex

•

Eliminates capital investments for infrastructure

•

Eliminates ongoing technical managementand update costs

•

Reduces financial risks—predictable subscrip:on v. large upfront costs

• •

requirements for internal IT exper:se Speeds :me to solu:on value

• • •

Increases vendor accountability and service Evolves more flexibly Provides connec:vity and collabora:on advantages

Organiza:ons are focused on business results—not on technology, applica:ons or infrastructure. IT is a means to an end—the value of IT lies in how companies can apply it to meet business objec:ves.

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What’s Fueling Cloud Compu'ng Growth?

Vendors “New revenue streams and more efficiencies” • Reach and penetrate new markets by lowering costs and reducing technology barriers to solu:on adop:on • Enables easier, faster prospect trials • Provides a predictable and stable recurring revenue stream • • • •

Provides a real‐:me pulse on customer behavior and requirements Enables cross‐selling opportuni:es Centralized controlled environment reduces support calls and costs More manageable upgrade cycle SoJware vendors want to capitalize on the Internet, digital technologies and “the economies of scale and skill” that cloud and SaaS compu:ng provide.

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It’s Going to Be a Hybrid World for a Long Time •

Most customers want a blend of soJware and services

•

Cloud compu:ng will complement rather than replace tradi:onal on premise compu:ng solu:ons o Security o Compliance o Network performance o Hybrid or soJware plus services model offers choice and flexibility o Beyond a certain number of users, on‐premise solu:ons can be more cost effec:ve o Reliability (poten:al network/data center outages)

•

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Combina:on of cloud compu:ng, SaaS, on‐premise and virtualiza:on to deliver solu:ons Copyright SMB Group 2010

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What Does Cloud Compu'ng Mean for the Channel?

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Channel Adop'on of Cloud Compu'ng Drivers

Inhibitors Customer/account

control‐‐disinterm edia:on

Customer demand

Annuity revenues Business consul:ng

opportunity

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Compensa:on Selling services inst ead of soJware Limited customiza: on opportunity

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Tradi'onal SoWware Channel Model • Indirect channel is an integral part of the sale, delivery and support of on‐premise business soJware • Complements soJware developer with sales, implementa:on, support and service • Tasks are divided and there is limle overlap between soJware develop and channel roles

SoJware Developer

Indirect Channels

End‐user Customer

VARs, SIs, Distributors, etc.

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Cloud and SaaS Channel Model • Cloud compu:ng and SaaS doesn’t align with the tradi:onal IT channel provider role • SaaS or cloud provider delivers many of the things that IT channel has tradi:onally provided‐‐soJware and hardware sourcing, installa:on, management, etc.

• Line is oJen blurred between soJware developer and channel roles

SoJware Developer

Cloud Traditional IT Channels

End‐user Customer

Channel 5/26/10

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Changes in Partner Role and Opportunity Task

On premise

Cloud/SaaS

Change in revenue opportunity

License/ subscrip'on service sales

Partner as reseller Lengthy sales cycle High customer IT involvement 10%‐30% margin paid upfront

Partner as catalyst Shorter sales cycle Lower customer IT involvement One 'me referral fee/up to 30% ongoing annuity

Smaller ini'al deal sizes (.

5‐1.5x" Upfront revenue, but can be recouped via annuity stream

Implementa'on and training

Lengthy dura'on (weeks to months) Partner provides product sourcing, installa'on, configura'on, training Partner adds value “underneath”

Shorter dura'on (days to weeks) Partner doesn’t install anything Partner can manage project and may provide training Partner adds value “on top”

”Time to value” is generally shorter

Integra'on, data migra'on, etc.

Integra'ng local on premise systems

Integra'ng on‐premise with SaaS/ cloud solu'ons—hybrid model

Integra'on of SaaS to on‐ premise, SaaS to SaaS can be more complex

Business process consul'ng

Modifying soWware to fit business processes

Aligning business processes to “best prac'ces”

Favors business, industry domain exper'se

Solu'on customiza'on/ configura'on

OWen extensive

Usually limited to configura'on

Code is usually “locked down”

Add‐ons, extensions, etc.

Good opportunity to resell, develop and integrate

Growing opportunity to resell, develop, and integrate

Cloud plahorms, APIs, etc. ease and speed development

.5x – 1.5x license/subscrip'on sale

Decreases

OVERALL DEAL SIZE 3x – 5x license sale 5/26/10

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Cloud Compu'ng Requires Changes—But Doesn’t Eliminate the Need for the Channel Myth!

• Cloud/SaaS vendors have focused more on direct sales to establish a strong customer base and demonstrate viability and scalability

SaaS and Cloud vendors can effec:vely penetrate the market through direct Web channels alone

• But‐‐direct sales alone can’t fuel the future growth curve • The cloud and SaaS eliminate/reduce technical barriers to adop:on—but customers s:ll need help to: o Evaluate and select the “right” solu:on o Tailor the solu:on o Integrate legacy and third‐party solu:ons o Adapt business processes o Train people

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Cloud and SaaS Vendors Need the Channel to Bridge the Last Mile to Mainstream Customers • Early cloud and SaaS growth fueled by evangelism • Direct model works with early adopters but doesn’t scale for the mainstream • Lacks trusted advisor to help customers evaluate alterna:ves • Doesn’t do enough to address concerns that many customers have • Overcomes technology barriers but not lack of business process exper:se required to extract business value from the solu:on

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Require Channels to Fuel Growth • Direct sales costs unsustainable to influence, sell and serve the broader market • Cloud and SaaS vendors need to leverage channel/trusted advisor rela:onships to scale to a broader market • Vendors need indirect channels to: o Catalyze sales to a broader market that channels have served for years o Minimize customer churn o Op:mize renewal rates

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Vendor Channel Programs are S'll Evolving • Direct/indirect sales • Compensa:on models o Referral commission only o Referral + annuity

• Rules of engagement • Billing models • Channel programs o Joint marke:ng and sales programs o Educa:on and training o Partner program fees

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• Service and support o Joint customer services tools

• It’s s:ll early o Most are struggling to formulate a win‐win channel formula o Fight for channel partners will intensify o Programs will change through experimenta:on

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Crea'ng Value in the Cloud: Top Success Factors

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#1: Think Solu'ons, Not Products

ShiJ from solu:ons reseller to solu:ons catalyst

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• Focus on understanding customer needs • Adjust for the shiW from IT to business decision makers • ShiW mix towards services and away from license/subscrip:on sales • Enhance consulta've sales skills • Deepen business process and industry exper'se • Concentrate on customer results, not technology

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#2: Capitalize on Economies of Scale

Prepare for smaller deal sizes and faster deployments

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• Ramp up lead genera'on and sales volumes to reach new customers/markets • Add/improve online marke:ng, telesales, etc.

• Reformulate skill sets‐‐ mul:‐tasking sales and project managers • Reformulate methodologies and approaches for service delivery • Revise compensa'on plans

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#3: Think “And” not “Or”

Posi:on for a hybrid “soJware + services” model

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• Non‐biased advisor to help educate, assess evaluate and select • Provide customers with a “one‐stop shop” for both on‐premise and cloud solu:ons • Strengthen/develop new integra'on exper'se (legacy to SaaS, SaaS to SaaS, etc.) and security capabili:es • Develop virtualiza'on exper'se

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#4: Strengthen Your Role as Trusted Advisor

Customers s:ll need your domain exper:se

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• Tailor the solu:on to specific customer requirements • Hone ver:cal, domain and geo and local business knowledge • Provide flexibility and services that cloud/SaaS vendor doesn’t • Choice (aggregate apps from different vendors) • Data migra:on • Integra:on • Change management • Etc.

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#5: Extend the Solu'on

Capitalize on • Tailor the solu:on to specific the growth customer needs • Become an expert source to opportunity help customers evaluate/select capabili:es for a more comprehensive solu:on to resell, • Provide extensive integra'on develop and services (on premise to SaaS/ SaaS to SaaS) integrate • Develop ver'cal or niche horizontal func'onality addi:onal func:onality 5/26/10

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#6: Look for a Channel Friendly Vendor

Cloud and SaaS vendor channel programs vary significantly

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• Evaluate strategies, offerings, pricing, etc.

• Vet vendors’ partnership DNA • Reputa:on and trust • Direct/indirect channel focus • Clear rules of engagement • Educa:on to help shiJ business model and build new skill sets • Rewards for high levels of customer engagement and value add • Par:cipa:on fees • Joint marke:ng and sales programs • Customer‐facing tools and dashboard

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#7: Adjust Your Business Model

Align skills, metrics, etc. to op:mize your opportunity

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• Need to align business model with with vendor(s): • Referral fees • Annuity fees • Renewal fees for contract renewal • Coop marke:ng funds • Plan for different cash flows • Smaller, more frequent compensa:on • Less money upfront, but “smoother” annuity revenue curve over :me • Consider crea'ng a separate organiza'on for cloud/SaaS business—since it tough to align skills, compensa:on, metrics, etc. across these different models

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Summary

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Cloud Compu'ng is an Opportunity for the Channel • Cloud compu:ng and SaaS are not a fad o Cloud and SaaS compu:ng vendors are growing more rapidly than conven:onal soJware businesses o Will be the only way some businesses will be able to consume increasingly complex technology they need to run their businesses profitably and compe::vely

• Customers need help in choosing, implemen:ng, tailoring and managing cloud and SaaS solu:ons o Many customers are s:ll confused o Cloud compu:ng models are con:nuing to evolve o Hybrid model will be the norm for the foreseeable future

• Indirect channels are cri:cal to fueling future growth

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Remember that Customers S'll Need Help!

• Evalua:ng and selec:ng the “right” solu:on • Implemen:ng and tailoring the solu:on to their specific business and technical needs • Integra:ng third‐party applica:ons to extend the solu:on • Changing business processes • Training people to become produc:ve on the solu:on

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Look for the Opportuni'es 1. Think solu:ons, not products: shiJ from solu:ons reseller to solu:ons catalyst 2. Capitalize on economies of scale: prepare for smaller deal sizes and faster deployments with higher volume strategy 3. Think “and” not or: Posi:on for a hybrid “soJware + services” model 4. Strengthen your role as trusted advisor: customers s:ll need your domain exper:se 5. Extend the solu:on: Capitalize on the growth opportunity to resell, develop and integrate addi:onal func:onality 6. Look for a channel friendly vendor to partner with: Cloud and SaaS vendor programs vary significantly 7. Adjust your business model: Align skills, metrics, etc. to op:mize your opportunity 5/26/10

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Thank You!

SMB Group, Inc. 508‐410‐3562 informa:on@smb‐gr.com

Website:

www.smb-gr.com

Blogs:

http://sanjeevaggarwal.wordpress.com http://lauriemccabe.wordpress.com

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