cloud-channel insights by Raúl López

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

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

5/26/10

PuDng Cloud Compu'ng in Perspec've

5/26/10

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

5/26/10

But We Can’t Keep Anything Simple!

5/26/10

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

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)

5/26/10

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.  5/26/10

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.

5/26/10

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

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

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. 5/26/10

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

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

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

5/26/10

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

5/26/10

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

5/26/10

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

5/26/10

•  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

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

#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

#3: Think “And” not “Or”

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

5/26/10

•  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

#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.

#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

#6: Look for a Channel Friendly Vendor

Cloud and  SaaS vendor  channel  programs  vary  signiﬁcantly

5/26/10

•  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

#7: Adjust Your Business Model

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

5/26/10

• 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

Summary

5/26/10

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

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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