The Role of the Channel in The Cloud

The role of the Channel in playing in software vendors' strategy in The Cloud is very unclear.

My personal experience at last week's Cloud Computing Forum in Olympia was one of confusion when it came to Microsoft. I got information on both Microsoft 365, the Cloud version of Office, and Microsoft Dynamics for The Cloud. I have even downloaded the Dynamics program and I have been called since installing the trial by both Microsoft and ConsultCRM. Admittedly, Microsoft did back off when I mentioned ConsultCRM but there was no doubt that both vendor and channel were watching who was downloading. It was also obvious that the hosted version of Dynamics and 365 are hosted by Microsoft.

So you have to ask yourself if Microsoft is investing all this money in hosting and marketing to end users what's the point of having channel players in the way of the sale? What value do they add?

In the case of my Dynamics trial I think there is a role for someone to play in advising me how a confusing program works. But given I took a trial with Salesforce.com and within minutes I was working, integrated into Office and had my near 10,000 list of contacts uploaded without a single interaction with anyone, you can see why Microsoft needs to get to a point where the end user performs the sale and the rest is auto-provisioned. There is little room in the world of SME for slicing up the sale to give some margin for just handling the enquiry.

I am told that in the case of MS 365 that Microsoft has had to do a great deal of the running as well as provisioning of the service. Partners have been slow to embrace the product during its beta phase and Go Live is due at the end of June and I know that one distributor has had virtually no sales.

What is going on? How is Microsoft going to solve this and is there a role for channel to play in The Cloud for Microsoft and arguably other software vendors?

For Microsoft, it appears they will be paying a finder's fee to channel members who deliver sales on MS 365. This is mighty precarious as it strongly appears that the contract of sale will between user and Microsoft meaning that in future the channel can be easily hacked out or given nothing for renewals. As one channel player puts it, "We lose control of the client."

So you have to ask yourself, why would a reseller sell MS 365 and risk losing control of the client when they could sell the on-premise solution and get full ownership of the sale?

Again it's an example of a software vendors' lack of strategy and execution in The Cloud. Or it is a warning bell for channel that their future is limited as Cloud adoption takes off?

So the scramble at the show was to interest channel in hosting solutions themselves but there is a problem here. The beauty of Cloud is economy of scale for SMEs and the way it is delivered is for vendors to host the solution with as many users on as possible so that each incremental user uses just a portion of the resources required and forgoes expensive investment in servers and virtualisation at the SME. It's a win-win.

The problem is that if everyone is hosting the same things then the economy of scale gets diluted and pricing will never really get much better. The end user loses out the more companies try to host themselves is my argument. Also, for resellers it would be unclear as to whether they could generate enough sales to make this worth their while. Multiple channels doing the hosting doesn't help the SME and it could be a mug's game for channel at worst, at best speculative for returns.

In all this, where does the distributor sit? There is no stock involved, credit is a new story and Microsoft is generating a dialogue with the end user that argues that resellers should get out of the way. If I were a broadliner, I would be starting to get uneasy about how this all pans out.
Microsoft has argued that one way resellers could keep control of sales is to do Enterprise agreements with large customers. Erm, the big opportunity is in SMEs, guys. The whole point is that SMEs is where the major opportunity lies for The Cloud.

All this points to a cloudy strategy for Microsoft and other vendors. At least Microsoft is doing something is one argument. But the channel must be starting to get worried. It certainly argues that the role of distribution in the future of plain old software sales is limited if this approach goes ahead.

Next up, I will try and tackle the thorny issue of what distributors should be doing.