Tuesday, 12 July 2011

Creating Value in The Cloud

Distributors and Resellers are struggling with the conundrum of how to create value in The Cloud.

At the recent Cloud Forum sponsored by CRN, no lesser veteran than Paul Eccleston of SDG, preached that Distributors must find value to establish themselves in the supply chain. He is right to a degree, particularly as some large vendors are actually working without their channel engaged as usual.

The business model is changing, yet software selling has changed over the years. Some vendors still sell shrink wrapped versions of their products but the majority of software is sold in electronically distributed, licence-enabled format. The distributor and reseller still have a role to play as they own the relationship with the end user. Now vendors are threatening these relationship by wanting to have the sales contract direct with the end user. This trashes some 25 years of working partnership between software vendors and their channels. The channel is under threat - and make no mistake. Paul Eccleston is right about value but he may be wrong to think distributors can add value in some instances.

The order of things may be due for a change. Some distributors who have been strong in the box world will not survive in The Cloud simply because the underpinning principles have changed. Some vendors are going to struggle as they assume that Cloud means just mounting their products on servers outside firewalls and amortising the cost differently. The problem is that those companies whose entire raison d'ĂȘtre has been The Cloud are streets ahead in understanding the new dynamics of the market.

Salesforce.com and others started small, selling in chunks to big companies and small. They earned their sales spurs by nipping at the edges at first and proving their concepts. Now, they run out Enterprise grade solutions across huge companies proving their scalability. But the basic principle has not changed - the web is their platform. They have all users at the same revision of software and new features are rolled out in short order to all users, the costs are fees per user per month. Salesforce.com has proved over time that The Cloud isn't about making software cheap it is about driving down deployment costs, smoothing costs and scaling the organisation when needed without massive capital outlays. There is nothing cheap about Salesforce.com unless you are an SME - and that's where they never forgot their roots.

For vendors and distributors alike, the party will be in the SME market space. Only nimble, high transactional sales suit the channel where they can turn small margins into High Return on Capital Employed by not having to invest heavily in the selling process. The problem is that Salesforce.com and all the others know that to win hearts and minds you do have to invest in sales.

This is the first area of value that SDG et al should be looking at. There is nothing simple about selling SaaS or Cloud software. Users need time to understand it, feel it and be reassured. For vendors wishing to make a fast buck, think again. For distributors, it has to be made easy. But the resellers is where the potential is. There are thousands of eager, loyal sales and technical people out in the field working at Resellers who have trusted relationships with their customers.
These relationships are not going to get trashed just because a large vendor wants to send them their contract. In fact, I would argue strongly that customers will want more of their software and services provided on one bill with one 'neck to choke'. The Reseller is still the best route for this.

So, Distributors, the relationship and management of these Resellers is still your forte. And so, vendors, your goal is to engage SMEs and release the potential of The Cloud.

The ingredients are there. You just need a cook who understands the recipe.

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