Friday, 18 November 2011

Channel & Vendor Strategy for the Cloud

Mainstream Cloud vendors like continue on their rapid road to success. Others that follow are Evernote, NetSuite, Taleo, Workday and, of course, Google. The feature of these businesses is that they were all born as Cloud companies. They have no other products to sell and so they have had to stand up, evangelise and live only off the money they make in the Cloud. There are no other traditional versions of their products to sell if a sale goes wrong - their success has been binary. Win or lose.

In building these businesses, few have resorted to a channel strategy and still today,, while accepting the channel has a major role to play in the future of Cloud, says that resellers are not keeping pace with the market and so vendors are reluctant to engage. Webex did much the same in the early days and found different channels to their market only for business they could not directly get at.

Quite where this leaves Microsoft on their Office 365 strategy which seems to straddle both worlds remains to be seen. After all, you either engage channel or you don't. The future for MS resellers in Office 365 looks as Cloudy as the product.

The factors for success for vendors and channel, as I have blogged on before are:
  • Build a separate Cloud business. The new organisation needs to have total belief and focus on Cloud products and mixing with traditional is a strategy that will hold people back. The focused people need to be KPI'd, compensated and motivated by only Cloud products to succeed and the systems and accounting needs to reflect this.
  • For vendors and resellers, the relationship with customers has to be stronger and deeper than ever before. The Cloud is a journey not just for the channel but for the customers. They need persuasion, help in understanding ROIs, to know the pitfalls, to have clear understanding of benefits, to trial easily, to have a structured implementation plan and, most of all, a strong after sale plan. After the sale comes the adoption phase as Cloud success is all about usage and adoption. To not only get annual renewals but to build the base you have to up and cross sell continually. It's a whole new concept versus 'sell and forget'.
  • Don't oversell. The biggest problem with Cloud selling is that people think that customers will automatically save money. You need to be realistic about the cost of change, the new processes and adoptions as well as describing the obvious benefits of scalability and less upgrade costs. Make sure that the customer is fully aware of how the ROI model works and is bought in early.
  • Here is a tip for vendors. The one thing that has made Cloud companies successful is that they made their own market. They did not have channel players to do things for them. So think of resellers as an extended salesforce while you, the vendor, focuses on creating the market. The problem going through most vendors' mind coming from the traditional world is that they either see channel as a cost or they see it as their salvation. Either way they seem not to want to invest in channel in any great way. The expectation is that channel will accept pass-through deals or that they will invest their own money to create marketing campaigns and educate themselves on how to structure their own business. In distribution, there is a layer of channel that can exploit the breadth of relationships to help educate the resellers but this will take joint investment - and when facing the same sort of margin returns it is hardly likely that distributors are waiting to watch vendors fail while itching to get into the market.
  • The one thing I learnt in building SaaS/Cloud businesses is that you need evangelists - people who just go out there and become infectious in their enthusiasm and who are unencumbered by normal sales shackles like quota and commission. Their role is to make people believe and that means a total freedom to create a viral effect on the market and within customers. They must know their product, its uses, the tricks to make it really sing and the way to get round pitfalls. They must spend time with customer, be at shows, do demonstrations, surgeries and be spokespeople.
  • Companies born in the Cloud have no real past and so they don't have an installed base to worry about. Traditional vendors do and they are paranoid about the word 'cannibalisation'. They don't want to sell to their existing customers and convert them. However, that is the exact opposite approach of their competition - so if you are going to lose customers, you may as well as lose them to your own new product. A sample strategy for a vendor in conjunction with channel is to look at the long tail of their customers who do not receive direct sales attention, who have bought in the past but buy little more, whose information you may have. These customers may use a particular low end product and buy few upgrades so contribute little to new revenue. This is an ideal place to re-engage with clients and convert them to the new product in the Cloud. It has the double whammy of creating new revenue from old but also defending against the attack of competition.
  • In an ideal world, for vendors venturing into the Cloud it would be wise to design a specific product for the Cloud. A great example of this is SageOne where Sage has taken a new approach to their products for the Cloud and not tried to take old products and shoehorn them into the Cloud. They are targeting both net new customers and converting small customers on old products. Sadly, MS Office 365 is just that. It does not attempt to address the needs of Cloud users but tries to force a current product structure onto users whereas Google comes with a completely new approach that resonates with the market they are trying to aim at.

Much of the above is alien to vendors and channel in the traditional world or if they get it they don't quite understand how hard you have to go at things or how deep engagement needs to be with customers. The Cloud is as much about a belief that it is a genuine market. You have to make customers believe and the only way you can do that is to believe, totally, yourselves. The only way to to do that is to create shadow, Cloud focused organisations. 

In vendors and channel.

Calx Europe is a Business Acceleration company specialising in the Cloud - helping vendors and channel. It's founder has 10 years experience building Cloud businesses in Europe as SaaS and ASP companies. Call +44(0)207 193 2356 for further information.

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