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Is Cloud a threat or an Opportunity for the Channel? [Part 1 of 2]

Team YS
4th Jun 2012
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One of the key tenets of the Cloud is self-service. Anyone from an individual entrepreneur to an enterprise CIO with a valid credit card can subscribe to the Cloud. This has been the biggest driver of Cloud adoption especially among the startups and SMEs. While this is definitely an advantage for the Cloud providers and Cloud consumers, there is one entity in the ecosystem that is intimidated by this paradigm. And, that is the reseller community which is also known as the channel or the Value Added Reseller (VAR). Before we analyze whether Cloud is a threat or an opportunity for them, let’s see their role in the current context.

Having worked for the world’s largest software product company, I witnessed the significance of a software reseller first hand. Any software company dealing withshrink-wrapped products classifies their customers into large enterprises, medium enterprises and small businesses. Large enterprises typically include the public sector and the big conglomerates who invest multi-million dollars into IT year on year. Hardware manufacturers like HP, Dell and software product companies like Microsoft and Oracle have dedicated account teams to manage the relationship with the CIO of these companies. For the smaller enterprises, there may not be dedicated account teams but multiple customers are managed by a sales rep who owns the relationship. When it comes to the smaller businesses, the vendors never manage them directly. Instead, they rely on the reseller community to drive the business across these thousands of accounts. It’s the partner account manager or the channel headthat will manage the relationship with the reseller and each reseller owns multiple customers. These small businesses are very unique, as they neither have a CIO nor a skilled IT team. For them, IT is a tool for keeping their businesses running. Due to the lack of a decision maker in these accounts, most of the IT choices are left to the reseller. Since the reseller is the face of IT for these companies, he becomes the trusted advisor over a period of time. Most of the small businesses just go by what the resellerrecommends. Many resellers also provide services like installation, configuration, migration and maintenance. For the small businesses, the channel is both a reseller and also an IT solutions provider. Everything from a server to the operating system to an anti-virus, it is the reseller who influences the decisions. In short, the reseller community becomes the IT department of many small businesses. Software and Hardware vendors lure the resellers by offering them high margins, discounts and other incentives. The channel drives most of the volume business that impacts both the topline and the bottom line of the vendors. With such a strong role to play in the IT ecosystem, the resellers and the VARs are now under the risk of being short-circuitedin the Cloud purchase cycle. Selling Cloud is all about high volume and low margins! Whether it is the traditional software or the Cloud, Small businesses drive the high volume sales. With no complex licensing schemes to understand and with easy accessibility, Cloud just bypasses anyone in the middle and becomes available to the consumers representing companies of all sizes. So, is Cloud all set to destroy the reseller model? Not at all!

I firmly believe Cloud presents a great opportunity to everyone in the ecosystem including the channel. While it is true that anyone can subscribe to a Cloud service, it does not end there. With many players entering the Public Cloud market and competing for the sameslice of the pie, it is important to understand which Cloud is right for the business. Many times, the smaller businesses may have to choose a combination of Cloud offerings to realize better return on investment. After choosing the right Public Cloud(s), the next step is to integrate existing assets and migrate a few. There are many exciting opportunities for the VARsthat will emerge in this space. In the next part, I will explain how the role of a VAR evolves in the era of the Cloud. Stay tuned!

- Janakiram MSV, Chief Editor, CloudStory.in

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