CHANNEL PARTNERS ARE EMBRACING THE CLOUD IN A BIG WAY – BUT STILL NEED HELP

Channel partners are bullish about their growth prospects. In fact, in a recently conducted Forrester survey in North America (NA) and Europe, 59% of channel partners expect to grow by more than 10% in each of the next two years. However, partners will need help and handholding as they aim for greater sophistication and higher growth targets, especially around cloud based services. Forrester research indicates that three-quarters of channel partners in NA and Europe now sell cloud-based solutions (up dramatically from two years ago). These solutions now make up 26% of their overall revenue, a percentage they expect to increase in coming years.

In my recent report, Seeding the Cloud Channel, I highlight three key areas where the partners will need support from both their tech vendors and their distributors:   

  • Diagnostic tools and services to assess current maturity and set a transformation road map. Partners will first have to collaborate with their principal vendors to gauge the fitness of their organizations for an annuity-based business model — and whether they can sustain that model in long run. Vendors need to create assessment tools to evaluate their partners' business model transformation potential. For example, Cisco Systems built its OnPlus ROI Tool expressly for partners to model the myriad business model options and scenario decisions they face. This will not only help partners identify their pertinent strengths and weaknesses, but will also help them plan their future growth strategy.
  • Business and operating model training on cloud and other managed services. The next step for vendors is to train their partners on their business model transition; for example, selling services, identifying skills and hiring resources, operations management, legal issues, and financial management. There's also a need to enable channel partners to communicate and sell their value proposition. For example, both IBM and Microsoft are arming their partners with tools such as Microsoft's Cloud Assessment Tool and IBM's Handbooks that enables the partners to sell and market more effectively.
  • Initiatives to "create-manage-maintain" an online app store/marketplace presence. With their popularity among end user organizations soaring, online marketplaces are playing an increasingly important channel role. Vendor-managed business app stores give more control to partners and their customers; they also help in overhauling the traditionally inefficient sourcing and procurement process by making it transparent for channel partners, removing bottlenecks, and increasing their revenue opportunities. For example, SAP overhauled its vendor-sponsored app store in 2012 to support its partner community focusing on managed and cloud services

In today's highly competitive market, where channel partners' product margins continue to fall, it's crucial for vendors to equip and enable their partners to more effectively sell and market cloud and managed services. This will require innovative tools and enablement programs for both increasing the skills of their partners and for supporting in transforming their business model. 

Comments

I could not agree with you

I could not agree with you more Tirthankar, channel partners are embracing the cloud in a big way, but still need lots of help as we continue to see Vendors scrambling to try and meet partner’s needs –

One key aspect that I feel the need to emphasize when it comes to incentives, is rewarding partners based on Life Time Value (LTV) of the deal, as in a subscription business, with a recurring revenue stream, the value of the deal is not as clear cut as the price of a software license – that’s why we are recommending that Cloud incentives be paid based on the LTV of the deal instead of the unit price of the product.

During the transition period from licensing to cloud, vendors need to reward their partner’s sales teams on the total LTV of the contract (or at least for the first year’s value). Once vendors and partners are fully transitioned to a recurring revenue model, they will be able to use ANY measure of recurring revenue that is proportionate to lifetime deal value – monthly, quarterly or even annually.

I could not agree with you

Hi Claudio - Thank you for your comment. I like the concept of LTV and it can be beneficial for the partners at least in the early adoption phase (six months to a year) till they get comfortable and transitioned to the new business model. I will be interested to know if there are any vendor who is actually doing it.

Well said, even I also read a

Well said, even I also read a survey & found that there are so many channel partners who are using cloud based services for rapid growth in their business, your article explains very deeply about it, thanks for sharing it.

Thanks Nathan. I am glad the

Thanks Nathan. I am glad the article is in sync with your views. Feel free to write to me if you hear or see any trend that we should focus on.