Cloud computing has been variously described as the greatest opportunity for the channel in recent years and a threat to the very business of selling ICT. As with so many issues, the truth lies somewhere in between these two extremes.
Irish Computer, in association with Let’s Operate, surveyed its readership in the channel to see how cloud computing is perceived and ultimately, whether it is an opportunity or a threat.
The survey was conducted in February and March of this year with 110 respondents, and began by asking if resellers had received enquiries from their customers for cloud services.
Customer demand
The vast majority (85%) said that they had received such enquiries within the last twelve months. While respondents were not asked to specify the scale ranges of their customers, it is probably safe to speculate that the 15% who had not received cloud enquiries in the last 12 months are dealing with smaller companies who may have a limited IT infrastructure and relatively unsophisticated needs when it comes to IT.
"Cloud computing has been around for a long time but Irish businesses are now seriously investigating implementation and asking their IT support companies about it," said David Owens, managing director, Let’s Operate.
Increasing questions
This issue of interest and demand was expanded by asking whether there was an expectation for an increase in cloud offering enquiries. Again, overwhelmingly (87%), the respondents indicated that they expected increases in enquiries for cloud services from their customers in the next 12 months. Curiously however, just over 8% said that they did not expect an increase while an unenlightening 4% said they didn’t know.
This level of enquiries from customers, when combined with the expectation for a rise in same, contrasts somewhat with 25% of respondents who say that they do not currently have a cloud option for customers. The implication, warns Owens, is that "interest and demand for cloud computing is out pacing the channels’ preparedness to service it". It is even more curious, given the range of cloud services on offer in the market, from pure email to cloud-hosted enterprise resource planning (ERP), that there are IT service companies that still do not offer their clients cloud services.
Cloud offerings
Delving further, respondents were asked if they did not currently have a cloud option to offer customers, were they exploring the possibility of providing one. Oddly, 45% said that they were not.
This lack of exploration of cloud options for customers does not tally with the results that indicated the vast majority (78%) do not view cloud computing as a threat to their core business, with almost 80% indicating that they saw cloud computing as an opportunity. There must surely be an overlap among those who see cloud as an opportunity but do not yet offer their customers a cloud option.
Of those who did see it as a threat (15%), by far the greatest element of that threat was that it would cannibalise existing business. Loss of control or relationship with customers and lower margins were closely ranked in second and third, and difficulty in incentivising sales people was a distant fourth.
Threat factors
The fear of loss of relationship with the customer is perhaps reflective of the Irish managed service market as whole. Irish businesses, despite various predictions to the contrary, have never fully embraced managed services in the IT sector. Despite their obvious benefits, managed services have had a slow uptake with organisations being wary of inflexibility and loss of control. It is this perception that may be fuelling the attitude among respondents in this survey that the provision of cloud services for a customer might jeopardise existing relationships by distancing the reseller from the customer.
For those who saw cloud computing as an opportunity, long term, recurring income was the greatest driver by some margin. This was followed by the need to respond to the market, and then by better cash flow due to the nature of cloud computing being offered as a service. In last place was increased productivity achieved.
Again this shows awareness among the respondents that the move toward operational expenditure (OpEx) in the provision of services can be a boon to business by evening out revenue flow and thus decreasing reliance on refresh and upgrade cycles or seasonality. This result is likely driven by those ICT providers who already make a significant portion of their income from the provision of services and so understand that the move to cloud computing can break the "big deal" reliance at the end of a quarter or fiscal year.
Cloud communication
While cloud computing is maturing in the market in terms of its value, the survey asked if businesses were confident that sales teams could communicate its benefits to customers. Nearly 40% were very confident, with a further 21% confident. Nearly a quarter were neutral on the issue and a combined 16% were not confident or not at all confident.
"Amongst those in the channel who view cloud as a threat to their core business, 25% cite difficulty in incentivising sales staff. In addition, 39% of the channel are either unsure or don’t believe that their sales staff can communicate the benefits of the cloud and ultimately convert customers," said Owens.
"A strong business case exists for the channel to partner with experienced cloud providers, not only in terms of leveraging these provider’s obvious technical skill and experience, but also to leverage their ability to assist channel partner’s with up-skilling their sales and marketing staff to communicate/convert more effectively, as well as to assist management in constructing incentive/reward schemes that correctly and appropriately motivate these staff."
However, the range of technologies that make up cloud computing, from infrastructure to platform and software as a service, means that communicating the benefits can be difficult. Not only does it require a deep understanding of the technologies among pre-sales and sales staff, it also requires some concrete examples and user experiences that can communicate the value to potential customers, giving them parallels form which they can draw their own comparisons and conclusions.
"Cloud requires a different mindset and business model for the channel which changes the traditional approach to up front commission based sales as well," said Owens.
Vendor support
In an effort to alleviate these difficulties, many technology vendors in this space are making significant funds and resources available to both distributors and resellers to ensure that everyone in the sales channel is fully able to communicate the benefits of the technologies. Online video, documentation, workshops and road-shows are employed by many of the giants of the sector to ensure that these sophisticated solutions are understood and properly represented. Resellers in particular need to fully leverage these resources but must also take advantage of public platforms to demonstrate expertise. It has been show time and again that when a business has earned its place as a trusted advisor to its customers, the communication of sophisticated value propositions becomes easier, ensuring greater success in converting interest and demand to sales.
Big picture
The picture that emerges from this survey is of a channel structure that recognises the importance of cloud as an opportunity but is somewhat unprepared to meet the demand. While appearing relatively confident in its ability to communicate the benefits to customers, there appears to be some shortfall in the ability to offer cloud options to customers.
This may be as a result of enquiries from customers being somewhat non-specific. The sheer range of services available in the cloud may be resulting in very general conversations with customers that are opening dialogues. Hence many resellers may be still undecided as to where to concentrate their efforts in providing cloud options.
Potential flight
But the overwhelming conclusion must be that the ICT channel in Ireland risks losing business if it fails to address customer demand in this area. With broadband access improving all the time, the very nature of cloud offerings means that they can just as easily be procured from an off-shore vendor as it can from a local partner. Despite a traditional reluctance to avail of such services in the Irish market, particularly among smaller businesses, the pressure to reduce costs and increase capabilities may drive Irish businesses to look beyond local providers if they are perceived as lacking.
"Like the traditional on premise software vendors, the channel is going to have to come to terms with cloud," concludes Owens. "This survey is a stark reminder that cloud is not going to go away any time soon. Those dealers who won’t or can’t adapt risk going the same way as traditional travel, music and book businesses."
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