IT Channel Partners in the Cloud and a New Value Proposition

The Rise of Cloud Computing and Software as a Service (SaaS)

Cloud Computing and SaaS industry’s conception can be traced back to as far as the 1960s.  However, it was not until the late 1990s when the Internet with major bandwidths became a beacon of productivity and the cost of personal computers decreased that Cloud Computing technology gained its footings.

Although Cloud Computing and SaaS are different they are, however, closely related terms.  SaaS basically is a layer of Cloud Computing.

There are 3 categories or layers of Cloud Computing:

• Infrastructure as a Service (IaaS) e.g. Amazon Web Services

• Platform as a Service (PaaS) e.g. Google App Engine

• Software as a Service (SaaS) e.g. Salesforce

IT channel partners, such as independent software vendors (ISV) have taken the hardest blow since Cloud Computing and SaaS brought about significant changes in technology and business operation.  The constant software and operating system updates plus costly licensing fees are no longer attractive to consumers and businesses.  Not to mention, the computers’ inability to provide unlimited hard drive space, left most businesses confined and unable to install all the software they needed.

In contrast, Cloud Computing and its platforms don’t require specific installations or continuous maintenance.  Benefits such as not residing on the user’s devices or a company’s server and being accessible through the internet have helped Cloud Computing and ultimately Software as a Service gain their momentum.

With its customization capabilities, the popularity of SaaS continues to grow as consumers and business are able to install and add applications that cater to their personal or business needs. Also, the era of Cloud Computing has freed up time and resources allowing management to focus on optimizing the business instead of worrying about IT maintenance.

Cloud Computing, SaaS Providers, and Channel Partners

Cloud Computing has been a thorn in the side for some IT channel partners, particularly partners in the indirect channel.  This technology has changed the demand, implementation, and delivery of Systems Integrators (SI) and ISV products.

Today, vendors that introduce products to the end-user via the cloud have found the roles their traditional IT channel partners once played almost dispensable.

As the image above shows, Cloud Computing has had an evident impact on IT channel partners that traditionally served as the conduit between the end-user and the vendors’ products.  The Cloud has enabled end-users to connect and interact directly with the vendor.

The Impact of Cloud on Systems Integrators

Before Cloud Computing gained its popularity, system integrators (SIs) had an established stance within the software supply chain channel.  Software vendors relied on SIs to sell their products and integrate their software with customers’ other solutions.  The whole existence of SIs was based on the difficulty of software integration and customization. On the other hand, SaaS is based on offering end-user straightforward usability and implementation.

The world in which SIs flourished has changed and continues to change.

The challenges facing SIs are:

• Businesses that are looking to enter the digital arena often choose Cloud services and SaaS providers
• Most organization are leaning towards applications that are able to specifically address their needs
• The rise of Application Programming Interfaces (APIs) and integrated platforms, in general, have narrowed the opportunities for many SIs by reducing the complexity of integration

Creating a New Business Model by Providing Cloud Integration Services:

According to CompTIA the initial cloud migration and integration create numerous hurdles for a transitioning organization.  These impediments have created a new business opportunity for SIs to oversee the transition from beginning to end.

This business model transitions SIs as an organization’s asset supervisors to end-user and vendor liaisons.  For example, a SaaS vendor such as Netsuite has expanded its sales by partnering with more than 200 SIs (source: Cloud Strategies).

If System Integrators want to continue thriving in the era of Cloud Computing they need to embrace the cloud and SaaS products by expanding into new markets as a SaaS product implementer.  System Integrators such as Accenture have formed such strategic relationship with a SaaS vendor NetSuite and have seen a high growth opportunity.

The Impact of Cloud on Independent Software Vendors

The rise of Platform as a Service (PaaS) and software platforms such as Salesforce and NetSuite have replaced the opportunities that once belonged to ISVs.  Nevertheless, there are still many ways for ISVs to leverage Cloud Computing.

To survive in the channel, ISVs need to take into consideration the 5 most important value propositions cloud-based software offers:

1. Delivery Model
2. Pricing Model
3. Core Functionality
4. Mobile Access
5. Customization

Opportunities in the Cloud for Independent Software Vendors

Cloud Computing significantly alters ISVs’ traditional business model.  As long as ISVs are open to meeting the changing market needs, the 5 SaaS value propositions mentioned earlier can open doors to newer opportunities.

Delivery Model

Cloud-based software delivers software via the Internet to the end-user in a subscription-based and a volume-based price model. This means end-users are not required to make a major upfront investment. By offering cloud-based services, ISVs can extend their target market to include small and medium-sized businesses.  The economies of scale Cloud Computing claims to provide a great opportunity for ISVs. As a result, ISVs can target smaller businesses while targeting larger companies with their on-premise solutions.

Pricing Model

For traditional on-premise ISVs, upfront software licenses and annual maintenance fees are the main sources of revenue.  Since Cloud Computing is based on a subscription basis, different sales compensation for channel partners needs to be configured.  A common practice amongst some ISVs for recurring revenue is to require a pre-configured set price per user.  Afterward, the ISVs bill the customer separately for additional functionalities, customization, or transaction volume.

Core Functionality

Where traditional ISVs focuses on software development, features, capabilities, and sales as the main objectives for delivering software, cloud-based software providers focus on further resources to run their infrastructure.  To overcome this obstacle, cloud-based software vendors have created their own data centers with teams for creating, maintaining, and updating dedicated applications for every customer.  The different layers of Cloud Computing (IaaS, PaaS, and SaaS) that allow for a software application to be divided into smaller modules have enticed service providers to turn to their partners for consideration of hosting the infrastructure.

Mobile Access

Cloud-Based software provides end-users with mobile access. The software accessibility is accomplished via a web browser or a software vendor’s specific mobile application. SaaS mobile applications offer complex analytics which require integration with a larger set of applications and data sources in order to provide the greatest value.   Since data requires large computing resources, SaaS initiatives can be combined with Big Data projects in the Cloud to provide more revenue opportunities for IT channel partners.

Customization

The multi-tenant model that cloud-based software is based upon restricts the level of customization and creation of customer-specific solutions.  The multi-tenant model stipulates that customers share computing resources in a public or private cloud in which each tenant’s data is isolated and invisible to other tenants.  Cloud-based solutions serve multiple customers which means a limited customization capability. This opens the door to new opportunities and partnerships between software vendors and third-party software services.  Many SaaS solution providers welcome third parties to their platform. These providers equip these partners with the necessary tools for creating and developing application add-ons.  These add-ons are usually available for sale to the SaaS end-users.

A New Value Proposition for IT Channel Partners

By now it should be evident that traditional IT channel practices and partnerships that once guaranteed success are very different for cloud partnerships.  Many partners are still unprepared to join the service-based cloud revolution.  The IT channel partners ecosystem that existed a mere decade ago will not sustain partners who:

• Do not transition from being a product-oriented organization to a service-delivery organization
• See no need to develop strategic partnerships with organizations that offer cloud-service technology
• Have no use for developing new applications
• Are not open to entering the cloud industry or at least provide cloud services to their customers

To stay afloat in the Cloud, IT channel partners, ISVs and SIs, need to reshape their value propositions to reflect:

• Web-Based access to business applications with full and limited functionalities
• Leverage technology advancements by supplementing traditional software functionalities with mobile applications and analytics
• Expand customer service to encompass small and medium-sized businesses
• Provide services for implementation of the customers’ cloud solution and train them in using the cloud-based software