Cloud Success Requires Cultivating Cloud Partners

Cloud computing in the channel focuses largely on commodity services. Vendors need to cultivate partners to take on complex, high-yield cloud services that produce a mutual, sustainable return on investment.

By Larry Walsh

The size of vendor clouds is a matter of perspective. Vendors measure cloud size in the number of apps, data center capacity, and, most significantly, revenue. The last measure is probably the most important, as investors, partners, and customers want to know the health of a cloud business. Solid and growing revenue reflects stability and staying power.

The cloud revenue numbers posted by vendors, however, are questionable; at least that’s the conclusion of one of my former colleagues, Barb Darrow, at Fortune. Many of the cloud numbers posted by vendors, she writes, are conflated by the addition of products and services that are, in many cases, tangential to the cloud.

Darrow’s article, “Why Amazon’s Cloud Numbers May Be the Only Ones That Add Up,” is one of the more insightful business inspections of the cloud market that I’ve read in a while. While many vendors – particularly IBM, Microsoft, and Oracle – are boasting big gains in their cloud businesses, they’re often including revenue that doesn’t come purely from the cloud to make their cloud ventures look better.

The market can debate ad nauseam the wisdom of cloud accounting practices. The practice can be somewhat deceptive, but is it inaccurate? Consider this: Even if an enterprise goes all-in on the cloud, it still needs on-premises PCs, networking gear, storage, and servers. So if a hardware product or a software offering is sold to support a cloud service, shouldn’t that count as cloud revenue?

One reason why Darrow’s article caught my attention is that it brings to the fore a complaint vendors have been airing for some time now. They say that partners aren’t adopting cloud services fast enough, that they aren’t doing enough to keep up with customer demand in a market that’s moving at breakneck speed. If you look at the public reporting of vendor cloud growth alongside the assertions made by channel managers, you get the impression that vendor cloud growth is being held back by disengaged solution providers.

According to 2112 research, the average solution provider earns as much as 16 percent of its gross revenue from the sale of cloud products and services. While the cloud doesn’t account for as great a percentage of revenue as hardware and software, the number continues to climb. Just two years ago, average cloud revenue was less than 10 percent of gross.

The problem facing vendors isn’t so much the question of whether their cloud revenue is “purely” cloud, or whether partners are selling enough cloud; rather, it’s the nature of the cloud services being offered by those partners. Many of them are selling only basic, commoditized cloud services – hosted e-mail, Microsoft Office 365, hosted infrastructure, cloud-based backup, and virtual servers. In large part, many of those cloud services are either augmentations or replacements of existing legacy products.

When vendors say partners aren’t moving to the cloud fast enough, what they’re really saying is that solution providers are cannibalizing legacy product sales and not expanding new cloud services sales.

The challenge vendors face with the emerging cloud channel is expediting evolution. Solution providers aren’t going to succeed if they focus exclusively on commoditized cloud products and services. They need to adopt and specialize in complex cloud services if they want to build profitable enterprises that also boost revenue and growth for the supplying vendor.

Solution providers bear much of the responsibility for driving their own evolution and market relevancy. Nevertheless, vendors have a vested interest in pushing this process forward. Vendors need to think beyond evangelizing cloud opportunities in the hopes that partners will follow suit, and invest in partner development. This is more than just providing self-service materials and lockstep training. It requires the cultivation of strategic vision, the crafting of business plans that take evolution into account, and the investment of time, money, and resources.

Some vendors are already doing this. They’re working hand-in-hand with select solution providers to build upon their existing resources and experience to create new value propositions rooted in cloud technologies. Other vendors are cultivating new partners from the ground up, providing them with material support in developing structures based entirely on the cloud.

Cloud partner cultivation efforts by vendors are producing good results. Some solution providers are self-starters and are taking initiative in the cloud on their own, but this needs to happen across a broader base and at a faster clip. Vendors that want greater cloud distribution need to shine a light on the strategic, tactical, and operational processes involved so that partners have a clear understanding of the journey they need to take to remain relevant and productive in the cloud computing era.

The 2112 Group offers several services that support vendors and solution providers in building cloud-computing practices and productive cloud-focused channels. For more information, contact us at info@the2112group.com.


Larry Walsh, The 2112 GroupLarry Walsh is the founder, CEO and chief analyst of The 2112 Group. Follow him on social media channels: Twitter, Facebook, LinkedIn.