What future lies in the cloud?

Pratt: Canny resellers will adapt to cloudy conditions

Cloud computing may threaten many resellers, particularly those targeting the SME market. Not only are traditional vendors looking at cloud models as a way of cutting out the middleman, but there is a raft of cloud service providers from the hosting arena hungry for your business. A battle royal is looming and resellers must defend their ground.

I believe these threats were always on the horizon. The economic downturn has just accelerated interest. To take a step back, cloud computing and SaaS are effectively new models for delivering IT as a service. Cloud computing can encompass an entire IT infrastructure (desktops, servers, websites, applications, and the rest), while SaaS is essentially about cloud-based applications.

As these IT resources are delivered as a service, they can be scaled up or down for less cost. Cloud vendors can shoulder much of the burden of IT management and once-complex procurement processes as customers basically dial services up and down on demand.

I am sure you are finding that now more than ever customers are scrutinising IT costs – not just the upfront cost of purchasing IT, but also Total Cost of Ownership (TCO). Vendors have been chanting the TCO mantra for some time, but until now there was no significant alternative. Competition may have fuelled price wars, both between vendors and within the channel, but with cloud computing and SaaS it is a whole different battle.

Customers evaluating these models can for the first time view IT as a flexible, operational expense rather than rigid and fast-depreciating capex.

On one side, having the ability to directly deliver software and applications means vendors can pass on any savings to customers and quickly create new tailored packages to increase value.

On the other side, you have got hosting companies that can adapt their offerings to include entire IT infrastructures. In addition to traditional hosting companies, you have got telcos and the likes of Microsoft putting their stake in the SaaS ground.

To maintain margin, a reseller who offers boxed versions of Microsoft Exchange will in some way pass the cost of stocking this product to the customer.

Resellers can, however, transform their business models by partnering with cloud vendors to offer those services. The one thing cloud vendors don’t have is the intimate customer knowledge that comes from channel relationships built over the years – knowledge that is particularly valuable if you are trying to convince customers to leap into the cloud.

The initial benefit is that a reseller does not have to invest in the infrastructure needed to get the cloud model working. All the reseller has to do is go out to your existing and prospective customer base and offer these cloud services alongside the other products and value-added services in your portfolio.

The sell is straightforward: “We can help you lower costs by allowing you to purchase IT on a pay-as-you-go basis, so you only spend money on what you use. We’ll even remove the pain of you having to manage it all.”

Over time, as more customers start to appreciate the advantages of this model, the cloud could become the cornerstone of your entire business.

In fact, if you take the earlier example of Microsoft Exchange, resellers can today make more margin selling it as a hosted solution, while also offering it cheaper to the customer. The days of resellers scrapping over margin in commodity tin are coming to an end.

David Pratt is chief operating officer at ThinkGrid