A different theory on low cloud RoI

So how do vendors -- and VARs -- earn best from cloud? Larry Walsh asked Box's CEO

The cloud computing model, on paper, is extremely profitable as revenues increase over time and scale of delivery decreases costs.

That's the theory, but the reality is very different. Vendors and providers are finding it difficult to build revenue and profits through cloud services.

Conventional wisdom says cloud computing takes time to accrue revenue.

True, but the reason cloud businesses are struggling to amass the mountains of treasure that Microsoft and Oracle did in the halcyon days of software licensing is because there are so many options.

At least that's the perspective of Aaron Levie, CEO of collaboration service Box.

"I don't know that we should expect the same kind of economics as you saw from Oracle in its heyday and IBM in its heyday," said Levie, wspeaking at the Bloomberg Next Big Thing Summit in Half Moon Bay, California.

"The upside remains the same. The unit economics and how profitable you're going to be is going to be a little different."

Levie's perspective is valid. His company is a market leader in collaboration, or services that give users the ability to move content through the cloud to multiple parties and devices. While a leader, Box isn't unique.

It competes with myriad companies ranging from Microsoft to dozens of startups.

Service function and value will vary from vendor to vendor, but the broad availability of such services means a greater distribution of spending among customers.

This equally translates to providers that represent these products; their customers will have numerous choices, and that distracts from focusing on a select few for adoption.

In the conventional market maturation model, the number of suppliers will consolidate to a select few through mergers and acquisitions, as well as general attrition.

That may still happen in cloud services. However, cloud computing is lowering the barrier to entry to new providers.

While Levie didn't state it in his remarks, I think he probably would have said that this lower barrier to entry means the market will see a steady influx of new suppliers to replace the ones that cycle out.

Hence, the broad distribution of choice that makes it harder for any one vendor to build top line revenue.

Cloud computing means persistent over-distribution of supply. If this how the cloud market plays out, companies like Box will have an increasingly hard time becoming the next Google.

Does this problem translate to resellers? It's a problem, but not necessarily the same as for vendors.

Over-distribution of services means providers will have numerous choices for partnership.

There's no rule that says a VAR has to pick just one service; they can offer any number of services. The challenge then becomes managing those relationships without incurring costs.

Chances are conventional market consolidation will ultimately clean up the cloud market in the same way it happened with traditional hardware and software segments.

However, the pace at which consolidation happens may be slower because of the low barrier to entry.

As part of our special editorial relationship, CRN is republishing this article from Channelnomics