According to figures from analyst TechMarketView, the UK cloud computing market is set to be worth £6bn by 2014, accounting for about 15 per cent of UK software and IT services, compared with six per cent in 2010.
One thing is certain. The cloud is not going to go away, although the hype may well die down soon. So if you have been trading as a traditional reseller, do you carry on with what you are doing and hope it goes away? Or do you make the difficult decision and transform your business to cope with cloud demands, knowing there will be pain along the way?
One reseller that has bitten the bullet and done just that is Bracknell-based Ancoris, Google’s top UK partner. In a frank chat with CRN, the company’s managing director Dave McLeman talks through his strategy and gives some candid insight into the pain of transformation.
“We had a business that was growing [from its inception in 2003] until the recession hit in 2008, playing in the enterprise security space. We had a good list of customers, including three of the four top banks and high street retailers,” explains McLeman.
“When the recession hit, we woke up in 2009 and realised that all our customers were in crisis and it was not a good place for us to be. New business in Q1 2009 was virtually zero and it was not looking healthy.”
But in what proved to be a fortuitous partnership, Ancoris had unintentionally started working in the cloud space 18 months before, he explains, by selling an email security offering from Postini.
“Business with Postini was growing quickly and had a sustainable revenue model. It also had just been acquired by Google and had relatively few partners,” says McLeman.
“We decided we were going to in-vest our effort in working with Google on its cloud vision with Google Apps. We helped Google address how its billing system would work for partners.
“At the end of 2009, we saw the strategy gain momentum and a huge surge in market interest in cloud computing. We decided in 2010 that we would go all-in for the cloud.”
McLeman says more than 90 per cent of Ancoris’ new business has been through its Google partnership since January 2010. He is a key member of Google’s UK Partner Advisory Board.
“We have had some notable wins, including the Specsavers contract, where we moved its entire messaging to the cloud with Google. And about 40 other significant wins on top of that,” he says.
And the cloud gamble has paid off. The firm has recently finished its financial year and its cloud business has grown 80 per cent in the past 12 months, says McLeman.
“I think it will grow at least that much again this year. And of our revenue, 74 per cent is recurring contract revenue for next year,” he adds.
But anyone reading this and thinking the transformation of Ancoris’ business was a smooth and easy ride should think again, claims McLeman.
“There is no doubt that the journey has been challenging. Our entire business model has changed and we had to shift from a large upfront sales and product business to a solution sale. We were also faced with the prospect of low first-year contract values. Granted, with a much higher proposition of recurring revenue,” he explains.
Customers and their changing demands have also helped, he adds.
“Six to eight months ago we were being asked, ‘How do we get cloud computing on board?’ Now many people realise cloud computing is here to stay. We have gone from seeing resistance to customers wanting to be in early on the act.”
One of the biggest challenges facing a reseller moving to a cloud strategy is convincing the sales force to embrace a new way of working, says McLeman.
Used to upfront commission and instant results, a cloud model usually means smaller sales figures, but on a recurring scale, which turns the old rewards concept on its head.
“There is no question that you have to change your sales model,” he says. “We were very determined to take our staff with us. It would have been easy to hire different sales people, but we had a tight team and like to look after our staff.
“My first priority was to be clear about what a successful sales model would look like. We have gone through the same transition with our staff that our customers are having to go through. We put a lot of effort into formalising our sales processes and recog-nising the challenges our salespeople experienced.
“The main challenge is that it takes much longer to sell cloud, and you have less initial contract value. You have to be clear in terms of how you are leading your organisation. We could have settled for different commission rates, but that would not have solved quota problems and we would have ended up with different targets.”
So McLeman says that he lowered sales targets across the board to keep it simple.
“We tried to make it as attractive as possible. Our approach worked because everybody got caught up in the fact that we were changing the way the company worked. Conversations with clients became easier and it helped get new customers on board,” he says.
Follow the leader
Looking ahead, does McLeman think it is too late for others to follow Ancoris’ model?
“Larger organisations may face different challenges, particularly if they want to see cloud as a growing portion of sales,” he says. “The challenge for traditional infrastructure vendors is who the competition is going to be.
“The traditional model of selling hardware and software to end users is going to decline, and we will see core vendors have more of a focus on selling platforms for SaaS players as that happens. This is going to have more of an impact on traditional infrastructure VARs. I do not think that model is going to be healthy. There are also a lot of mature software vendors out there that do not realise the channel has to make money.”
Worth a gamble
Collaboration is also important, he claims.
“There are a lot of firms that want to partner and partnerships are going to evolve,” he says. “We are partnering with specialist players that can do the application integration work for firms that want to migrate to the Google platform. There are plenty of opportunities for people to add complementary services around the platform.”
McLeman concludes that, despite the pain of his company’s transition to the cloud, it is not a move he regrets.
“We took a bit of a punt last year and knew the new contract revenue was going to be lower,” he says. “But as our legacy business tailed off, we knew recurring revenue was going to increase our topline growth and more than 90 per cent of new business was cloud-based. So we are through the pain of the transition.”
He offers a final piece of advice to would-be cloud pioneers: investment is vital.
“You have to have an experienced team. We have been investing in our management team and that is key. We have been around the block,” he says.
CEO claims the firm is set to make 'bold acquisitions in the very near feature'
Global spend on datacentre tech will slow to 1.6 per cent in 2019
Traditional outsourcing increases 40 per cent year on year in Q3
MSP execs hoping to make splash in cybersecurity training pond with new business