One of the rare shocks coming out of Microsoft's annual worldwide partner confab was the vendor's admission that only three per cent of its partner network is actively selling cloud computing services.
"Twenty-thousand Microsoft partners are transacting with us in the cloud. Two things: one, thanks to the 20,000 - we appreciate it. You're doing it. Two: come on, man, where's the other 630,000 [partners] we have? What do you need? Let's talk!" chief operating officer Kevin Turner implored attendees.
Cloud computing spending continues to rise and business adoption of cloud services expands to replace legacy systems. Yet cloud computing in the channel remains relatively low.
Many providers are dabbling in cloud services, either hosting infrastructure or providing rudimentary applications such as hosted email, but few are truly embracing the cloud revolution, providing comprehensive suites of application, infrastructure and consultative services.
That's putting cloud vendors in a sticky situation. They're seeing cloud computing as an opportunity to revolutionise their businesses models and revenue streams. If the channel doesn't support their vision and meet the opportunity, more are saying they will go direct.
The chief operating officer of one cloud security company has made a startling admission to Channelnomics.
As a channel advocate and a person steep in the capabilities of channel partners to grow markets, he wants to work with partners on taking his offering to market. However, even some of the traditionally best channel partners are not engaging in cloud sales in a meaningful way.
Without assurances that partners will produce positive returns, he says his company may have to consider shifting priorities to direct and automated sales for SMB and midmarket segments.
He's not alone. Several cloud vendors and those transforming their offerings to the cloud have expressed similar frustrations to Channelnomics. They see cloud computing sales opportunities across the market but even greater inconsistency in channel productivity.
Not all partners are disengaged. They hear the drum-beat of cloud transformation and have answered the call by making cloud services part of their portfolio. According to research firm Techaisle, 64 per cent of solution providers will offer some form of cloud service in 2013 and that number will jump to 86 per cent in 2014.
However, the average reseller continues to earn less than 20 per cent of its gross revenue from cloud computing offerings. Traditional managed, professional and software products remain the mainstay of channel revenue.
Providers see the value in cloud computing but often have a hard time selling it to the end user. They say customers are intrigued by cloud offerings, but fear getting trapped in endless cycles of fee-based services that will ultimately cost them more than their average on-premises hardware and software sale.
When confronted with such objections, providers may revert to a conventional sale.
This phenomenon perhaps explains why conventional software sales through VARs are skyrocketing. The 2112 Group recently asked 100 what product makes up 30 per cent or more of their revenue. Cloud services were 30 per cent, up 7.2 per cent over 2012. However, conventional software jumped 19.7 per cent over 2012 to 42.2 per cent.
Some providers may argue that cloud vendors are to blame for the low participation rate in cloud sales. Many cloud offerings sold through the channel are little more than referrals to vendors, which then deliver the services and maintain the customer relationship.
Other cloud programmes put too many restrictions on partners. And, of course, there's low margin for selling cloud compared to traditional products.
Microsoft is one such company. For years, Microsoft invited partners to sell cloud products and services, but retained most of the products and margins for itself. Schemes like "Software Plus Services" were pushed on partners as a way of justifying low margins that would be made up by channel-delivered value-add services.
All the while, Microsoft would sell direct and limit partners' ability to control, manage or renew accounts.
While cloud adoption is growing into a $200bn market, there is much more room to expand, some vendors say. Businesses are looking for cloud-based and hybrid application systems that are fully integrated and extensible.
The challenge they face is finding qualified partners that can guide their decision-making and implement value-producing cloud systems, said Sven Denecken, vice president of SAP Cloud Solutions.
As part of our special editorial partnership, CRN is republishing this article from Channelnomics
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