Aggressive telcos threaten VAR business
Message from session at CompTIA Breakaway 2012 event claims the competition in the cloud is getting tougher
Telcos and "born in the cloud" players are becoming an increasing threat to traditional VARs and are going for their business, as customer IT demands continue to focus on more cloud-based solutions.
That was one of the main messages emerging from a session entitled "Vendor call to action – Your role in helping partners transform for cloud", run by IPED, the research arm of UBM which owns CRN’s sister site CRN US.
Speaking to a packed room at the CompTIA Breakaway 2012 event in Las Vegas, Rauline Ochs, senior vice president and general manager of IPED, said: “Everybody knows customer buying habits have changed and the transformation that we see today is what they are doing around recurring revenue.”
IPED figures (focusing solely on US market) revealed that in 2012 the use of hosting service providers increased by 40 per cent. Similarly, telecom players with infrastructure capability also increased their business 40 per cent.
Compare that with an 84 per cent drop in use of traditional VARs (in the cloud space) in 2012, along with a 60 per cent drop for LARs and a 66 per cent drop for distribution.
“We are seeing new players like agents and telcos with an infrastructure offering show up in the market, and this is impacting recurring revenues [of traditional players],” she said. “The channel ecosystem is changing to hardware, software and service provision, and every VAR needs to choose a service provider or become a service provider – but they are not really sure which direction to go.”
The traditional business functionalities that appear to be going into the cloud first, according to IPED, include web traffic management, VoIP and backup and recovery, with top services delivered by the channel being server virtualisation, email management and backup and restore.
Further IPED figures on the average valuation of each deal (again for the US market), showed that for on-premise resale deals the average value was $40,000 (£25,600), on-premise hosted was $29,500, off-premise hosted was $19,000 and cloud was $21,500.
In terms of gross margin as a percentage of revenue, on-premise resale was 25.6 per cent, on-premise hosted came in at 25.6 per cent, off-premise hosted was 26.7 per cent and pure cloud was 24.5 per cent – but this was recurring.
As a result, vendors that want to see success in the cloud with their channel partners need to invest in partner business fundamentals to accommodate P&L change, Ochs said, which includes service attach.
With about two off-premise deals equating to one on-premise deal, it is an uphill challenge convincing some firms to make that first step.
When questioned on the lower margin value for cloud deals, Ochs explained that the figure was for year one, and in years two and three and beyond there would be no cost of sales attached, which means margin would be higher going forward.
“Some vendors are helping their partners transition [to the cloud] but at the same time they are aggressively recruiting new partners that have the sales and product capability proven to succeed in the new ecosystem,” she said.
Ochs added that the challenge VARs are facing should not be underestimated as they struggle to transform their businesses to a recurring revenue model, coming up against obstacles such as rewarding their sales teams and building new metrics to measure themselves as well as coming up against new players in the market without any legacy challenges, while at the same time trying to maintain their existing business.
“Partners like vendors that will teach them how they can go with them into this new world,” she said.