Don't bank on Google Apps or Office 365

Cloud player critiques strategy of juicy support bundles to boost low-margin cloud product

The days of VARs relying on support revenue from low-margin cloud offerings such as Google Apps and Office 365 may be numbered, according to one cloud distributor.

Paul Byrne, managing director of cloud aggregator-distributor ChannelCloud, told ChannelWeb that the rate of change and challenge in the industry is such that resellers relying on support costs to make margin may shortly be undercut by rivals.

Too often, such deals are the easiest way to resell such products profitably but they typically add little value for the end user, he said.

"We see [resellers] going the Office 365 or Google Enterprise route, and we see this as a race to the bottom," Byrne said.

He hastened to add that ChannelCloud – which currently has a Microsoft/Citrix infrastructure at the centre of its offering – is vendor-agnostic and supports Google Apps as well.

"But we would never lead with it, because it is not something we would ever make money on," he explained.

"Competitive forces" would eventually see such vendors going more direct with their cloud apps as cheaper architectures emerge, Byrne suggested, and customers realise they do not need to shell out more for expensive support packages.

"Resellers can bill it and add margin but Microsoft still has the central relationship with the end user, and that for me is a big wake-up call [for the channel]," he said. "I feel that a lot of these guys will fall by the wayside."

"I think we will see a lot of [reseller] failures in our industry in the next three to five years," Byrne predicted.

Last year Microsoft raised the fees for partners selling Office 365.

In April the vendor boosted margins further, promising $40 (£25.50) per seat for the first 3,000 sales, and $5 for each additional seat after that. There must be at least 250 users, and the deal runs until the end of June – Microsoft's financial year-end.

The vendor has released an Office 365 guide for VARs, explaining how it believes VARs can boost margins and earn revenue from the new software, which has proven very popular with subscribers so far.

"You can continue to provide needed and profitable on-premises software solutions while you reach a new set of customers interested in more than on-premises offerings," it says.

"Office 365 requires less emphasis on managing customer infrastructure, [so] you will have more time to initiate conversations with them about increasing business productivity and capabilities."

Partners will receive referral and annuity fees as well as a range of benefits. Customisation, migration, integration and managed services opportunities can all add margin, according to Microsoft.

Google makes a similar statement on its website about reseller opportunities and how to make margin from Apps sales.