Distributors cautioned over cloud relevance

Cloud Industry Forum board member says distributors have to evolve to avoid being frozen out of supply chain

A Cloud Industry Forum (CIF) board member has joined the debate about the role of distributors in the cloud, arguing that they could be cut out of the cloud supply chain if they don't evolve.

Ian Moyse, who sits on the boards at Eurocloud and Cloud Industry Forum, told CRN that both ends of the supply chain are endangering the role distributors play in the cloud, with the traditional benefits such as credit and logistics becoming obsolete.

At the top of the supply chain, he says, some vendors are seriously questioning the value that can be added by the channel, with some having already lowered their margins.

"They [vendors] thought 'this is much easier and the value that the channel is going to give isn't worth the higher margins we used to give them. We're doing all the marketing, we're doing all the hosting, we do all the upgrades. It's all done for the customer and the channel is just a conduit to market, so why should we pay them as much?'"

Because of this, he claims, resellers are reluctant to heavily promote cloud solutions, preferring to stick with the traditional model that is better for them financially.

"I've seen a lot of end users buying from someone new because they don't realise their traditional reseller offers cloud," Moyse said.

"For a lot of resellers, cloud is in their back pocket but they don't want to lead with it because the model is different. That ripples back to two-tier distribution."

The answer to this, Moyse said, is for distributors to become an aggregator of billings to resellers and MSPs.

Last month Avnet launched its cloud marketplace to compete with the likes of Arrow and Ingram.

Miriam Murphy, senior vice president for north EMEA at Avnet TS (pictured), told CRN that distribution still has a key role to play in cloud's go-to-market route because distributors can take on a lot of the heavy investment that smaller resellers cannot afford to make.

She explained that resellers can white-label the cloud marketplaces from distributors, without having to invest in their own, and can use aggregated billing offered by distributors that will save time and resources for smaller firms.

She claims that such offerings will bring resellers to the cloud who had previously avoided offering cloud solutions because of the investment needed.

"Reluctance [from resellers] to offer cloud is probably not a fair way to describe it, but [I have seen] hesitance to make a significant investment when it's so far away from their current business model," said Murphy.

"That's where they are coming to us - to support their movement into that market without a really heavily burdened investment.

"The value that we can bring versus someone working directly with a vendor is that we can offer the opportunity to step in and offer partners integrated packages that provide services and solutions from multiple vendors."

Some end users at the very bottom of the supply chain are choosing to cut out the channel and go straight to hosting providers, an option that traditionally would have been open only to large multinationals.

Where previously an end user could only realistically go straight to the vendor if they were a large multinational, with the cloud "anybody can buy from anybody," explained Reza Honarmand, cloud vice president at Tech Data.

Traditional distributors and resellers are under threat if they don't adapt, Honarmand admitted, which is why, he said, distributors need to reposition themselves in the supply chain.

"A lot of people are going direct to hosters, so we look at the hosters now as customers, more and more," he said. "The end user will go to wherever it gets the best service at the lowest cost, so we will embed ourselves further up in the chain."

Honarmand explained that some hosting providers may not have the funds to build their own marketplaces, in which case they can turn to distributors. They can also buy solutions through Tech Data's own marketplace to enhance their offering to end users, he added.