How distribution established its place in the cloud
Some of the biggest disties in the channel reveal what their role in the cloud is and how it is impacting the traditional hardware distribution model
If you were to view the channel as a soap opera, a few short years ago the long-running relationship between reseller and distributor looked to be in danger of being fractured by the appearance of slick cloud software vendors, such as Microsoft Azure and Amazon Web Services (AWS).
Concerns mounted that traditional hardware distribution would be the losers in this love triangle, forlornly looking on as a direct relationship between vendor and reseller developed, cutting out the need for it entirely.
Was its relationship with the reseller over? How could it redesign its hardware model to compete with the cloud vendors that its reseller partner was goggle-eyed over?
Many expected distribution to play the role of Grant Mitchell in this scenario, cast aside by Sharon for his brother Phil. Like that famous soapy trio, the channel has endeavoured to make its respective relationships work, with distribution now playing a crucial role in the functioning of the cloud channel.
Many traditional hardware distributors are seeing their cloud businesses become a growing contributor to their overall revenue. In fact, Westcoast has seen such success that it has spun off its cloud division into a separate entity within the overall group.
Westcoast Cloud is housed in a separate office, has a different theme to its parent company and is "self-sufficient", according to MD Mark Davies.
He claimed that 60 per cent of its partners have never transacted with Westcoast, and it isn't dependent on opportunities being passed to it from the parent company.
But what exactly does its role in the cloud entail?
"We act as an enabler of cloud services to the reseller themselves," Davies explained.
"So if the reseller doesn't know how to deliver the services on-site to the customer, we can support them in that; or if they don't know the right licence type for the customer then we can help them with that.
"We see ourselves as an enablement partner around the services that we are providing; anything that is complex around services or billing we make it easier for the partner to transact with the customer."
Jason Hill, sales director of security and wireless at Exertis, added that the distributor's role in cloud remains the same as for hardware distribution.
"We still play the part we've always played: taking the vendor to market, providing credit terms to the reseller base, training, support and professional services to help out the reseller," he said.
David Newbould, EMEA director of cloud strategy at Tech Data, agrees with this description, but highlighted the different thought processes that cloud distribution requires.
"In the old world it was straightforward, the partner had a credit limit, they spend it, then pay it back," he explained.
"But with cloud you are essentially extending unlimited credit to a partner - though the risk profile isn't as bad as that makes it sound.
"It also needs a new sales approach. We are increasingly seeing that we are selling business outcomes rather than products."
The love triangle
In a soapy twist, the angst-ridden love triangle that was mooted between the vendor, distributor and reseller several years ago has formed into a healthy channel relationship between the three parties, with distribution cementing its position at its heart.
The general consensus among the disties we spoke to was that the advantages of cloud distribution for both vendors and resellers are similar to those offered by hardware distribution.
For resellers, the only alternative to distribution is working with a cloud vendor directly and developing their own solutions and services around that platform.
This, however, can be extremely costly and complex, especially if dealing with a number of cloud providers directly.
Scott Murphy, Ingram Micro's cloud and advanced solutions director UK&I, said this was more common five years ago, but as large cloud providers such as AWS and Microsoft Azure started to dominate the market, it became harder for those resellers to keep up.
"A lot of those partners couldn't get the scale to compete at a similar price point to those vendors," he explained. "I haven't come across any resellers of note recently that have even considered building their own."
Cloud distribution takes this pain point away by offering not just the cloud platform, but numerous services and tools from other vendors that can be wrapped around it, added Chris Alton, business section manager for cloud at Arrow.
"Unless you have a very large-scale cloud resell business, it is very difficult to remain direct," he said.
"You need a huge amount of investment in operational platforms, so big challenges include metering, fulfilment and billing.
"The partner of the future has to have an opinion on multicloud platforms and they need to come to a distie that has the scale and partner base to have developed a capable delivery platform."
Cloud vendors too see the benefit of utilising a two-tier model for their services, especially start-ups that see distribution as a good way of getting their names out to potential partners.
"We can help vendors get their solutions to tens of thousands of people very quickly," Exertis' Hill stated. "We provide the sales function and have the technical resources in pre and post sales.
"We have hundreds of resellers using our portals on a weekly basis and adding a vendor to that is quite simple. So while resellers are procuring a solution, they can come across a new vendor - it's a great mechanism to cross-sell solutions."
Cloudy future?
Far from heralding the end of legacy hardware distribution, many disties believe that the future will be hybrid environments, where customers will continue to demand physical products along with their cloud services.
Craig Joseph, CEO of cloud VAD IntY, said the shift from hardware to cloud services is relentless, and this is why larger legacy distributors are investing more into their cloud businesses.
He attributed this shift to the younger generation entering the workforce.
"The decision makers have grown up with subscription services," he explained.
"Cloud services are here to stay solely because of how we consume services. Distribution was revolutionised when you got next-day delivery, but the decision makers now expect next-minute delivery."
Ingram Micro's Murphy agrees with Joseph that the cloud will eventually become the dominating force in distribution, but that demand for hardware will remain resolutely strong in the channel.
"Three years ago, many people thought cloud would be the end of distribution and hardware itself," he stated.
"The reality is that hardware will continue to grow and be important alongside cloud. I think it becomes less of a ‘hardware or cloud' situation and more about hybrid cloud."
However, one of the main public cloud providers recently made an announcement that could spell trouble for the cloud love-in. In January, Microsoft announced it would be offering its Azure platform direct to end users.
Such a move could be considered a betrayal, but distie partners were relatively unfazed by the news, and do not see it affecting how they have positioned themselves in the cloud channel.
Arrow's Alton views it as a poke from Microsoft to those partners that are just selling the platform, and not making an effort to add value solutions to it.
"There is a lot of fear-mongering in the channel about it," he said.
"Microsoft is saying ‘if you are a reseller just selling the Azure platform and not adding value, why should a customer come to you as a partner?'
"Their expectation from their channel is to add value at every stage of the cycle, as well as ongoing support.
"Microsoft is the most mature cloud company and therefore bringing these announcements out first. If you are a partner of it or another cloud provider, you need to be putting a strategy in place to remain in that chain - without value it's hard to justify your existence."
Bruce Hockin, partner development director at born-in-the-cloud VAD Cloud Distribution, is more circumspect on how this move by Microsoft will affect the channel as a whole.
"I'd like to see the money kept in the channel," he said. "But cloud is commoditising and when that happens, the price comes down so there will be less margin for everyone. I hope new vendors entering the market will continue to view the channel as an advantageous way of getting into the UK market.
"We'll see commoditisation and reduced margins in places, of course. We need to transform our understanding of what the cloud opportunity is and cater to it."