Consolidation is an opportunity

Why not merge if the move to cloud is not paying off, says Rich Phillips

The past few months have seen a radical shift towards the cloud within the channel. Customers are now asking software vendors for the cloud; it's no longer something we need to push.

Over time, customers have educated themselves, recognising many benefits for their business from cloud.

This is no surprise; as competition continues to intensify, it becomes more important for products and services to promote growth, reduce upfront costs and drive innovation.

Traditionally, vendors might be selling cloud and teaching the customer. And VARs might be faced with heavily customised software matching the client's processes.

Revenue was earned via traditional technical consulting.

With cloud, the model becomes business process consulting, for which you may be able to charge more. The aim is to help the customer standardise on cloud-based processes, with minimal consultancy actually focused on the technology.

As we all know, these changes can affect channel revenue streams, with there being less opportunity to earn money upfront, at the time of purchase.

Instead, over five or six years, VARs will start to build up a huge annuity stream.

In the short term, VARs are left out of pocket. Vendors therefore need to work to support this transition. For example, we recently announced a buy now, pay later scheme, which should help.

But VARs can't just rely on vendor financing; they must themselves identify ways to source additional funds.

They should look at generating short-term capital independently.

There are many opportunities here. For example, merging with other suppliers will not only provide extra capital but increase the skills available to the merged company.

A merged company can share valuable assets across the business, contributing to growth.

VARs can also approach venture capitalists. They can provide expertise and industry connections that can be extremely valuable.

Transition can be gradual, continuing to sell traditional on-premise products and services alongside the development of the cloud business. However, the sooner you can shift to a primary cloud model, the better.

Channel companies shouldn't fear change but instead start adapting business processes to maintain competitive advantage and continue to grow.

I encourage all VARs to bet on cloud. It's the future.

Rich Phillips is UK and Ireland partner and channel director at SAP