Can channel Luddites survive the cloudy storm?
The problem for Luddites is tomorrow, argues Appura's Julian Painter
Why it's great being a Luddite: as a reseller or distributor, focusing on 'selling the tin' gets you great profit on wonderfully fat capex deals today. You get to wake up in the morning and milk the hardware vendor sales cash cow today. You get to sell reassuringly expensive hardware maintenance contracts today. You get to pay well-motivated staff chunky bonuses and commissions after the full profit of the deal has materialised.
The problem for Luddites is tomorrow. Worse than that, the challenge is that tomorrow is happening today; however, being a Luddite, you won't know it, and that's why Luddites in the channel will be refreshing their CVs more often than they'd like. The Luddites were textile workers in the 19th century who protested against the introduction of technology that increased efficiency in the workplace during the industrial revolution between 1811 and 1816. The phrase Luddite is rumoured to have been coined after the poster boy for the movement, a particularly angry youth called Nedd Ludd, smashed up two stocking frames before eyeing up newly developed power looms for the same treatment.
Why is all this relevant to the IT channel? Well, it's important to analyse yourself and your channel business to recognise if you're a Luddite. Cloud is disrupting reseller models the world over, and particularly in the UK where, according to IDC, the region accounts for 30 per cent of western Europe public cloud services revenue, a market destined for $200bn by 2020. Earlier this year a Cloud Industry Forum board member warned that distributors have to evolve to avoid being frozen out of the supply chain. This is evidenced by the success of a channel-first company you may have heard of called Microsoft. From being criticised for its lack of a cloud strategy less than 10 years ago, it has moved to a position where more than half of its SMB revenue is coming from cloud. Microsoft sells more Azure cloud product in the UK than any other business, and considering it's a channel-focused business, that's disruptive.
When Microsoft was at its cloud transformation peak two years ago, what were the Luddites in the channel doing? The answer is that only three per cent of the Microsoft channel were selling its cloud portfolio; the Luddites were languishing in the 97 per cent. Channel leaders can either fight the cloud storm or reshape to sail the monster winds and waves caused by the storm. I met with HP two years ago looking to transform the way HP delivers cloud. The most important question in the eyes of HP was 'how would the proposition enable HP to sell more software and servers?'. We at Appura say that the important question should have been 'what do our customers want from cloud?' because roll forward to 2016 and HP is disposing of all its software assets and trying to align itself more strongly with cloud. In the words of Agilitas chairman Tom Kelly, resellers can no longer afford to hold huge inventory of spare parts "because the world has changed".
For Luddites, the writing is on the wall, and in the press. In recent months we have seen Dell publish losses of greater than $100m (£80.5m), European cost-cutting by Ingram, a Misco sales slump, and SCC stating that its first sales redundancies in 10 years reflect cloud shift forcing it to let go of hardware specialists. Channel leaders re-engineering their minds and businesses for cloud alignment have set themselves up for converting the potential of cloud into fast-growing, profitable, annuity-based business delivering an experience that their customers crave. They are locking in loyalty, leaving very little for the Luddites who eventually come around. Owners of UK cloud MSP businesses are sipping post-buyout espresso martinis, with Attenda (Ensono) and Adapt (Datapipe) acquisitions recently hitting the news. Cloud channel pioneers will also capture the business that is yet to materialise. Eduserv proffers that over 40 per cent of councils are missing a trick by having no cloud strategy. These businesses will turn to someone to help them and will convert much of their capex budget to opex in favour of these cloud pioneers. One place they won't turn to will be the VARs that are frozen out of the cloud supply chain - the Luddites.
Julian Painter is CEO of Appura