One of the claims of many cloud technology vendors is that you can save money by dealing directly with them.
These claims are often made to justify the practice of renting software rather than purchasing it. Accounting software, for example, used to cost a few hundred dollars every two to five years, at the discretion of the business using the software. These days we increasingly rent it, in the cloud for thirty to fifty dollars a month.
The advantages to the software company are obvious, the fact that they have to work so hard to sell the advantages to us is some indication that it is something of a one way street. There are fewer advantages flowing to us.
The notion, then, that the cloud offers us a support free environment in which we can eliminate some of the costs of keeping our networks up to date, maintaining the latest version of the software and so on, is an integral part of the story. It is true, cloud software keeps improving, without any real effort on our part.
There is a further advantage. The level of integration available between cloud vendors thanks to the wonders of web-services is incredible. My accounting software, interrogates my bank accounts, submits forms on my behalf to the tax office and invoices to those suppliers using the same package. That offers a considerable cost saving. Even more impressively, at year end, it produces the paperwork to submit to ASIC, saving me $750 at the accountant.
That is a good example of the cloud delivering on its promise.
The network of computer dealers, the channel, who traditionally serve the small to medium enterprise market are themselves small to medium enterprises and they are directly in the firing line of the cloud vendors. It is the elimination of the channel that is supposed to justify the increased costs of renting rather than buying software.
Channel consultant and 2011 inductee into the Australian Reseller News Hall of fame, Moheb Moses, has written eloquently this month on the dangers inherent in this simplistic approach. As a channel consultant his job is to help resellers respond to this challenge and he makes some important points. Primary among these is identifying the real value proposition of resellers in the age of the cloud.
The value offered by software distributors and installers to customers is not neccesarily vendor-specific, they really come into their own in looking after our interests, in understanding our business requirements and fine-tuning the combination of products we need to best serve those requirements.
He inverts the traditional diagram of how the channel works to explain the problem.
“Ask most vendors why they have a channel and they will usually provide reasons like reach, coverage, access to new customers, etc. In effect they view the role of the channel as an extension of their sales force.
Interestingly, when partners are asked this question many of them also provide a similar answer. But this is a vendor-centric view of the world.
When we look at the role of the channel from a customer’s perspective, we almost need to turn this diagram upside down.
In other words, users perceive the channel as their conduit to multiple products and services from multiple vendors to create a solution. In effect they view the role of the channel as an extension of their IT Department.
He then goes on to point out that the impact of the cloud may have eliminated some of the advantages that the channel offered the vendor, but they have not eliminated the advantages that that network of suppliers and support agencies offers to the user.
The problem is when you look at it from a customer’s perspective. If we replace the channel with a cloud, as in the diagram below, the customer experience may not always be ideal.
The issue for customers (especially in that enormous gap between Consumer and Enterprise) is that they need more than single function consumer apps, and they don’t have the internal resources that Enterprise has to evaluate and build the best solution themselves.
And while the pure cloud vendors will say they have a “complete solution” they are only talking about their piece of the puzzle. For example, a cloud CRM vendor won’t sort out a problem with (say) the cloud Salesforce Automation vendor’s product. The cloud Email Archiving solution may use a completely different architecture to the rest of the cloud Backup and recovery strategy. In fact, for a lot of customers, getting technical assistance with a cloud product can be a problem because they often don’t even know where to start or their only means of communications is a faceless chat box.
So, until every vendor can solve every problem for every customer, the channel is unlikely to disappear. Yes the role of the channel will change. Maybe instead of Systems Integrators, we’ll see Cloud Integrators or Cloud Brokers. Maybe instead of profit models being based on big lumpy one-off payments, businesses will adapt to smaller monthly recurring revenue streams. But the channel exists to fill the gap between the vendor’s product and the customer’s expectations, and I think we will need companies to do that for a long time to come.
As we have written in Business Voice numerous times before, the critical element for success in an interconnected world is that we define the unique advantage that we offer, focus on that, and network with other agencies who can provide the complementary components. The twentieth century model of expanding through the value chain is only available to the very successful and very large.
As businesses facing the challenge of paying more for the software that we used to upgrade only when we could afford it we need to work out how to maximise the value we get from that investment.
Using our cloud suppliers to provide the matching of our business requirements to the mix of sofware services which we buy is almost certainly a big part of the puzzle.