The move from resale toward a business model built around monthly recurring revenues is an especially hot topic this week at Ingram Micro's annual Cloud Summit, being held this year in Phoenix, Ariz., and attracting channel partners from throughout North America.
Monday's event focused on a variety of breakout sessions designed to help partners develop effective, efficient and successful migration strategies.
"Partners need to start with high-value, high-margin solutions that are sticky, and provide differentiation for your business," said Dave Zwicker, partner with MSPExcellence, an Andover Mass.-based consultancy focused on helping channel partners make the change from traditional resale to a monthly recurring revenue model. "It requires a very systematic approach to understanding your customers, your skills and the direction of technology."
"Start with a GAP analysis that assesses your strengths and weaknesses," urged MSPExcellence co-founder Todd Hussey. "Next, create a road map that starts wrapping a value proposition based on your customers' needs. Who are your ideal customers? What do they need? Then begin to develop suites of cloud services that meet those needs. Cost everything out. Certainly there are fees, but don't forget your cost of labor and facilities and everything out. Some people tell me they're running 50-point margins, but when you start digging into those numbers, their margins are nowhere near that high."
Hussey told the gathering that the process is a necessary first step toward determining how to package, bundle and price cloud services. "The next step is to set performance objectives for sales. All this culminates in a model that is basically a 'business plan in a box.'"
The methodology seemed to resonate with channel partners attending the session.
"These are things that we need to look at systematically," agreed David Krueger technical account manager with Loffler Companies, a Bloomington Minn.-based VAR. "We face a lot of challenges around multi-vendor, multi-layer solutions. Then there are things like contracts and billing, and trying to keep it all seamless for the customers."
Maintaining a systematic approach was also the central theme for Paul Dippell, CEO with Service Leadership, Inc., a Plano, Texas-based consultancy that also helps channel partners crunch numbers and develop strategy on their way toward becoming cloud solutions providers.
NEXT: 3 Skills Necessary For The Private CloudA self-described "operational guy," Service Leadership's Dippell told onlookers that for most channel partners, the best strategy will be focused on white label resale.
"I don't think 'resale' is a bad word," he said. "But they need to build their own white label brand, because if the customer learns the name of the service provider behind the scenes, then the margins become a race to the bottom. They will immediately find another channel partner working with the same provider in order to leverage a better deal. And no one has ever figured out how to maintain high margins on identical stuff being sold by someone else."
Dippell acknowledged that cloud services are often a low percentage of overall revenue for most channel partners, but he was quick to add that the growth rates tend to be pretty impressive.
He also told the gathering that private cloud offerings are only viable options for very few partners.
"In order to compete in the private cloud, you need three skills," he said. "You need to have strong technologists who are totally in love with the blinking lights. You also need exceptional financial management skills with people who are experts in raising capital and managing cash flow. Finally, you have to ramp sales quickly enough to support a technology refresh in three years. By that time, equipment will start throwing more errors while advances in technology will start giving your competitors greater advantages of efficiency.
"If you can do all those things in a first-class manner, then stand-up your own data center," he concluded. "If not, then white label somebody else's offerings. Be loyal to your vendors, but don't talk about their brands. It won't add to your margins. It can only erode them."
PUBLISHED APRIL 8, 2013