Cloud And Managed Service Transitions: Key Channel Concerns

The move to a cloud-based or managed services strategy involves questions that nearly every service provider has grappled with, either now or in the past. But, the concept leads to a series of decision points for channel partners around key issues that involve management platform selections, white labeling choices, partnerships, geographical issues, customer attitudes, and more.

"Cloud and managed services are cut from the same cloth, and it mostly depends on how much cloth you want," said Phil Mogavero, vice president of advanced technology solutions at PCM, a Calabasas, Calif.-based solution provider. "In a managed service, the equipment can live anywhere, and it is specific to that customer, whereas a cloud structure is a shared model in which you don't really know where your services are, or who is managing it. It's just about access to an application."

Mogavero predicts that although cloud has become a focal point of the hype cycle, managed services will continue to be widely used because the cloud is often a viable option for certain customers, but not others. This is based on a variety of issues, including access, data sensitivity and a host of others.

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"So channel partners will likely want to do a little bit of managed services and a little bit of cloud, but I think the managed services piece is much more advantageous," said Mogavero. "Once you go to the cloud, the customer belongs to the cloud service provider, which dilutes the channel play to a certain extent. At the end of the day, channel partners need to be consultative and focus on providing knowledge to their customers, as opposed to providing hardware."

Another underlying aspect involves what one MSP executive describes as "a cultural change around IT, in general."

According to Lochlin Blair, vice president of channel development at End to End Networks, a Markham, Ontario-based MSP, a change in mindset needs to be accomplished in order for the services business model to be truly accepted and successful.

"Technical people typically want to be able to touch and feel their solution," he said. "And when we start to talk about putting all their infrastructure into cloud providers, you don't have access to the low-level hardware in the way that they used to have. So they get a little bit taken aback by the level of abstraction."

NEXT: The Platform Choice

End to End Networks' Blair says that his company began providing managed services 20 years ago, before the model even begun to gain momentum. One of the first initiatives was to begin the development of the company's own network portal that supports management of professional services around network design, security, help desk and technical support.

"All of our customers' networks and hardware talks to our management system in our private cloud," he said.

Although some partners preferred to select ready-made cloud or managed services platforms from a variety of sources, such as Continuum, HP, Kaseya, IBM, Level Platforms, Microsoft, Red Hat or VMware, Blair says that building his company's from scratch enabled End to End Networks to establish a highly customized platform.

"Building it was no more arduous and expensive than trying to take an out-of-the-box solution and fit it to the needs of our customers and ourselves," he said. "We'd been through a couple of attempts with standard product sets, but they never really worked the way we needed them to work. So we ended up building our own, and it's got everything integrated, including monitoring, notification, trouble ticketing, network maps, asset management, etc. And the features are all connected, which enables us to do a lot of other things with that data."

End to End also has its own channel partners that resell the company's offerings.

"We position our services as a means of bundling the entire value proposition into a turnkey solution," he said. "The channel partner can put in the circuits, the hardware, and can white label the whole thing, if they so choose."

Other partners prefer a partnering approach to business transformation that runs counter to developing management platforms and channel alliances. Gregg Pruett, general manager of CompuNet, Inc., a Meridian, Idaho-based channel company, is currently in the midst of transitioning from traditional resale to a cloud-based model.

"We are not going to build a cloud ourselves, but we're going to work with cloud builders and resell their offerings," he said. "We spent six months analyzing strategies for building our own cloud offering, but as we scrutinize the economics, we realized we could not come up with numbers that work. We could not get enough customers in our area to make the investment worthwhile. Yes, there is the management layer, but you also have to have extensive security, orchestration, some level of self-service and, of course, billing infrastructure that needs to be virtually bulletproof in terms of usage and accuracy."

NEXT: Brand And Scale

CompuNet now has a signed agreement with Xerox, which will deliver a variety of those needs, according to CompuNet's Pruett.

"It's about economies of scale," he said. "We can still have that relationship with the customer, and provide them with the comfort of knowing that we are still here and they can pick up the phone and call us. But, Xerox is bringing the billing infrastructure, the monitoring, the upgrades, the hosting and the provisioning of all the back-end components for their solutions."

CompuNet will be paid a monthly percentage, according to Pruett. But, the issue of branding is still "somewhat up in the air," he said.

"We're trying to figure out whether to leverage their brand or white label it," he said. "There are pros and cons to either strategy. But, we are likely to pursue an approach that enables us to keep our name front and center [while] at the same time leveraging the strength of their brand, which I think will give customers a sense of comfort because they will know that we are not white labeling from some small Podunk company that is just kind of making a run at this."

CompuNet's experience on the outskirts of Boise, Idaho, seems to run parallel to other small-market channel partners, as well.

Ross Toole, of Applied Microsystems, brings technology services to customers in Anchorage, Alaska. His company started out as a traditional data center integrator that migrated toward managed cloud services several years ago due to the high costs of managing a traditional IT infrastructure in Alaska.

"Customers simply could not afford to do their own IT, given the high cost of connectivity and staff," he said. "So we started to offer services, starting with storage and backup and those kinds of things. We then found ourselves writing [vertical] applications that we hosted. We ended up with a portfolio of applications and then we developed software to implement and integrate those applications and started to do more traditional managed services for smaller companies, and eventually built our own platform."

But, Toole disagrees with the use of other companies' brands, like what CompuNet is considering.

"White labeling is the only model that I would even consider unless the product has so much pull in the marketplace that users basically need to have it," he said. "If it's anything less than that, you're just promoting somebody else's brand. If your relationship is good, you might be able to keep the customers, but what happens if your contract is canceled? You don't own the customer, and you're done. You have to have your own brand."

Toole added that the sale of cloud and managed services is becoming easier, from a customer interface point of view.

"In the beginning, we were very much preaching to a perplexed audience," he said. The concept of the cloud now is a lot more accepted and understood in the general public. The barrier of entry into the discussion is a lot lower than it once was. That doesn't mean it is easy to cold call, but it's not about selling something that's completely foreign to them anymore. You just have to find a way to differentiate yourself. If you don't differentiate yourself, it is a race to the bottom."

PUBLISH MAY 31, 2013