XChange: Charting The Channel's Path To The Cloud

"Those days are over," said Everything Channel CEO Robert Faletra during his general session address at XChange Americas 2011.

Instead of channel conflict, solution providers are talking about cloud computing and trying to figure out how to transform their business models and adapt to new technologies like virtualization. And these discussions are taking place during a time of extreme tumult in the channel; Faletra presented data from Everything Channel's research that showed the number of North American solution providers has fallen from 250,000 to approximately 189,000 this year.

But Faletra said he expects that number to climb back up over 200,000 soon as more channel startups are launched around cloud. "Solution providers, we believe, at least in the near future will be focused on building private clouds," he said. "We see a new ecosystem forming."

The weakened economic recovery has led to businesses and government agencies to leverage cloud computing to reduce costs, while the transition from capital expenditure spending to operational expenditures has enabled companies to invest more in cloud solutions and other business transformation services.

Faletra also said another trend is shaking up the industry: the massive proliferation of mobile devices, both at the consumer and commercial levels. "Mobility is just taking over," he said. "It's a huge opportunity for everyone in this room."

But cloud is the key force that's causing VARs to rethink their entire business models. Faletra explained that Everything Channel, based on extensive research, has grouped solution providers into three groups: vintage, which consists of traditional resellers that take title of vendor products and sell them on-premise to clients; progressive, which includes solution providers that focus more on selling services, with some on-premise services and some off-premise cloud and hosting services; and transformative, which consists of newer companies that focus virtually all of their business on off-premise services like cloud.

The path that leads traditional VARs to the cloud, Faletra explained, starts with on-premise product reselling, which then moves to on-premise services, and later some off-premise services like hosting and managed services, and then finally to off-premise cloud services and cloud building.

Faletra invited two solution providers with cloud experience on stage to share their stories. Dave Rice, CEO of TrueCloud, a former Fortune 500 CIO, started his company three years with the goal of creating a cloud-focused IT services firm. Rice said he got the idea after playing the popular PC game World of WarCraft with his son and realized that if a complex game can be delivered to millions of people over the Internet, then the same could be done with enterprise applications.

Meanwhile, Paul Hilbert, partner at Network Doctor said his company was started as a managed service provider nine years ago. But when he heard about cloud computing at a session during XChange Americas 2009, he began looking at transforming his business. Soon, Network Doctor was building private clouds for clients, which led to double the revenue the solution provider earned through traditional managed services.

Despite achieving success with new cloud models, both Rice and Hilbert gave XChange attendees words of cautioun. Hilbert said building private clouds independently with no third party support was extremely difficult in terms of the costs and training involved. Meanwhile, Rice warned of "cloud washing" – companies falsely claiming they offer cloud solutions. "I think it's a confusing time right now in terms of choosing vendors," Rice said. "Basically anything moved off-premise is being called cloud, which can make things confusing."