Are You Funding Your Own Failure In The Cloud Transformation?

Why are we so successful with our traditional on-premise businesses while adoption of cloud services is on the rise? That is the question being asked by several VARs across the country as they tell me how well their businesses are doing even though the cloud transformation is rapidly approaching. Despite this massive change in the air and the conversion to "as-a-service" models, several large to medium-sized VARs are seeing exceptional growth in traditional on-premise solutions. Here is a sample of what I'm hearing:

• "We are seeing more purchases from our customers showing that the economic trend is up."
• "Our customers are refreshing data centers and servers they have not replaced in five years and are investing more in automation and orchestration tools."
• "We are also seeing our partners (e.g. HP, Cisco, EMC and VMware) developing some innovative programs to help us retain margin and increase profitability."

So it is clear there are good things going on in the economy that is helping VARs be successful, especially those with strong vendor relationships. But, being good can actually block you from further success because you are too busy working "in" your business instead of working "on" your business and planning for the future.

[Related: 6 Revealing Cloud Storage Statistics ]

It's easy today to become complacent and enjoy the success you have earned; however, there is a tremendous storm brewing that most VARs don’t see as of yet. The large manufacturers, however, have funded studies that show them where they should invest for future growth, and it's not in the large companies. With the wide acceptance of cloud technologies driven by the mobile market, manufacturers are focusing on how to capture the SMB, specifically companies of 100 people or fewer. A study by Cisco Systems of SMB public cloud adoption forecast a $51-billion interruption in the enterprise market all by companies of less than 50 employees.

Small businesses are certainly on the rise. The talented people let go during the economic downturn are starting their own businesses at a staggering rate. If you were starting a business today, how much capex would you invest in from an IT perspective besides some tablets or phones? Do you want to sign a long-term contract and buy thousands of dollars of software and integrate it? Probably not -- you want to pay for what you consume so your opex is low.

Why are you seeing more margin and better programs despite the support for the cloud from all of your partners and their upcoming focus in the SMB? Bottom line, top-line growth is needed to keep stock prices up until the true profits of the "as-a-service" model can be monetized in a way that can be easily understood by the street and investors.

So, your partners must fund your long-term failure to sell more traditional solutions. They are doing this by investing in enhanced marketing programs, funding for events, rewards trips and president club trips and of course with spiffs directly to the critical account managers. These investments are critical to your profitability, and in order to continue to earn them, you must sell more traditional solutions and the cycle continues.

NEXT: Revealing CIO Research

Recently, I was asked to do research for a startup focusing on big data that gave me access to 20 CIOs from large and medium-sized companies (for this discussion, a medium-sized business is 100 to 500 employees, and a large business has more than 500 employees). I talked with these CIOs about a variety of topics in order to understand how they were adopting big data and what value the channel and their existing relationships bring to that effort. I found there were some other key items that seem to be driving behavior in these organizations related to virtualization and cloud adoption.

Most of the CIOs cited cloud as one of their key initiatives, which is no surprise based on Gartner, Forrester and IDC surveys about cloud adoption. However, what I found interesting was they all told me they anticipated this would be the last time they would invest in hardware or on-premise solutions. They are in the process of buying hardware and solutions that enable them to modernize the last parts of their current environments and all expect they will be able to fully consume IaaS and PaaS in the next three years or less.

So, businesses both large and small are focused on the cloud, but for VARs today, the pressure is coming from service providers, which are replacing the traditional VAR in sub-50 user companies looking to consume business services without a hardware investment. Those same service providers have implemented middleware that allows them to provide data integration services to bring multiple SaaS-based solutions together to provide more value. It is clear the VARs of today are living on borrowed time as the market, competition, funding and the way customers buy are changing at Internet speeds.

What are you investing in today -- more sales engineers or solution architects to implement hardware and drive vendor certification for broader discounts or application developers? Where do you fit in the cloud ecosystem? Do you truly have something you can sell that is recurring revenue? How are you going to provide traditional reseller services that are now being provided by the service provider? What value do you add when there is no hardware to sell?

You must adapt to the speed and the way the new breed of small businesses operate. What do they look like? They are nimble -- they are only used to waiting one second on a Web page; can you respond at that speed? They are self-service oriented and expect to be able to interact digitally with their providers. They don't have compliance issues, so there is no roadblock, and don't create one! They don't want to buy hardware because they are mobile and working at all hours. They are connected socially, and their friends' recommendations matter. How are you going to create tremendous value for these customers when your business model relies on the sales of traditional solutions?

NEXT: Let's Start A Discussion

We want to hear from you and learn about your solutions. Let's discuss and push the boundaries and create new ideas that benefit all channel partners. If we don't push for change now, many channel partners will be left out as the market we work in changes dramatically. We want you to be part of the new ecosystem. As Thomas Edison said, "Vision without execution is hallucination." I know there are lots of us talking about the vision -- now let's all go execute!

John Ross is an IT consultant building new service offerings for channel-focused customers and partners. John holds positions with several leading manufacturer advisory councils and regularly works with IT analysts to help define major paradigm shifts in the technology industry. He previously was CTO of Kittery, Maine-based GreenPages Technology Solutions.

PUBLISHED FEB. 15, 2013