White-Label Cloud Services: Why It's Taking Off And When You Should Be Careful

But a funny thing happened along the way -- the company realized it could make more money partnering with those third-party providers. A lot more money.

"It just wasn't as profitable to do cloud services in-house," said Erik Bodor, director of information technology at GSATi. "We've found it's much more successful to use third parties than to do our own internal cloud hosting."

By next year, GSATi will have phased out of its own data center operations and outsourced all cloud services to third-party partners. Even better? Many of those cloud providers are offering GSATi the ability to brand those cloud services as its own via white-label service offerings.

For many solution providers, it's the best of both worlds -- delivering a variety of cloud services with your own company name on them without the costs and headaches of running a data center.

And there's no shortage of companies, from established cloud providers to newer Software-as-a-Service vendors, offering white-label programs for cloud-hungry solution providers. In fact, many vendors are using white-label programs as the linchpin of their channel strategies.

ElasticHosts, a U.K.-based cloud provider with ambitions of North American expansion in the channel, launched its white-label program last year to help it go to war against larger cloud foes such as Amazon.

"It's a very quick and easy way to launch your own cloud," said Richard Davies, CEO of ElasticHosts.

CRN took a closer look at the rise of white-label services and how solution providers are branding those solutions.

WHITE-LABEL WINS

Mario Guerendo, president and CEO of Ecotech Solutions Group, has built his company's cloud business almost entirely around white-label services. Partnering around the cloud is a better option for Ecotech, he said, because even if the company wanted to invest in its own data center, the quality and reliability of third-party clouds likely are superior to what Ecotech could build. "Reliability and quality always come first when we look at cloud services. That's a must," he said.

But the real value of white-label services, Guerendo said, is around the solution provider's brand. "First and foremost, it helps with the relationship with the customer," he said. "We want customers to feel like the service they're buying from us isn't just a commodity that they can get anywhere."

Truthfully, customers can pretty much get a cloud service or app anywhere these days, whether it's direct from the vendor or cloud provider or through solution providers and cloud aggregators. But the trick, solution providers said, is providing the integration, maintenance and support around that cloud service; that's what can distinguish solution providers in the market. If white-label services can more forcefully drive that point home to clients, then all the better.

So how does white-labeling work? For pure cloud hosting or Infrastructure-as-a-Service, it's fairly easy, according to solution providers. For example, GSATi partners with ViaWest for co-location and cloud services. Because GSATi has the ability to own the branding on such services, ViaWest's name hardly even comes up in conversations with customers, said Bodor.

"We've used a lot of white-label service offerings and they are very helpful," he said, adding that it helps illustrate to clients that a cloud solution is much more than just a name on a server.

Ernesto Lee, CEO of Fusion Clouds, Fort Lauderdale, Fla., agrees. Fusion Clouds uses ElasticHosts' white-label cloud services to host virtual classrooms and lab environments for clients, and the ability to customize not only the branding but the cloud service itself is crucial for his business. "Cloud is absolutely where customers are going right now," Lee said, "and branding is important to us because it demonstrates that we are the solution."

And in many cases, it's not just the actual cloud interface or portal that carries the solution provider's name. Take Pax8, a cloud aggregator that offers its Pax8 Command Console to solution providers, allowing them to manage all of their clients' cloud services via a single dashboard.

"Every partner gets their own version of the Command Console that can be branded," said Ken Totura, chief channel officer at Pax8. "The other thing we can do is to bill on behalf of our partner. And we can provide that service in a white-label fashion to the end customer, so when they get their billing statement from Pax8, the partner's logo will be on there."

The financial terms of white-label services aren't bad, either; ElasticHosts' partners get the integration and delivery services revenue, plus 30 percent of the monthly IaaS fees. And all value-add services that come after the initial delivery go to the partners as well.

Cloud applications and SaaS offerings are a bit different than wholesale cloud services and IaaS. Solution providers can't exactly scrub off Microsoft or Google's names from their popular productivity apps. But there are white-label options.

Take Intermedia, for example. The cloud company, which specializes in hosted Exchange services, allows reseller partners to brand the service. So while a client is still using Microsoft Exchange, the hosted service can carry the solution provider's name. "They do a great job with their private-label cloud services," Guerendo said of Intermedia. "It's 100 percent customizable and you can get it up and running pretty quickly."

So when clients purchase a hosted Exchange service from Guerendo's company, everything from the interface to the contract paperwork says Ecotech, with barely a mention of Intermedia. Guerendo said Ecotech generally has stickier client relationships when it goes to market with branded services rather than a co-branded or vendor-led approach.

And while branding is great, he said, white-label services also offer pricing protection. "Being able to white-label in some cases also helps protect margins," Guerendo said. "Customers can't shop around for competing offerings and lower prices if it's our name on the label."

But is having ownership of the label all it's cracked up to be? And what happens when a third-party cloud goes down – and it's your name on the service?

WHITE-LABEL LINES

While white-label services may seem like all upside and no downside, there are some risks. For example, Intermedia suffered an outage in September, which seemingly put white-label partners in the awkward position of having to explain that "their" cloud service went down.

Like Ecotech, GSATi partners with Intermedia. So when the service went down, the solution provider had to scramble to notify clients about not only about the outage but also the fact that it was Intermedia's data center that was actually hosting the service. "It's still a burden on the VAR when a service like hosted Exchange goes down because it's your name on the service, and you just can't pass the outage off on someone else," Bodor said.

So how do customers react when solution providers explain that the cloud service is actually hosted at another company? "The psychology is interesting," Bodor said. "Customers are more understanding when a big cloud provider has an outage because when they go down, so do a lot of other companies too -- including us."

Plus, Guerendo said, most customers are usually reassured that their cloud service, whether it's software, storage or infrastructure, is being hosted by a larger, more established company.

Customers may be more understanding, sure, but that doesn't mean solution providers are out of the pickle. Bodor said it takes a significant amount of time and communication to reassure clients about the nature of both the outage and the cloud services they've purchased.

"There are a couple of clients here and there that are upset when it happens, but overall they understand that we're delivering a valuable service to them, that these outages happen, and that we're going to fight to get them back online and get them the SLA [service level agreement] credit," Bodor said. "And that's the key -- if they didn't have us and purchased the service direct, they they'd have to deal with these kinds of issues alone."

In essence, cloud outages give solution providers an opportunity to turn a negative into a positive -- if they don't completely fumble the opportunity, of course. Signature Technology Group (STG) in Phoenix has experience on both sides of the white-label aisle; the company offers its own data center services and support to other VARs, and it also uses third-party cloud services, such as hosted unified communications.

"It's a complicated matter because when you use white-label services, you're on the hook," said Charles Layne, CEO of STG. "It's your throat to choke even if it's not your service or cloud. And you're the trusted adviser. So if your clients trust you and you explain the situation, then I think you're OK."

So is it better for VARs to be up-front with clients from the beginning about the white-label service? It depends, according to Layne. Based on STG's experience with offering white-label services, he said, there's a split between its VAR customers.

"If it's a VAR with a longtime client that you've been working with for five or more years, and you're their trusted adviser, then they usually tell them about the third-party cloud even if they don't have to," Layne said. "But if it's a newer client, VARs are sometimes more reluctant to disclose that they're outsourcing to a third party."

Whichever course a solution provider chooses, it's clear the popularity of white-label services is surging in the channel. And with good reason, as VARs reap the benefits from integration and delivery services to branding and recurring revenue.

"Running our own private cloud would be a bigger liability for us right now," Ecotech's Guerendo said. "We may get there at some point, but for the near future we're sticking with white-label cloud."

PUBLISHED DEC. 16, 2013