Reselling Cloud Resources - Adjusting the Business Model for Success


Reselling Cloud Resources – Adjusting the Business Model for Success
Dave Rokita – Hexagrid Computing

At Hexagrid Computing, a vast amount of effort went into understanding how computing resources are delivered to end clients.  Reseller channels have been absolutely instrumental in building trust between the end-users and the technology itself.  These channels provide incredible value.  Cloud computing seems to threaten this ecosystem.  There is buzz in the industry that cloud computing will kill the channel.  In addition, the non-stop cloud computing media blitzkrieg that pummels the IT industry confounds the problem.  Many of the VARs and channel partners experience fear and confusion over cloud computing.  The traditional wisdom states that a deluge of new 24/7 SaaS services will go directly to the end customer and relieve them from the fetters of a value added reseller.  The argument is that going direct will lower the cost, so then it must be so.

While it may be a fact that these new cloud services will put downward pressure on pricing, the customers never based their channel relationships solely on cost.  What we often forget is that these relationships are built on trust.  Channel partners make business better by understanding market verticals and addressing core needs for non-IT customers.  They make small shoe manufacturers globals players.  They turn 5 attorney practices to 100 attorney practices.  Believe me, if the major vendors could have eliminated the channel, they would have eliminated the channel. The big vendors are unable to reach all of the way down the channel and cloud does not change that.

The channel is not going away, but change is on the horizon.  Cloud will likely drive shrinkage for channel partners.  Shrinkage is usually bad, but this is more of a spring cleaning.  There is a good chance that the non-differentiated VAR’s that have been clinging to razor thin margins on hardware/software must adapt or be assimilated.  Thomas Bittman (Gartner) summed it up in his blog:

Two things are becoming increasingly clear to me: the channel will be critical in broader adoption of cloud computing (and private cloud), and the channel is not ready to do this. The channel needs to be rebooted. Until [it is], the midmarket, in particular, will leverage cloud computing in a slipshod and hit-or-miss manner. Likewise, channel partners who don’t reboot and adjust to the new reality (that more and more IT capabilities purchased by the midmarket will be coming from the cloud, and not through hardware and software sales) won’t survive for long.

Individuals that plan on reselling cloud resources for margin won’t fare much better.  The pricing war is already a race to the bottom, and the cloud service providers are going to have a hard enough time surviving the fall.  So that makes for a pretty bleak picture, right?   Actually, there are great opportunities for those channel partners that understand that the path to the cloud leads through their business and that there are many ways to monetize the journey.  Sure, companies will look to the cloud for new solutions.  Many of the will be SaaS, while others will be other cloud products (PaaS, IaaS).  One must realize that SalesForce.com is simply a one-to-one replacement for some other technology.  Amazon, Rackspace or V3Cloud simply replaces CPU, Memory, Network and Disk.  Just like buying a bunch of servers from HP didn’t streamline business in the past, going direct and buying a bunch of cloud service won’t streamline the business in the future.  The Channel Partners and VARs will work directly with the business to tap maximum potential from the various cloud products available.  Brad Vaughan‘s SysCon blog had this to say:

The “channel” has always existed to add value to that technology when the customer did not have the capability to implement themselves. It has always support complex products, of which cloud is just another.

Much like the widely predicted demise of the everlasting mainframe computer, cloud computing was to crush any alternative methods of IT swiftly and with no prisoners.  Most of us remember the prediction by Gartner that, “By 2010, 20 percent of businesses will own no IT assets”.  I am unable to find satisfactory data to refute this, but my common sense tells me that the percentage of companies that had significant IT assets in 2008 and currently have no IT assets today is closer to zero.  The point is that we are at the leading edge of an epoch in the reformation of IT.  Huge opportunities exist while this transformation occurs.  Savvy managed service providers are looking to IaaS as a launching pad for creating SaaS offering using traditional packaged software.  Using the cloud to launch their services makes sense on multiple levels:

  • It reduces the windshield time required to support customer systems
  • Customer still retains a trust relationship with the provider to off-set the ‘risks’ of the cloud
  • Partner is freed from the complexity of managing hardware assets
  • A pure service based organization becomes possible


Channel Operators are currently confused by cloud.  This confusion comes from many sources.  For starters, Microsoft tells the channel to bring their customers to them and they will be sure to make them pay on the backside.  Amazon offers no guarantees and seriously limited support.  Reseller tools and co-branding capabilities have much to be desired.  To use any of these services feels like losing control.  The resellers are once bitten twice shy.  Through either crashing margins, direct competition from their partner or more subversive methods of stealing business directly from the channel partner, many of these partners remain extremely wary of large faceless cloud computing offerings.  The pitch that they get from the cloud vendors is, “Bring your customers to me, don’t worry, we’ll make sure that it all works out”.

What does it take for VARs and channel partners to remain in control?  Hexagrid Computing ( www.hexagrid.com )builds products and services with the channel in mind.  The goal is perserving the relationship between the channel partner and the end-customer, even on shared infrastructure.  Maintaining the corporate brand and identity is paramount.  Hexagrid Computing builds cloud computing infrastructure for channel partners and VARs to manage multiple customer while delegating or retaining control as the relationship requires.  Channel partners buy bulk resources from one of Hexagrid’s growing list of international partners and receives a co-branded portal.  From this portal, the channel partner creates role-based identities for his operations, sales and support staff.  This portal is a launching pad for a complete multi-tenant cloud services.  From this portal, the channel partner creates multiple sub-clouds for their customers.  Each one is complete with its own users, servers, networks and image library.  Control is given or retained based solely on the requirements of the business relationship.  This ensures that the channel partner remains in control of the relationship and has total flexibility to create services as needed.

The channel is NOT dead (an echo of my colleague Joe Seibel’s blog).  Information technology is changing.  More services will be delivered from the cloud, not less.  Many opportunities remain for value added resellers and channel partners to establish themselves in the new world order.  The winners will waste no time determining their strategy and tactics to achieve this.  The cloud will flow through the channel.
imilated.  Thomas Bittman (Gartner) summed it up in his blog. (http://blogs.gartner.com/thomas_bittman/2011/04/07/how-cloud-computing-reboots-the-channel)

Two things are becoming increasingly clear to me: the channel will be critical in broader adoption of cloud computing (and private cloud), and the channel is not ready to do this. The channel needs to be rebooted. Until [it is], the midmarket, in particular, will leverage cloud computing in a slipshod and hit-or-miss manner.

Likewise, channel partners who don’t reboot and adjust to the new reality (that more and more IT capabilities purchased by the midmarket will be coming from the cloud, and not through hardware and software sales) won’t survive for long. Individuals that plan on reselling cloud resources for margin won’t fare much better.  The pricing war is already a race to the bottom, and the cloud service providers are going to have a hard enough time surviving the fall.

So that makes for a pretty bleak picture, right?   Actually, there are great opportunities for those channel partners that understand that the path to the cloud leads through their business and that there are many ways to monetize the journey.  Sure, companies will look to the cloud for new solutions.  Many of the will be SaaS, while others will be other cloud products.

One must realize that SalesForce.com is simply a one-to-one replacement for some other technology.  Amazon, Rackspace or V3Cloud simply replaces CPU, Memory, Network and Disk.  Just like buying a bunch of servers from HP didn’t streamline business in the past, going direct and buying a bunch of cloud service won’t streamline the business in the future.  The Cloud and VARs will work directly with the business to tap maximum potential from the various cloud products available.  (http://cloudcomputing.sys-con.com/node/1790719) Brad Vaughan’s SysCon blog had this to say:

The “channel” has always existed to add value to that technology when the customer did not have the capability to implement themselves. It has always support complex products, of which cloud is just another. Much like the widely predicted demise of the everlasting mainframe computer, cloud computing was to crush any alternative methods of IT swiftly and with no prisoners.  Most of us remember the prediction by Gartner that, (http://www.gartner.com/it/page.jsp?id=1278413) “By 2010, 20 percent of businesses will own no IT assets”.

I am unable to find satisfactory data to refute this, but my common sense tells me that the percentage of companies that had significant IT assets in 2008 and currently have no IT assets today is closer to zero.  The point is that we are at the leading edge of an epoch in the reformation of IT.  Huge opportunities exist while this transformation occurs.  Savvy managed service providers are looking to IaaS as a launching pad for creating SaaS offering using traditional packaged software.

Using the cloud to launch their services makes sense on multiple levels: It reduces the windshield time required to support customer systems. Customer still retains a trust relationship with the provider to off-set the ‘risks’ of the cloud. Partner is freed from the complexity of managing hardware assets. A pure service based organization becomes possible Channel Operators are currently by cloud.  This confusion comes from many sources.  For starters, Microsoft tells the channel to bring their customers to them and they will be sure to make them pay on the backside.

Amazon offers no guarantees and seriously limited support.  Reseller tools and co-branding capabilities have much to be desired.  To use any of these services feels like losing control. The resellers are once bitten twice shy.  Through either crashing margins, direct competition from their partner or more subversive methods of stealing business directly from the channel partner, many of these partners remain extremely wary of large faceless cloud computing offerings.  The pitch that they get from the cloud vendors is, “Bring your customers to me, don’t worry, we’ll make sure that it all works out”.

What does it take for VARs and channel partners to remain in control?  Hexagrid Computing ( www.hexagrid.com )builds products and services with the channel in mind. The goal is perserving the relationship between the channel partner and the end-customer, even on shared infrastructure.  Maintaining the corporate brand and identity is paramount.  Hexagrid Computing builds cloud computing infrastructure for channel partners and VARs to manage multiple customer while delegating or retaining control as the relationship requires.  Channel partners buy bulk resources from one of Hexagrid’s growing list of international partners and receives a co-branded portal.  From this portal, the channel partner creates role-based identities for his operations, sales and support staff.  This portal is a launching pad for a complete multi-tenant cloud services.  From this portal, the channel partner creates multiple sub-clouds for their customers.  Each one is complete with its own users, servers, networks and image library.  Control is given or retained based solely on the requirements of the business relationship.  This ensures that the channel partner remains in control of the relationship and has total flexibility to create services as needed.

The channel is NOT dead (an echo of my colleague http://www.hexagrid.com/blog/?p=128″>Joe Seibel’s blog).  Information technology is changing.  More services will be delivered from the cloud, not less.  Many opportunities remain for value added resellers and channel partners to establish themselves in the new world order.  The winners will waste no time determining their strategy and tactics to achieve this.  The cloud will flow through the channel.

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