The latest updates from our team of experts. Find out what’s happening here at 6fusion and our take on the industry at large.
Betting on Legacy Distribution Strategy for Cloud Future
Throughout the 1990’s Michael Dell was the poster child for IT Channel disintermediation. His ‘direct’ sales model took the industry by storm. Leveraging logistical efficiency and a ‘no middle man’ mantra were hallmarks of Dell’s strategy. Interestingly though, Dell has in recent years given the entire model a rethink. Nowadays, Dell sells heavily through the channel.
Pioneering giants of cloud computing looked very much like 1990’s Dell in the early days. And, just like Dell, companies like Rackspace and Google are starting to realize that the Channel plays an important role in the IT service supply chain and broader ecosystem – a horn I have been blowing for years. Gartner, in a recent report addressing the impact of the cloud on the traditional IT channel, also recognizes the same trend, noting:
Even the largest cloud brands (Google, Amazon and salesforce.com) are seeking to leverage indirect channels to reach markets and customer segments they can’t get to themselves. They, too, are looking for more partners to invest more heavily in skills and capabilities to integrate their cloud-based services.
What I find even more intriguing is the extent to which Gartner goes beyond the basic observation to create a call to action. “Work aggressively,” Gartner advises cloud companies, “to build the appropriate channel program infrastructure to recruit, enable and train a new set of channel partners to accommodate the fact that not all of your existing partners will make the transition.”
Interestingly, the Gartner report does not touch at all on the role and future of traditional IT distribution. Distribution represents large-scale buying power and market coverage to aggregate the MSP and VAR communities on behalf of vendors. Leveraging scale efficiency to sell large volumes on thin margins and a better logistical framework than any of the manufacturers allowed distribution to create an important niche for itself during the client/server era of computing.
The realization of the Channel’s importance to sustained market success for cloud companies, coupled with the radical change the cloud era generally represents, creates a fascinating paradox for distribution. Cloud is not a business delivered through supply chain EDI, warehouses and net 30-day terms. The cloud is a virtual technology product of sorts. Thus Gartner aptly concludes, “any company that relies on the product transaction (hardware and software) to drive attached services revenue supported by ongoing maintenance contracts will have to rethink how and what it offers its customers today and in two or three years.”
Companies like Ingram Micro have been very vocal about the channel and the cloud revolution. But to date I would consider the effort, shall we say, lacking inspiration.
Because like most big companies in our market that can sense the disruption and fear obsolescence, they revert to what they know. In the case of IT distribution, what they know is Product Line Cards. PLC’s basically amount to glossy placards that list the names, descriptions and manufacturers of products they sell.
In essence, early adopters in distribution, like Ingram, have lined up some heavy hitters and they are trying to promote those brands the way they would promote printers, computers and peripherals. Sure, they put it all under a new division and they wrap some captive managed services in there. But isn’t that really just a pretty dress on the bearded lady (no offence to ladies with beards intended)?
The line card strategy is fatally flawed because it misfires on what is a volume business model (cloud) with what is needed to exact a volume play (access to markets).
So if the handy line card plays won’t cut it, what exactly is needed to realize the riches for distribution? That is a complex question that won’t get answered here. But I can share some thoughts based on what I know about cloud and the IT service market:
1) Standardized Skills
The cloud is a nascent and immature world where skillful market execution is extremely hard to produce and the skills to do it are even harder to find. Cloud is missing the underlying foundation of training and certification (think A+, CCNA, MCSE type programs), which buttress efforts to make meaningful market penetration in the IT service business. Until that happens distribution needs to KISS (Keep It Simple Stupid). Distribution needs to cast as wide a net as possible without overwhelming the VAR community with scores of technologies for which training is embryonic at best.
2) Technological Abstraction
Winning at the distribution layer in the supply chain means recognizing what you truly need in order to capture the foundation of a nascent market. I’ve blogged about this subject before, but what it comes down to is making complex technology simpler to consume. Giving me brochures for a bunch of cloud vendors is a useful visual, but that’s about it. Show me how I can reduce vendor sprawl, universalize my customer SLA, and expand markets with as little capital and effort as possible. That would really raise some eyebrows.
3) Integration & Interoperability
The cloud is not about selling product silos to your customer base. That is so 1995. The cloud is about selling the bridge between legacy IT and the future of IT delivery. In order to do that you must have tangible and meaningfully integrated solutions that solve real problems for the partners who sell them and the customers that buy them. I liken the cloud today to what the Remote Monitoring and Management software vendors went through during the early MSP days. Selling RM&M product is nowhere near as powerful for the VAR partner and meaningful to the customer as selling an IT management solution in an MSP fashion.
All of this makes the early adopters in distribution at risk of either being too early (the market may be ready for line card distribution five years from now) or too late (they are now pot committed just like in a good game of poker and can’t turn back).
Either way, the field of opportunity for distribution is still anyone’s game at this point. There is a lot of market to be had for the company that steps up with the right model to truly leverage the power of the IT service channel.