Part IV: Evolve (Again) or Die

By John Cowan, CEO

Tiffani Bova from Gartner recently published a major research report looking at the impact of the cloud on the channel and vice versa. One of Gartner’s principal conclusions goes like this:

If traditional channel partners don’t react quickly enough to the changes in the market, they will be replaced by other channel partners in their accounts.

I think Gartner made an understatement here. I think this is a more appropriate conclusion:

VARs and MSPs must evolve to embrace the cloud or they will perish.

I’ve never really been good at the FUD propaganda. I’m a historian. And I use the benefit and insights of history to foresee future market conditions so that I can build technologies to address what I know will be the world’s business requirements.

Every thirty years or so, the market endures a technological paradigm shift. For those of you as interested in the academic side of this as I am, start with Carlota Perez and go from there. This shift invokes a process of natural selection in the business ecosystem. Just take a look at what the Internet age did to the VAR business built in the 1980’s. As margins eroded and the V in VAR was called into question, the herd was dramatically thinned. Those that survived the Internet era were either so big they could weather the storm or they changed their business model from “reseller” focus to “services” focus.

As the cloud continues to fuse services to infrastructure, the channel service provider must take the next evolutionary step. Their business must become about the cloud. And their customers will demand it because the cloud is exactly what Perez describes as the difference between a technology revolution and a paradigm shift. Cloud is not a product to sell. Cloud is a way of doing business. It is a way of delivering technology to customers.

Larry Walsh from the 2112 Group (and former publisher of Channel Insider) recently provided some valuable insight into the market dynamics of the channel as it relates to cloud. This insight was based on survey results from the recent Cloud Convergence Council study. A number of channel partners are trying to build their own cloud services offerings, Walsh observed. But “there’s tremendous risk in developing a cloud platform.” For the record, I couldn’t agree more. As a former channel partner that developed a complete cloud platform, I attest to such risks. But, as Walsh so aptly concluded, “it does have the advantage of control; channel partners are able to set pricing, terms and conditions, and operating parameters without the restrictions imposed by vendors.” So, the ideal scenario is thus one where the channel partner can reduce or absolve risk while maintaining control over the service offering to clients.

Makes sense to me.

Ok, so now what? What is a VAR/MSP to do staring down the barrel of the obsolescence gun (yet again)?

Let me start with what not to do. Don’t hand your clients over to Google Apps. Don’t yield to Gartner’s Magic Quadrant hosting providers. Don’t go off to get a Master’s Degree so that you too can figure out what the hell an Amazon instance is.

In fact, making a specific vendor product bet in the cloud business is probably the surest way to seal your fate if you are a VAR/MSP. Gartner seems to agree, making the case for traditional resellers to adopt “a new ongoing role as a broker or aggregator to various cloud offerings.” The fact of the matter is that there is no ‘clear cut’ winner in the cloud game. This is not 1990 Microsoft pitting itself against Novell and IBM. There are not sure bets or silver bullets.

The fate of the channel will depend on its ability to abstract the technology and services that underpin the many cloud vendors that have emerged in recent years. Alas, the fate of the channel will depend on client relationships and the channel’s ability to do what it did with x86 computing: Take complex technology, simplify it and apply it to customer problems in ways that they could understand and appreciate.

Sound familiar? It should.

The channel will thrive in the cloud era only if it exerts itself as the control valve to the cloud. The inherent challenge, and thus the work ahead, is the reinvention of the processes, technologies and systems that are needed to materialize the new market position.

Consensus opinion is that the reward will be worth the effort. I think analysts and experts have grossly underestimated the size of the market at stake here. They say billions. I think trillions.