Channel Partners — Services Opportunity in the New World

The Channel Partner community is evolving rapidly. There are multiple models and multiple ways in which a channel partner can evolve. However, the underlying fundamental truth to all of this is essentially ‘Profit’. Going back to our good old business studies, we know that:

Profit = (Price — Cost per unit) * Volume — Fixed Costs

Breakeven = when Profit = 0 i.e. (Price — Cost per unit) *Volume = Fixed Costs

So fundamentally, there are only 4 variables that the Channel partner can change in any business model i.e. Price offered to end customer, Cost of offering that service, the amount of business he/she can generate and the overall fixed costs.

The reason a lot of Channel Partners struggle with moving to cloud is primarily because, they look at reselling cloud services rather than offering differentiated services. This essentially means that the price they can offer is almost equal to the market price (with a slight variance) with fixed cost they need to share back with the original ‘hoster’ of the cloud service. This means that because they are not differentiated in any aspect, they will either sell very little of it which is Volume or will try to reduce the price to gain market share.

This is the fundamental issue that most Channel partners face today where they essentially end up using Cloud services just as a mechanism to retain their customers rather than to drive profitable growth to the organization. Over a period of time, the Cloud business unit either loses the enthusiasm or will eventually get back to the box selling approach primarily because the Business unit hasn’t been able to generate reasonable profits, which is usually a primary measure in Cloud.

In case of Channel partners offering their own hosted cloud services, the issue is slightly different. They are able to offer a good set of differentiated services, and be able to keep the costs low and raise up the Price. It looks like this is a good model for Channel Partners to drive Profitability, however the issue then is with Fixed Costs and Volumes. Because it’s a new service that the partner is offering, they will have limited reach i.e. limited volume and because they need to invest in hardware, software and services, it also means that fixed cost is high. The revenues that occur as a result will primary be on a MRR (Monthly recurring revenue) basis. If the partner keeps up with the business for long and has commitment, then they can make it very successful. However, given high attrition in the engineering community and also given the fact that management more often than not looks at quick profitability, there are many instances where this business units gets shut down even before it can even achieve break even.

What other options exists for the Channel Partner to drive a Profitable growth?

Answer: Augment offerings with Services

Cloud Services, IoT Services are evolving at a rapid pace creating new opportunities for Channel Partners. VMWare is an example of recurring subscription model augmented with high value service model (App Management, Migration etc), similarly OpenStack is a similar subscription model if augmented with services of App migration, app management, DR services etc.

Even simple offerings like Office 365 will have a new meaning if the Channel partner augments it with services of integration, automation, design, workflow management etc which can significantly drive profitability (as well as volume in the long run) for the Channel Partner.

The sheer volume of cloud offerings and IoT Platforms is creating a strong need for a consulting as well as integration practice at Channel partners. There are also niche areas that the Channel Partners can build over a period of time

At the end of the day, ‘Knowledge’ is power and this statement is very true from a Channel Partner perspective because proper enablement, training and ‘knowledge’ is key to creating a services offering that will augment the new style of business including Cloud, IoT and Big Data.