The cloud is a great disrupter that means certain supply chain roles have to change completely or face extinction, industry players said at the Microsoft TechEd and Partner Summit held in Durban this week.
While Microsoft representatives continually stressed the importance of all of their partners, including those in distribution, they admitted that in reality the cloud is going to cause a level of disintermediation.
“It's the elephant in the room,” Global Micro MD JJ Milner said. “Customers are educated now and because cloud is a scale game, if you're not a major player, how do you compete?”
Microsoft's small and midmarket solutions and partners director, Mark Reynolds, said Microsoft expects 40% of new businesses to be going to the cloud by 2014. Those businesses will not be sold physical products, but virtual ones.
“Cloud is becoming a reality,” he said, “We've known it's coming for a while, now it's accelerating.”
In certain areas, the cloud will simply mean a broadening of responsibility and dealing with a different set of goods. In Microsoft's case this is true for the large account resellers and systems integrators, according to director of EMEA Cloud Partner Strategy, Martin Walker. It will simply mean adding cloud services to what is currently on offer.
The disruption for distributors will be much greater, he explained. They are used to a reselling business model, but as physical goods become virtual ones, that is going to change.
In the Microsoft context this means the distributor takes on the role of an agent, earning commission for every sale of Microsoft's cloud products rather than the old model of earning a profit on mark-up. Making the sale itself has an added level of complexity with the cloud, however.
“Now it's not a case of just selling a box and walking away, they'll have to add value on top of that,” Walker explained.
Milner agreed. “If all you had going for you was knowing where to buy something, you're no longer going to be relevant,” he said.
Adding value
However, this doesn't mean that distributors are going to have to start looking for other lines of employment.
“If you're a technologist and have some inkling, if you change your business process then there's a valid role for you,” said Milner.
Microsoft SA Server and Tools Business group lead, Johannes Kanis, emphasised that it's all a case of differentiating oneself and offering value-added services.
“Being a distributor is about supply chain, but also about bringing vendors together, and packaging,” said Walker. “If we look at the cloud world, what's the difference? You can still aggregate products, you can still give advice.”
The distributors who are at risk are those who do not have the technical know-how to transition into fulfilling a trusted advisor role.
“There are people with no skills who are [Microsoft] partners,” said HP SA manager for TS Consulting, Rudi Raath, “There isno way they can evolve their business to be technical managers and managed service providers.”
Walker disagrees. He believes distributors will be able to learn how to add value. He pointed towards big, global distributors who are pulling together to drive recruitment, education and enablement programmes that talk about evolving businesses in the cloud. He gave the examples of TechData and TDcloud, which are accessible online.
“When we look at the cloud in general, it has the capability to disintermediate the channel,” said Walker. “However it's for the partners themselves - everyone in supply chain - to deliver value.
“So the message we clearly give to distributors is that there's a place for distribution and that could be a different role to what you're currently playing and that's where distribution needs to position themselves.”
The challenge of the cloud is that there is no way to coast by not adding that extra value to differentiate you from your competitors, said Milner.
“The cracks show in a flawed business model much quicker,” he added.
“I think when you look at the cloud it has the capability to fundamentally change things but it's actually important that partners work out where they fit into the cloud,” said Walker.
“Microsoft gives them this opportunity but they need to embrace it. We can't drag them into this, it's got to be an area they want to play in,” he concluded.
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