The move to cloud computing is happening faster than expected, and companies in the channel must rework their business strategies now or see their traditional business eroded.
Cloud computing has been on the horizon for years, but is now gaining momentum, despite a need for more bandwidth and concerns about security. Companies in the sector say the step-change in computing is set to accelerate.
However, not all vendors and distributors have woken up to the need to change business models and some are still grappling with what the shift means. Delays in executing a new strategy will spell disaster for laggards.
EOH executive director Rob Godlonton says: “Eighteen months ago, there was speculation that the development of cloud computing was still two to three years away, but the reality is that it is being adopted faster than anyone could have anticipated”.
Godlonton warns that channel companies must re-examine business models, because they can't assume that all their clients will operate private clouds. As a result, he says, vendors that don't secure client relationships could see sales going to competitors.
“Most of the growth we are seeing in cloud computing is in the development of private clouds. However, we anticipate a rapid move of small- to medium-sized businesses to public clouds in the near future,” says Godlonton.
Godlonton says the channel must wake up and accept that cloud is going to happen. If firms don't lock-in clients, they will lose out on their traditional business, he says. “Traditional outsourcing, as we know it, is on its way out as we move to cloud computing.”
Buying patterns will also change, as companies spend less on physical infrastructure, says Godlonton. “Anybody with their head in the sand, who doesn't believe it's coming, will be dead in the future.”
Slow start
Hosting services provider Global Micro MD JJ Milner says established players are starting to understand the role they will need to play, but most still have to develop and execute a cloud strategy.
“Smaller channel members have been very slow off the mark. They are still unaware of the potential threats that cloud computing means to their existing business model,” says Milner. The market will consolidate, because cloud is about scale and smaller operators will be forced to partner, or will be bought out, to compete, he says.
Clients will buy less server hardware, because of the shift to cloud and advances in virtualisation technology, says Milner. Slower spend will be partially offset by investments from Internet service providers, cloud providers and data centre companies, he adds.
“It is critical that channel providers recognise that, in the world of the cloud, anyone can deliver services to their customers, free of legacy investments, at a delivery cost impractical for the channel provider to duplicate,” says Milner. If channel companies don't move up the value chain, they will cease to be relevant, he warns.
Mark Reynolds, segment director for small and mid-market solutions at Microsoft SA, says cloud won't replace all traditional IT spending in the next five years. However, he says, it will reduce the current market opportunities for traditional partners.
“One thing that is for sure is that partners will need to collaborate closer than before to offer consolidated offerings to the market,” says Reynolds. He says cloud represents a large opportunity for companies that embrace it, as channel companies could open up new revenue streams.
Microsoft SA predicts that as much as 40% of its new small and medium business will be generated from the cloud by 2014.
Early days
However, channel players are still grappling with what the shift to cloud will mean for their business. AxizWorkgroup executive director Craig Brunsden says: “It's still too early to tell what is going to happen or what the right approach is.”
Brunsden says the company is considering its options and understanding various vendor strategies, before taking concrete steps. “It's about working out the distributor role in the various models. Cloud is not just one market model, but possibly four or five, which all have different implications for a distributor.”
AxizWorkgroup believes the bandwidth that is currently available locally isn't yet able to deliver on the “cloud hype”, but this will change within the next three to five years, says Brunsden.
Richard Sloane, Westcon Group technology strategy director, says: “Vendors, resellers and distributors are all grappling with new requirements emerging from this nascent space.” The shift to an operating-based model instead of upfront capital investment challenges fundamental business procedures, he says.
Some channel partners will move aggressively and build margin-rich consulting and managed services practices (early adopters), while others will take a wait-and-see approach to see how the market shakes out. Alternatively, some might ride out the change until their legacy business dries up, which could be years away
Westcon will have to develop new capabilities to respond to this emerging market opportunity, which includes risks it hasn't thought about before, says Sloane. ”We are already working hard to develop new models to help us manage and mitigate these risks.”
Over the next few years, data centre sales will consolidate as more companies move to the cloud, says Sloane. “This might not translate to fewer product shipments, with the exception of servers due to the impact of virtualisation, but it may mean few buyers,” he says.
Sloane says vendor consolidation is already happening in the US, and strategic partnerships are also on the rise. “We also expect to see consolidation in the channel as resellers reposition themselves to address the cloud computing opportunity.”
Related story:
Cloud computing baffles SMEs
Share