With cloud, what forecast for the channel?

The arrival of the hyperscale clouds has meant sweeping changes to the channel business model. How is it faring?
Matthew Burbidge
By Matthew Burbidge
Johannesburg, 05 Oct 2023
Andrew Moodley, Axiz
Andrew Moodley, Axiz

What effect has the hyperscale cloud had on the local channel? To get the view from a distributor, I put the question to Andrew Moodley, chief digital and marketing officer at Axiz.

Moodley quotes Jacques Malherbe, the company’s CTO, who passed away last year, as saying cloud disintermediates the channel.

“That’s the reality we have to deal with. Previously, the channel’s value was the bricks and mortar, the credit, the shipping and logistics. The cloud disintermediates that because it doesn’t require any of the underlying constructs of the channel. The technology has moved on and we have to grow up and live that fact. I work in distribution, but for my private Microsoft 365, I swipe my credit card every month. I also want the choice to go to Google Workspace next month.”

And while it’s a wonderful thing for the end-user to transact directly, Moodley says somebody still has to do the work.

“Even though consumers can buy Netflix or Microsoft directly, when it comes to enterprise technology, somebody has to set up your data lake, and all the other things you require to use those services in the cloud. The decoupling of the licence from the channel, the end-user – the consumer or the enterprise – has left us with a question: how do they use the channel to get the services they want?

“None of the professional services businesses I know make healthy profits unless they include product in their offering. The ones that do make money selling services, sell services to the channel or to the vendor.”

New business models

He says that most of its channel partners sell a lot of product, and on the back of that, they implement services. He adds that building a services-only business to satisfy the channel demand was too fastmoving, in his opinion.

“If you give access to your product directly to the enterprise, it happens too quickly for the channel to transform its business model to a services-oriented business. We’re seeing our partners struggle with this. They want to be a services business and understand the value, but their underlying profit model still expects to sell the licence, and the renewal, and sell the ongoing maintenance and support. In many cases, that’s now been taken away from them.”

The current channel has to learn to work with the hyperscalers because you obviously can’t compete with them; they’re the 300-pound gorillas in the room.

He is seeing players “reassemble” their business models. “Some are going with a services model, for others, it’s a cloud reseller model, and some are doing professional services and migration.”

He says a few resellers are now able to offer a service because of the cloud, such as a digital collaboration using Microsoft and other technologies.

“Or they were a managed services partner, and now offer a collaboration suite they’ve built themselves. They’re carving a niche. We’re also seeing a decoupling of the vendor and the partner. Now the partner is saying they’re a collaboration or security expert. They’ll have the vendor credentials, but the partners are arriving with their own identities and offers.”

Moodley says Axiz has taken the view of not disrupting its underlying business plan, and has built a cloud “centre of excellence”, adding that some of his competitors have built a separate company, with a separate team.

“We didn’t want to leave our traditional business behind, so we found a hybrid way. We may not be able to move as fast or acquire as many vendors as we would want to, to build a cloud practice, but we’re going to transform ourselves at their pace.”

And there are new competitors, in the form of the telcos.

“They’re competing in the same cloud space as us, and their value proposition is similar to ours,” he says. That’s not a bad thing, he adds, as it shows “how the world is changing”.

“We premised our business primarily on product, and services related to the product. The telcos have a totally different basket of services, plus they have our value proposition. They’re becoming very dominant in this space. They also have the balance sheet, where they can do some financial juggling, which they’ve been doing for years. We don’t have the luxury of doing that. The telcos are the new channel for cloud, and I see them emerging as strong competitors.”

And if it wasn’t already a crowded field, the hyperscalers are also becoming channel partners to the traditional enterprise vendors.

“The vendors are seeing the hyperscalers as a route to market. Not only is the hyperscaler a purveyor of their own technology, but a purveyor of all other vendors’ technology as well. You can go and buy your Trellix licence, or Palo Alto or Cisco security licence, an iOS firewall or renew your support services via the hyperscaler. They’re a new channel to market. The current channel has to learn to work with the hyperscalers because you obviously can’t compete with them; they’re the 300-pound gorillas in the room.”

The engine room

The result is that enterprises are now “spoilt for choice”. “We’ve always said that the power is moving to the consumer. With these models, there’s significant power moving to the enterprise. The interesting question is: how does the channel work within this new framework? How do we transform ourselves to become more relevant to the enterprise?”

An enterprise vendor can release whatever technology it wants, but enterprises can’t consume it unless the channel can enable it.

Nevertheless, there’s still a job to be done, and he says in the case of a service like Uber, there still needs to a driver and the car still has to be serviced and washed.

“We’re the engine room for technology, and the cloud. An enterprise vendor can release whatever technology it wants, but enterprises can’t consume it unless the channel can enable it. The channel sources the technology to solve the business problem of the enterprise.

“In this new world, where the enterprise can procure the technology directly, and spin up AWS or Azure or Huawei cloud directly...this is the real problem that the channel is contending with.”

New fighters

Moreover, geography no longer matters. “You can now buy Microsoft or Huawei cloud from a Turkish reseller who has a franchise for South Africa and has spun up a store,” he says.

Speaking about the Axiz centre of excellence, Moodley says it’s built its own platform and refined it over the last six years.

“We wanted to be responsible for our own digital transformation strategy. We need to be able to build APIs, and translate our organisation’s value into technological IP, which we’ll be able to disperse at scale. Instead of buying someone else’s platform and executing their strategy, we built a single multi-vendor platform. The market is moving so fast that we don’t know what we’ll need in three years’ time, but we need the agility to respond to the market independently.

“The underlying proposition is the technology, but it’s not the reason you’re coming to us. It’s about what capability we’re making available to solve a problem for the enterprise. We’re also thinking about what our customer’s customer wants, and enabling our channel partners to be more successful.

“Everyone has access to the same technology now. I can spin up a number plate recognition system in AWS or Azure. Before, you’d need deep amounts of technical skill and competency to be able to do that. It’s changing the game for everyone.”


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