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Why Resellers must embrace the Cloud
2011-07-11 16:48:25
As those familiar with SymetriQ are aware, we operate primarily through Channel Partners. We have over 40 partners across EMEA and for the most part, they have embraced Cloud Computing fully. However there are some instances where we deal with Partners or potential partners (SI's/Resellers/Distributors) who don't quite 'get it'.
This may seem strange, given that these are technology focussed organisations, in an industry where 'Cloud Computing' has been widespread for a number of years, but let me explain. They understand the benefits of Cloud Computing (no CAPEX, elasticity, pay for what you use, deploy on demand and so on). They get the fact that the organisations that they serve are demanding Cloud based solutions. They fully understand that the market is driving us all in the direction of the Cloud, yet still they do not sell Cloud based solutions.
So why is this?
Let's examine how many IT Service Providers traditionally operate and more importantly how they sell. They have a yearly target, broken down into months or quarters and spread across their sales teams. So, let's say that salesperson A has to deliver £10K of gross profit per month. He or she has an opportunity for a new application for a client. There are 2 options: A cloud solution, costing the client £500 per month. The alternative is a hardware on premise solution costing the customer £30K. The cloud solution offers brings a margin of 25% monthly. The hardware solution offers the reseller margins of around 10% (this has been driven down in recent years). The Cloud option therfore brings a margin for that month of £125, whereas the hardware based option brings a margin of £3000.
Which one will the saleperson push? The hardware option which will generate a third of that salespersons target is by far the most likely. However, a quick look at the figures clearly shows that this is a false economy for everyone (except of course the hardware vendors!). Over a 4 year lifecycle, the cloud option will generate £6K for the reseller - twice that of the hardware option. Of course, there is a chance at the end of the 4 years that the reseller may be lucky enough to sell the same hardware again - but will end users really still be buying hardware in 4 years? Additionally, the cloud option generates a recurring revenue stream, which may well increase as the customer scales up use of the application. For the end user, Total Cost of Ownership (TCO) is actually reduced, when electricity, hardware support, software licensing and so on are factored in.
So, the best option is in fact the Cloud option, but it is easy to see why salespeople/consultants at resellers, who have not updated their sales model will continue to fall into the trap of selling hardware. In the medium to long term, this will alienate customers, who have already begun to see the cloud as a better option, increase operational costs in order to support the legacy hardware and leave the reseller behind the many who are embracing the cloud.
The message to IT resellers is clear - embrace the Cloud or be left behind.
To find out how to make recurring margins of 25%, contact SymetriQ
Johnny Paterson
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