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Clouded House

South African distributors have to adapt to the cloud world. when resellers or end-clients buy directly, they have to add value into the chain. What are their models? And how are they adapting?

Recent World Wide Worx research found that 90% of companies in South Africa increased spending on cloud last year, and 83% are planning to increase budgets in 2018.

 

In the traditional channel ecosystem, distributors are a key part of the puzzle, and offer, among other things, skills, credit and financing to help vendors reach the long tail of thousands of partners. However, the dynamics of the cloud world are somewhat different to what the traditional channel knows. The Margin spoke to local distributors about their plans for growing the cloud market, and how they’re dealing with the changes.

With a well-established local channel, microsoft boasts a handful of indirect distributors, among them Axiz, First Distribution, Westcon, Tarsus on Demand and Rectron.

According to Elaine Wang, cloud and software solutions director at Rectron, resellers are now facing challenges assisting SMEs in moving to the cloud. Instead of just selling licences, as the company had previously, Rectron has now established a dedicated team to assist with cloud deployments. Wang identifies that closing the skills gap is vital.

She says even with all the information on the internet, in some cases, the tools vendors provide can be hard to navigate.

“Training is something we do for free, because we understand that if our resellers are empowered to take the message to market, we’ll see the benefits.”

Traci Maynard, Microsoft executive at Axiz, says the monthly billing of cloud also resulted in a fundamental change in the business. The 15-year-old legacy of microsoft Open licensing programmes has been characterised by annual renewals, or upfront payments every three or four years. However, the shift of cloud to monthly billing gives partners a huge opportunity to charge for services monthly.

“The great thing about annuity revenue – month-to-month billing – is that you have a very good idea of the revenue you can expect to see each month. resellers can make extra money by offering additional services and support, such as a security add-on to Office 365,” she says.
 
More services

Wang says rectron is now playing a bit more in the security space. The company has also seen an opportunity for growth in the ERP arena, specifically with a solution called Palladium. She says while small businesses could probably still get by invoicing with Excel, as soon as the business grows, it would need an ERP system that will track growth and other metrics.
 
“The vendors have made it incredibly easy for end-customers to buy services directly through them. However, the channel still adds value by providing services, such as consulting, infrastructure architecture and design, migrations and deployments, and ongoing SLAs,” says Wang.

“Going one step up the chain, distribution continues to service an important channel enablement function. The cloud opportunity requires a different set of skills – Rectron still helps resellers with sales and presales discussions at end-customer level, in addition to providing deployment and migration assistance to these partners.”

She says vendor roadmaps are often complex, and distributors can help the channel to navigate this complexity.

Providing a platform

Maynard says distributors have generally opted to provide a cloud management platform to help resellers deal with the provision of cloud services. She says some distributors have chosen to purchase an existing platform, such as Westcon adopting SkyKick, and Tarsus on Demand using Odin.

“There are major benefits for a distributor to purchase a pre-existing platform. For example, the go-to-market traction is extremely fast. There’s also a set of outcomes based on experience by the platform builders, which means the user experience is predictable. The website and offerings are also easy to predict as manuals for formal documents already exist.”

The downside is that any local adjustments may take some time. Axiz chose to build and develop its own unique platform, which is easier to tweak based on partner feedback or user experience, she adds.

“Our AxizCloud self-service management portal enables the management and deployment of licences, which have been a key to the success of our reseller partners. They don’t need to have any expensive technical competencies to sell, manage and deploy cloud licences,” she says.
 
Maynard says in the two and a half years since Axiz adopted the microsoft Cloud Solution Provider (CSOP) programme, the transition has been particularly fast for those resellers that have embraced cloud.

The growth of CSP in the middle east and Africa region was 500% from July 2017 to July 2018, she says.

Maynard says 40% of Axiz’ microsoft licencing revenue in FY 2018 came from the CSP programme.

Wang says that cloud now accounts for roughly a quarter of Rectron’s business, adding that it’s not an entirely fair comparison as on-premise software licences are often more costly.

“Ultimately,” says Maynard, “the distributor’s role in the channel hasn’t changed. We extend credit to partners procuring cloud and we offer technical expertise. The difference here is we’re holding virtual, and not physical stock, so the burden on the distributor’s cash flow is somewhat alleviated.”

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