Reseller revamp needed for cloud opportunity

Growing interest in cloud computing services and product s will greatly impact local IT resellers. Old business models and sales pitches will have to be abandoned. Even resellers that shun cloud sales will need to relook at how they do business.


The growing presence of cloud computing in the South African IT industry will transform the businesses of local channel vendors.

Rising demand for cloud computing applications, facilities and services offers big opportunities to local systems integrators and VARs. However, to capitalise on the opportunities presented many of these firms will need to refocus and restructure their businesses. Even vendors that opt not to tackle these opportunities will need to refine their operations to cope with shrinking profit margins and increased competition in traditional reseller markets caused by the increasing influence of cloud computing.

The biggest challenge facing most traditional resellers when they enter the cloud computing market is the shift from up-front sales revenue to annuity income, says Jonathan Kropf, CEO at cloud services firm Cloud on Demand. “The move to annuity income will have a big impact on resellers’ cashflow. It can take up to nine months for companies to receive the equivalent income from a cloud services contract that they would have earned from a typical equipment sale,” says Kropf. He points out that resellers that specialise in hardware sales will find the shift to cloud computing most challenging. “Resellers that supply software applications or services are more likely to have experience of long-term annuity income and will find the transition easier,” he says.

Kropf speaks from experience. He founded IT reseller Velocity Group in 2007 and ran the company for five years before moving into the cloud computing business. Cloud on Demand provides channel resellers with infrastructure and skills support to enable them to deliver public and hybrid cloud solutions to their clients. Tarsus Technology Group, formerly MB Technologies, bought a majority stake in Cloud on Demand last year.

Future business models

“Resellers that want to move into the cloud business should either create a new business unit that can be sustained for a while with revenues from other operations or else gradually offer cloud services on the back of their traditional sales. Cloud-enabled disaster recovery, for example, can be added to a hardware sale. After a few months these cloud deals build up and the reseller has created a significant cloud business,” says Kropf. Resellers that shun the cloud will also have to rethink the way they conduct business, warns Kropf. “Cloud computing will inevitably bring down IT costs and shrink profit margins. Equipment resellers will have to scale-up to handle bigger volumes if they want to maintain profitability,” he says.

As well as changing the business model of IT resellers, cloud computing also requires vendors to shift their sales pitch, adds Kropf. “They have to first focus on delivering business solutions and then bring in the technology. The traditional approach of punting the speed, capacity and performance of technology has to take a back seat,” he warns.

Go large…for now

Large enterprises are currently at the forefront of the migration to cloud computing in South Africa. Resellers can capitalise on this trend by providing advisory services, migration support, integration skills and managed services. Skills and experience in CRM, ERP, business intelligence, analytics and database development will give resellers a keen competitive edge.

The demand for cloud services among SMEs is still slow but this sector offers huge long-term potential. The agility, scalability and ease of use of cloud services are likely to be big attractions to small business operators. Resellers offering general and niche business applications across cloud platforms as well as supporting business and technology consulting and hand-holding are likely to be in strong demand.

Welcome the cloud services broker

Emerging markets such as the brokering of cloud services and supplying niche equipment, such as high-capacity storage devices to cloud computing users, also offer new opportunities for resellers. A cloud broker brings together services and solutions from a variety of providers into a single platform that enables customers to select the services that best suit their needs. “This not only enables organisations to simplify the management of their multi-cloud environment, it also prevents vendor lock-in as enterprises can easily switch their service from one provider to another,” says AJ Hartenberg, portfolio manager at T-Systems’ datacentre services. Resellers entering the cloud computing market need to be careful when selecting a service provider to host the cloud computing applications and facilities they intend marketing. Performance and availability are crucial and service levels must be clearly defined in supply agreements, says Kropf. “If the network goes down, your service goes down with it,” he warns.

Stick with your customers

The best route for resellers to enter the cloud computing business is to work closely with their major existing clients, says Mark Reynolds, partner and general business lead at VMware Southern Africa. “By having a detailed understanding of their clients’ business needs resellers are well placed to introduce cloud services. They should offer a ‘stepped model’ that allows clients to carefully move their workloads into the cloud,” he says. E-mail, payroll and disaster recovery services are usually the first applications to migrate to the cloud, adds Reynolds.

VMware Southern Africa works closely with about 40 local partners, through the corporation’s partnership programme, and offers cloud computing infrastructure products and services. Reynolds says the local migration to cloud computing is being driven by the flexibility and cost controls it offers. However, South African service providers can also capitalise on local business conditions, he adds. “The PoPI (Protection of Personal Information) Act and local power supply problems are encouraging organisations to look to trusted partners that can host their critical information,” says Reynolds.

Cloud computing offers substantial opportunities for channel vendors to grow their businesses, argues Reynolds. “Worldwide only about five percent of the IT production workload is in the cloud. The market is still in its infancy,” he says.

Pull quote:

“Resellers that supply software applications or services are more likely to have experience of long-term annuity income and will find the transition easier.” Jonathan Kropf, Cloud on Demand


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