Story image

Change or die: How the cloud is locking out channel partners

24 Oct 14

We’ve all heard a lot about Westcon’s expansion into offering resellers and integrators cloud solutions.

If you haven’t, read our full coverage of Westcon's announcement of its Cloud Managed Services platform and how it is poised for growth in this area.

Westcon is an example of a historically logistics-based company which has for years been moving into the software business finally moving into the cloud business.

Cloud is really the wrong word for it. It’s a move into the business of charging IT by subscription. Some of these subscriptions will replace hardware and software that would have been sold to organisations, while some will be software that may continue to operate on the organisation’s premises.

The key difference is less about the delivery method and more about the billing method.

For many years the logical channel to market these cloud-based solutions has been telcos and carriers, with the thought being that these organisations are used to selling reoccurring services and they can easily tack on additional services to their existing packages.

The problem with this idea however is that telcos are low touch and don’t have enough interaction with clients outside of sending an invoice.

A different approach is happening in the Westcon example, which is wrapping up a number of services and software solutions into product codes that can be sold by channel partners in the IT industry.

But there’s a problem. Most of these IT industry channel partners are used to selling products and are not used to selling reoccurring revenue items. Many of which are sold for just a small amount of money per user in the organisation on a per month basis.

This approach works for end user organisations as they can adjust the number of users each month and only be billed for what is used. But for a channel partner, it is a complex billing nightmare for something they might only be making a few dollars a user per month from. While this could add up over time to what they would've got previously when selling a big solution, they will now have a lot more monthly admin on the billing front to collect the revenue.

Westcon has systems to handle this potentially horrendous aspect of billing, and they see this as one of their competitive advantages against a number of other distributors who are trying to keep their hand in this explosive cloud opportunity.

Interestingly, 60% of Westcon’s cloud channel partners are less than two years old, indicating a new breed of reseller. While all signs point to a generational shift in business model for the IT industry channel, even Westcon acknowledges that it is only a small number of channel partners using the new cloud approach at this point.

Westcon admits it cannot see channel partners moving exclusively to a cloud-only model just yet, and companies who are pushing cloud-only will take a long time to build revenue and could be too restrictive, therefore a hybrid model is the way forward.