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Michael Diamond

May 22, 2018

The Future of Cloud – The Ultimate Trojan Horse

Michael Diamond , Director, Industry Analysis ;

B2B Technology


For years now, there’s been an ongoing debate among channel partners regarding if cloud is going to be this draconian thing that’s going to run their businesses off the road like Wez (red Mohawk) inMad Max 2: The Road Warrior. While it’s natural to take a defensive posture, I would recommend taking a step back, and thinking about the things in your business that could be positively, rather than negatively, impacted. 

Cloud has created a number of opportunities for channel partners. How do we know? Well, for starters, the large hyper-scale providers (e.g., Microsoft) that many thought would go completely direct still have strong channel programs, which infer it’s not that easy to reach the highly fragmented SMB market on your own and the channel will be a big part of that.

According to NPD’s U.S. B2B Software and Cloud Tracking Service, the cloud infrastructure and platform-as-a-service segment grew 34 percent in Q1 2018 versus the prior year period, which is much faster than the overall channel. From a license term perspective, the one month segment dwarfed all others, which could indicate that the SMB market is partial to the flexible nature of cloud. We believe this to be true because the cloud allows smaller businesses with smaller budgets and firms in service industries that are often contract-based (e.g., market research, advertising, photography) to lease applications as needed on a project-by-project basis, versus a large upfront cost. 

When we think about how cloud will grow in the channel or the SMB market, we usually look at it from a few angles.

1. What are the end markets (e.g., vertical and sub-vertical) demanding from the reseller partners and how are those markets expected to change over time?. 

2. How are the two-tier distributors, hyper-scale providers,  and others creating programs to address the market?

From a reseller (e.g., MSP, retailer, national solution provider) or end-market perspective, you can pretty much concede that demand is there. We are getting beyond the base hit stage of creating practices, landing wins in a small business (e.g., dentist office), or department (e.g., human resources), in a mid-size organization dropping in office productivity, back-up storage, and hosting services to name a few, coupled with staying within a 100-200 mile radius for mainstream resellers. To support that, according to our most recent SMB Technology Monitor, 65 percent of small businesses in the U.S. are expected to buy a PC in 2018, and 37 percent of those PC buyers want to also leverage cloud-based applications. 

Based on this, cloud can be a strategic weapon for channel partners to extend business geographically, departmentally, and also to get the hardware drag. For example, what does that client also have the propensity to buy with a standard notebook that will drag peripherals? Perhaps they might want a laptop case, PC headset/microphone, monitor for dual work, and more, which increases the total available market significantly beyond the PC. Thus, cloud is also a strategic weapon for partners getting their foot in the door and working within  more departments, employee use cases, or the ecosystem around a particular software package (e.g. Autodesk + plotter + wide format printer + wide screen monitor).

What does that mean for two-tier distribution or other segments (e.g., retailers) trying to address the needs of the SMB market with cloud? A few things. First, we expect the aforementioned firms to look at the top vertical markets they have exposure to that are highly fragmented and potentially acquire best-of-breed applications. Second, once the firm has acquired a package, we expect more wedge-in or sticky services to help the partner move beyond a technology service provider and transition to a business consultant spending more time on business outcomes (e.g., margin accretion, OPEX management, outreach, analytics). In the future, we expect two-tier distributors and one-tier providers (e.g., retail, national solution providers) to layer or bundle more services such as business process outsourcing and knowledge process outsourcing to potentially take on AR/AP coupled with leveraging marketing and advertising services. In essence, we expect cloud will be the ultimate Trojan horse to wedge in products and services, but also make the partner the nerve center of that practice.

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