How VARs can thrive in the face of cloud

Most channel partners with whom I speak seem to be having banner years – and 2015 looks promising as well. And yet, there is a widespread concern that the traditional infrastructure VAR model is in decline. In order to remain relevant in the wake of increased cloud adoption, solutions providers know they’re going to have to reshape their product-focused businesses.

The Threat from Cloud

Jeff Bezos of Amazon famously told IT hardware manufacturers, “Your margin is my opportunity.” AWS already does billions of dollars in business, and it’s just getting started. Then there’s Azure, Google Cloud, vCloud Air and many others. As organizations increasingly move workloads to the public cloud, it means less infrastructure sales for VARs.

One channel partner sent me the following email:

“This hit me earlier this year when we were competing heavily against EMC in an account with Dell. We did a great job coming in and dealing a knockout blow to them as the incumbent. The IT Director proclaimed that “EMC has been disqualified from the opportunity”, and I was feeling pretty good about closing another six figure storage deal. What I didn’t realize is that the IT Director was thinking much more big picture and while I had won the asset battle, I lost the war on strategy. The organization ended up throwing everything to a major cloud provider in another region and [our firm] & Dell lost all of our footprint in the back office side of the account with only desktops remaining. This customer to me represented a pretty early adopter in this kind of model, but I do believe that traditional refresh cycles are going to be increasingly taken out by this kind of consumption model, and partners lacking a strategy in how to play this game will find themselves losing more and more fights.”

And another partner wrote,

“…we are already seeing storage refreshes become smaller in size, and I have explained to our management that one of the reasons for that is the cloud and the loss of certain workloads, and the second reason is applications are no longer as reliant on a centralized storage as they were before. For example, Exchange used to be a huge workload that enterprises buy centralized storage for, but what we are seeing is this workload is all but lost to the cloud, either Office 365 or a hosted exchange service if Office 365 does not meet all requirements. In the long run, I see datacenter footprint shrinking to about 10% of what it is today for each organization where only the most valuable assets are stored on-premises with everything else in the cloud. Of course this is not going to happen overnight but I definitely think that is where things are headed.”

The Traditional VAR Model

While there are thousands of solutions provider models, the traditional infrastructure VAR model centers around selling and installing hardware and software. They push the server, storage, virtualization and networking products they know and are certified in, and charge the customers to implement and make the products work together.

This “manufacturer rep” approach to datacenter build-out has worked very well over the past as organizations across the globe have transitioned from physical to virtual datacenters. Many VARs have built huge businesses driven largely by SAN and switch fabric implementation. But as increasingly more workloads move to the cloud, the traditional VAR is going to find it hard to survive let alone thrive. VARs need to transition to consultancies who build their businesses around cloud – with cloud being a verb rather than a noun.

The Cloud Integrator Model

I like the term “cloud integrator” as it is a natural evolution of the “systems integrator” moniker that was widely utilized at the dawn of the reseller business. Cloud integrators will assist their customers in developing, implementing and managing optimal cloud strategies.

A cloud integrator, for example, can help its customers with the following:

• Deciding which cloud providers should handle which workloads.
• Monitoring the cloud providers for price, security, business viability, regulatory compliance, etc.
• Implementing methodologies to move workloads between cloud providers, or the firm’s datacenters, if necessary.
• Which workloads should remain in the datacenter.
• How to provide cloud-like capabilities for the on-premises virtual machines including instant provisioning, universal access, a services catalog and chargeback/showback.
• Enabling bursting to the cloud when necessary
• Enabling effective backup and DR/BC strategies.
• Managing everything from a single portal.
• Helping customers manage part or all of their environments.

The good news is that cloud integration has the potential to be a very lucrative recurring business model. The bad news is that it takes a different skill set from what most VARs possess today. Successfully transitioning to a cloud integrator is going to require a massive retooling of the organization. Along with mastering traditional IT requirements such as security and disaster recovery, cloud integrators will be adept at truly understanding the customer’s business challenges in areas such as revenue generation, customer retention, agility and growth.

Cloud integrators need the knowledge to advise their customers on optimal cloud strategies to enable achievement of their business objectives. And they need the skill sets to be able to successfully implement the solutions including measures to ensure broad user adoption.

Transitioning to a Cloud Integrator

Customers are not moving to the cloud overnight, and VARs have some breathing room as well. It’s important, though, that they start encouraging their customers to begin adopting cloud mindsets. For larger organizations in particular, that means adopting the same type of infrastructure benefits that have enabled the leading public cloud providers to operate so efficiently.

VMware’s launch of EVO:Rail and Dell’s OEM deal with Nutanix are indications that three-tier datacenter infrastructure is under siege. The modern virtualized datacenter is going to increasingly embrace the same type of web-scale (i.e. hyper-converged) architecture utilized by all of the leading cloud providers. The much greater scalability, simplicity resiliency and lower cost make this transformation inevitable.

VARs can start the transition to a cloud integrator model by helping their customers understand the pros and cons of web-scale infrastructure within their own environments. They can then work with the organizations amenable to the concept to design and implement migration strategies.

While the simplicity of web-scale converged infrastructure precludes the days or weeks of back end integration services, it opens up many more opportunities in designing and implementing cloud capabilities such as service catalogs, elasticity, big data, cloud-based DR services, and so on. These higher-margin services can be further augmented with recurring revenue opportunities for cloud management services.

Acknowledgements

I spoke with several channel partners who were very helpful, but I particularly wanted to thank Eli Khnaser and Jenson Isham.

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