Resellers & System Integrators are challenged by cloud offerings

ISVs are going directly to their customers with their cloud services. For resellers and integrators to survive this will require change and innovation on their part. ISVs can help their channel partners by creating the financial support and coaching them through this storm.

1. Resellers

As the software industry is providing millions of products the value of the reseller can be in marketing and sales making it easy for the customer to find the most appropriate product matching his needs and making it easy for the customer performing the purchase transactions. Resellers are particularly useful in this regard because of their local network of clients. The customer relationship plays an important role but also content-relevant factors like product knowledge, installation and reactive (corrective) services. These are important services brought by the reseller. Often these resellers focus on SMEs.

IaaS services as offered by Amazon, Azure or large service providers could make the reseller irrelevant as an infrastructure partner. The IaaS hardware offer is similar in substance, but comes with more flexibility and is billed according to the user’s consumption. The local relationship is not so relevant in this model. Is there no place for a reseller? Actually, I think so. IaaS vendors are volume players with no room for deviations from the standard offer. This undermines their business model. Here lays the opportunity for the reseller. The reseller can offer some flexible IaaS solutions with different options to sell and deliver. The reseller can use a white labeled service from another provider with his provisioning, billing and metering portal on top. If an own portal is not feasible the reseller can use the portal from the distributor in order to limit the costs. This way resellers can provide added value and still keep control over the last mile to their customers.

Resellers need to make sure, however, that they move up the value chain by providing advice on a business level and facilitate the integration with the customers’ legacy. The implementation itself (storage, networking, virtualization, security, servers, provisioning) is for the certified experts. Resellers will not be able to invest in all the technologies involved. Maybe a few, but not all of them.

For software the outlook is not so different.

With the rise of SaaS it is easier to compare the functionality of different applications and to check whether it actually works or not. The added value of the software reseller is then much more to support the implementation and make it worthwhile for the customer. This requires other skills than most resellers are used to providing.

The reseller needs to invest in the development of these new types of services. The reseller will have to become a business expert in one or more adjacent vertical industries. The new reseller is an industry specialist with knowledge of the SaaS solution on a functional and business level who brings new ideas to improve the business of the customer.

2. System Integrators

In my definition integrators provide all relevant services starting with the definition, implementation, maintenance and management of the right solution. The value of the integrator is no longer in the software development (SaaS is already running), but rather in selecting the right application and optimizing business processes.

The knowledge of the products on the market is only one piece of the value of the integrator. Once the selection is made, the integrator’s value lies mainly in making it work for his customer by matching his requirements with new functionality like self-service portals, mobile applications, dashboards, etc.
We do expect that that in the next five years 40 to 60% of the applications will be consumed as a SaaS solution. The remaining 60-40% will be the on-premise market. Integrators need to get on with developing SaaS services and focus on the integration of SaaS solutions.

If a customer decides to go for SaaS services, there is still plenty to stack on top for the integrator. There is plenty to do:
1. Advise customers to revise their enterprise application architecture in order to make it simpler & cheaper for a license model. The software license models of the large ISV like Oracle and Microsoft are becoming extremely complex on purpose.
2. Delivering a Service Level Agreements (SLA) to the customer instead of an Service level Objectives (SLO).
Most of the large ISV’s (Oracle, NetApp, Microsoft) work with SLOs instead of SLAs. They are not prepared to accept penalties when things go wrong.
3. Do the migration of historical data from the on premise data-center to the cloud
4. Provide the security integration; link with active directory, authentication mechanisms, federation
5. Customized reporting: custom reports and integration with the used Business Intelligence tools and the underlying data warehouses
6. Deliver training & coaching to the users.

For many integrators this means a considerable shift in the value added to the customer and this has an impact on the whole organization. The system integrator will have to create financial support to create and to develop these new services that meet the new demand. These changes will have an impact on the sales cycle of the integrator. The integrator should engage at a higher level in the organization and insert a value proposition to the CFO and the CEO.

An integrator who is not changing in this direction will need a fair share of the on premise IaaS services. That will become a volume game where price and quality will be the key drivers. This looks more like a business model of a distributor, not for an integrator who has a business model based on customer intimacy. There, there are few chances to succeed.