Opinion

The Cloud is Shifting Power from Vendors to Channel Partners

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When the success of Software-as-a-Service (SaaS) solutions sparked broader interest in a wider array of cloud computing alternatives a few years ago, many industry analysts predicted that this trend would lead to the “disintermediation” of the channel as software and system vendors gained unprecedented direct access to end customers via their on-demand services. 

Instead, escalating demand for cloud alternatives is fueling even greater market opportunities for systems integrators and other service-oriented channel companies and is threatening to commoditize and usurp the market power of some of the largest software and technology vendors. 

The primary reason for this shift in power is that the proliferation of cloud alternatives has created lots of confusion among IT and business decision makers who need vendor-independent help determining which solutions best fit their needs and assistance integrating the cloud solutions into their legacy environments. Leveraging the cloud entails multiple solutions and multivendor integration. 

It requires a multi-dimensional, life cycle of services that help IT and business decision makers assess their requirements, analyze their alternatives, procure and deploy the appropriate solutions, monitor and measure their effectiveness and maximize their value. This life cycle of services will also often entail business process transformation and plenty of end-user training. 

Few vendors are equipped to provide this portfolio of services, and none is willing to do it in a vendor-independent fashion. They are too product-centric. 

The truth is that few traditional channel companies are attuned to capitalizing on the cloud opportunity either. Instead, many also tend to be product and vendor-centric, and this group is struggling to revamp their operations to respond to changing customer demands and market dynamics. 

A handful of the established channel companies have recognized they need to fundamentally change their business models to keep pace with the new realities of the cloud. One of them is Dimension Data, a behemoth technology and software reseller that is transforming itself into a cloud integrator and service provider. 

I recently attended Dimension Data’s annual analyst briefing and had an opportunity to get an update regarding the company’s transformation from its corporate executives. 

Anyone who has been in the networking business, as I have, knows that Dimension Data built its business selling and supporting products and has been Cisco’s largest channel partner for years. 

Dimension Data caught the attention of the cloud industry when it acquired OpSource in June 2011. The acquisition of one of the pioneers in the SaaS enablement and cloud services business was a bold move for a company that had previously made its name in selling and supporting networking equipment. But it was also part of a grand plan that included a series of similar acquisitions in other geographies to expand from providing regional hosting and managed services to becoming a global cloud services provider.

Only a year earlier, in July 2010, Dimension Data was acquired by NTT for $3.2 billion. Today, Dimension Data boasts revenues of $6 billion and is setting its sights on doubling its revenues in the coming years even as it watches its traditional product sales and support revenue decline significantly. 

In order to offset the decline in its traditional business, Dimension Data is focusing its attention on three primary areas:

  1. Enablement Services including consulting, professional services, and technology and logistics support
  2. Operational Services including managed services and IT outsourcing
  3. Transformational Services including IT-as-a-Service (ITaaS) and cloud services 

This move has already produced significant gains for Dimension Data, which saw its IT outsourcing business grow 31.5 percent and managed services jump 12 percent in the past year. Much of this growth has been sparked by growing demand for its cloud services and ITaaS offerings. 

The company’s executives admit that there is still plenty of work to be done to transform Dimension Data from a product-centric to a services-driven company, but they are proud of their progress and confident in their new direction. 

A measure of their success is the changing nature of Dimension Data’s relationship with Cisco and other product vendors. Instead of being at the mercy of the vendors’ pricing and packaging policies, Dimension Data is now sought after by the vendors for new ideas and opportunities to better engage customers who vendor products as commodities. 

As a consequence, strong channel companies, like Dimension Data, that offer a full life cycle of services and have a solid understanding of their customers’ IT and business needs are building tighter bonds with customers than vendors, who are seeing their relationships weaken while their product and maintenance revenues decline. 

Jeff Kaplan is the managing director of THINKstrategies, founder of the Cloud Computing Showplace and host of the Cloud Innovators Summit conference series. He can be reached at jkaplan@thinkstrategies.com

Comments

By Mahendra Penumathsa

Thanks for some very interesting insights Jeff. While it is easy to shift the marketing message to match these emerging realities, it takes close leadership participation & support to facilitate a change in the skill profiles. I think traditional roles should incorporate a consulting mindset to succeed.

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