Taken from a 2009 White Paper, this image shows the new competencies required from partners to make the transition from traditional reseller to Cloud Aggregator or Cloud Reseller. What Techaisle described was the opportunity to become either an aggregator, by becoming the equivalent of a “first tier” distributor (positioned between the vendor and resellers who then sell to end-users), or as a Cloud Reseller, selling directly to end users.
Competencies required for the aggregator include the ability to aggregate services and integrate them across services, either data across applications or building solutions between infrastructure, communications and application services. In addition, core competencies were/are needed in the areas of service provisioning and datacenter management. Then an Aggregator needs to be able manage reseller relationships with structured sales and marketing programs, implementation and post-implementation support for the channel, and tier 2 customer support for end users. Given these demanding requirements and the price pressure, it is not surprising that larger organizations like Dell have been the companies to aggressively pursue this strategy and taking advantage of an existing hardware and storage business to offer a full solution stack to resellers and Enterprise customers. As we have written on several occasions, the SMB channel is being squeezed by several trends including the rise of the Digital Channel, Self-Service Applications, Remote Management Dashboards, Plug-and-Play Horizontal Applications, and others. These make the aggregator approach difficult and susceptible to commoditization, more so given the additional challenges of recruiting, managing and supporting an additional tier of resellers. As a result, there has been a lot of confusion around how to make money as an aggregator, and the assumption that a solution has to include all layers in the stack: Computing, System Software, Storage, Network and Application. Even considering wholesale remote infrastructure availability, channels are confused about which layer to start with, how to choose the vendors, where to recruit staff, how much investment, how to migrate existing customers and many other questions have prevented many channel partners from making the move.
The other option for SMB channels is to move existing and new customers to cloud-based services, which still requires embracing new technologies, and figuring out how to add value through specialization, integration, customization and/or all-in-one provisioning, maintenance and support. With that as background, we can move into the topic in the headline: What the SMB channel needs from Cloud-based Service vendors. The partners here represent VARs/SIs, ISVs and SPs, and are more typical of the Reseller category rather than the Aggregator.
In a recent survey of SMB Channel Partners who offer Cloud-based Services, the most important need from Cloud Vendors was for an SLA that guarantees availability. SLAs were cited as most important by Service Providers and VARs/Sis with 61% and 59% respectively, which brought overall average to the top of the list at 53% of all partners surveyed. This is consistent with what we have heard directly from SMBs, who are using the SLAs as a proxy for the brand of underlying infrastructure and system software of the applications. The effect of this is strongest on hardware vendors, whose equipment is becoming increasingly commoditized by plug-and-play infrastructure and exacerbated by a digital channel that uses self-service interfaces and management dashboards instead of on site visits. In a similar vein, the next requirement also comes directly from SMB customers, who want access to 24x7 support services. As SMBs move to SaaS and Remote Services, outsourcing infrastructure and applications exposes them to more risk and loss of control, increasing the need for the security of a 24 hour Support Desk to reduce the perceived risk of “offsite everything”. These first two needs line up with SMB purchasing criteria, ironically two of the other most important factors are Price and Data Security. That they are not passed on as needs to the vendors probably suggests that these are largely under control – users also typically rated high levels of satisfaction in these areas.
Most of the remaining issues relate to two categories: Product Related and Partner Program Related.
Product Needs included better methods of integration, a broader catalog of applications and single sign on across applications.
Partner Program Issues included better notification of upgrades, changes and downtime – providing onsite training, having a policy concerning data migration to competitive products, and ability to offer discounts for paying annual fees upfront.
Vendors and Cloud-Services Aggregators should keep these needs in mind to develop the best Cloud Partner Programs, and SMB Resellers should use these vendor capabilities to select the right Vendor/Aggregator to work with as they migrate customers from a traditional offers to Cloud-based solutions.
Techaisle Analyst Insights
The arguments for cloud are clear, and well-aligned with the specific interests of small and mid-market businesses, and ITDMs and BDMs. However, despite what appears to be a 24x7 stream of cloud information available to everyone with an internet connection, cloud is not ubiquitous – meaning that there are objections that prevent cloud from being introduced in some SMB environments.
To better understand cloud objections, Techaisle’s SMB Cloud Computing Adoption survey asked respondents “What are the key inhibitors to embracing cloud – what factors might prevent you from adopting new cloud solutions, and/or accelerating the use of current cloud solutions?”
Responses show that the traditional cloud bugbears of security and control continue to furnish obstacles to increased cloud penetration/acceleration. As the figure illustrates, SMBs are most worried about security of applications and corporate data, and about control over data, users and applications.
Mid-market businesses also register a high rate of concern regarding the difficulty of integrating operational systems across hybrid traditional/cloud-based systems – and objection which, in Techaisle’s opinion, has real merit and will require attention (and solutions) from the cloud supplier community. This issue is of particular concern to firms with 100-249 employees – large enough to have diverse systems requiring integration, but not large enough to have deep IT resources capable of addressing the problem. We expect that this concern will spread both to larger firms as they move more workloads from on-premise to cloud or hybrid platforms, and to smaller firms as they adopt more SaaS systems (requiring cloud-to-cloud integration).
A drill down into inhibitors by employee size segment shows that the smallest organizations in both the small and mid-markets – the 1-9 employee micro-businesses, and the 100-249 medium businesses – have some unique issues. Micro-businesses worry about vendor lock-in – a reasonable concern, as these firms have neither the technical expertise nor the purchasing power to extricate themselves from supplier relationships if they experience difficulties. The 100-249 employee size groups, as detailed above, are worried about integration. Consistently, though, SMBs are concerned with questions of security and data/user/application control. Suppliers able to address these issues will benefit from expanded market opportunity.
Looking at this issue through the ITDM/BDM lens, we see that the principal objections – with one important exception – are defined by the roles that each group plays within their organizations. BDMs, as might be expected, are very concerned with control over business data (can we access and manage data in the cloud as well as we can on premise?), with connectivity (can we get to information and applications when we are on the road?), and with vendor lock-in (which can be seen as an extension of the data control issue). ITDMs, on the other hand, are more concerned with technical issues than their BDM peers: they are more likely to cite limitations in service access and integration issues as cloud impediments.
The one area where the pattern does not correspond to expectations is in security, where BDMs express higher levels of concern than ITDMs. Given that ITDMs are responsible for most aspects of cloud security, we would have anticipated more security-related concern from ITDMs, if not necessarily lower rates of security-related worry on the part of the BDM respondents.
Optimization Nation...
“The production of too many useful things results in too many useless people.”
― Karl Marx
Rarely will I quote Karl Marx, but in this case it works too well to ignore. Reviewing the latest research and surveys of technology adoption in the SMB space in an attempt to see a bigger picture, it struck us that the “decades-long Black Swan event” represented by accumulated IT investment impacting all at once, as mentioned by Nicholas Taleb in his great book: ”The Black Swan: The Impact of the Highly Improbable”, has come to pass. This, in combination with moving manufacturing industries offshore en masse and concentration of distribution away from small business retail into super warehouse outlets - whose singular objective is lower price - contributed to the economic upheaval. After ten more years of disproportionate IT investment in the Financial sector that enabled profits out of thin air by moving markets with super-high-speed trading and creation of financial instruments with no underlying value, we were almost there. Then optimization of every penny that could be squeezed from government programs – stated-income negative amortization ARMs, home equity extraction, wheelchairs, diabetes sensors, catheters, Social Security benefits, etc. - “at no cost to you whatsoever, we will even take care of all the paperwork”. These are all examples of how the economy has been changed forever using Information Technology as the key enabler. But this post is not about the economy, it is about the influence of network technology and the resulting Virtual Solution Stack for Small and Medium Businesses (SMBs) that allows them to leverage the new IT adoption model that has emerged with Cloud Computing.
Things were getting a little expensive…
The Cloud Computing model has firmly emerged out of the ashes of the dotcom implosion and financial crisis of 2008 with the unrelenting objective of increasing production and reducing costs - more for less. Information Technology had become a critically important part of being competitive in a global marketplace, even for SMBs, but 
unfortunately it had also become increasingly expensive and complicated to implement. By the time we started to realize the benefits of distributed network computing in the mid 2000s, we had created an insatiable appetite for this new technology that could eliminate space and time to truly optimize business. Ironically, by doing so we also created a huge business pain point: How to feed the Beast?
A New Financial Structure Please…
The reality is that no company, large or small, could drink from the fire hose of new technologies flooding the market and bringing the ever-increasing IT investment beyond reach. It begged the question of how to access these benefits through leverage rather than outright purchase. What has emerged - directly or indirectly - is a Cloud Services model where infrastructure such as computing power, disk space, system software and databases can be centralized and distributed much like electrical power was at the beginning of the 20th century, allowing companies to stop buying their own generators; a new model where physical location of data is less important than the security protecting it, and where robust business functionality can be delivered remotely over the network using only a browser and an internet connection, with highly qualified experts at the other end whose costs can be distributed among many clients rather than a single company, and last but not least - the ability to access all of this capability at very low risk, with low cost start-up and pay on a subscription basis rather than from capital budgets. Beginning with web hosting and co-location on the infrastructure side and CRM in the applications arena, SMBs began committing to the model and we have arrived at a stage where the majority of SMBs have adopted the new architecture using IaaS, SaaS, PaaS, and other services based on their needs; many in surveys already use multiple services, averaging over 3.5 per for small business and doubling every year. And there is an extremely high level of satisfaction - much higher than when customers owned and operated all of the solution components.
Being the Trusted Advisor for the Virtual Solution Stack
We have found that in the rush to implement Cloud Services, users especially among Small Businesses, are beginning to rely much more on independent IT Consultants as their new source of advice, threatening to dis-intermediate the traditional channel. SaaS and horizontal application service providers, such as Salesforce.com, Citrix and Central Desktop are putting pressure on at the other end with vendor-direct, centralized inbound marketing that also threatens opportunity for third-party value add in many cases. Although, it must be said that Salesforce.com has built a massive following of channel partners from independent consultants to corporate VARs. And it contributes to the success of Salesforce.com. We have also found that once decisions are made for Cloud Services, the incumbent channel has a big advantage for future business as both advisor and implementer. The critical issue, now more than ever, is to be the trusted advisor early in the SMB’s lifecycle. The following are some suggestions on how to accomplish this as a Cloud Services Vendor or partner.
1) The old Asset-Intensive model of IT Adoption is over; to be successful vendors and their partners will need to deliver and explain cost-effective Infrastructure and Applications, either together or as separate components, depending on offer and customer needs.
2) IT as Cost Center is rapidly evolving into IT as Profit Center; applying Cloud Services to drive competitive advantages based on new marketing and business intelligence technology will usually be far more productive than having IT staff updating PC software, swapping out PCs, adding disks to storage, configuring a new server, etc. Offloading these tasks from SMB IT Teams and becoming the trusted advisor while the company is young will pay long term dividends for both vendors and channels.
3) Staffing is usually the most expensive variable among business expenses. Demonstrate ROI and TCO models that emphasize the ability to reduce staffing, travel and distance from the equation and allow IT to be more productive with fewer staff.
4) As they expand, SMBs typically have to grow their operational and IT footprint by hiring specialists in different domestic and international locations; helping customers reduce the growing pains by centralizing many IT operations and managing infrastructure, communications and applications from a headquarters location is a good approach to helping them expand more cost effectively.
5) Purchasing, managing, configuring, updating, and patching software licenses is a major expense and headache for small companies and can be a full time position in many medium-sized organizations, not to mention internal user satisfaction, and ongoing maintenance fees. Cloud Services, particularly SaaS solutions, do an excellent job eliminating the majority of these issues, one reason why they continually rank extremely high on the satisfaction scale in our surveys. These are easily built into the ROI/TCO model.
6) As new Cloud Services are rolled out across Infrastructure, Communications, Productivity and Vertical Market categories in ever changing variations of public and private clouds, it is not possible for most companies to maintain the internal expertise to make the most appropriate choices. Helping customers emerge without being overwhelmed and providing relevant knowledge of how to effectively apply the new technology will strengthen the relationship.
7) SMB customers have made the leap to cloud-based infrastructure and will rapidly move to multiple services that leverage their investments. Much like the early days of client/server systems where HP had the hot box and Oracle provided the fastest affordable database engine, offers will consist of integration of infrastructure and software layers of the solution. Also as with client/server, users want the ease of dealing with a single supplier where possible, for simplicity and “one throat to choke”. The new solution stack is virtual and relatively standalone at this point; the next stage will require vendors of more complex applications (Integrated CRM, ERP, SCM) to make it as easy as possible for customers to buy their services, even if it means giving up some control and profit in exchange for more volume.
8) The independent IT consultant as trusted advisor is a phenomenon that has arisen as a slew of relatively easy-to-deploy SaaS applications have matured to where individuals can configure them quickly. The current economy has also spurred a lot of activity among individuals to support their SMB friends with web presence, hosting, social media, part time IT support, etc. Although the influence wanes as companies grow in size, and with the complexity of their deployments, the independent IT consultant has emerged as a force to be reckoned with at the low end of the market and vendors should develop these evangelists while channels bring them into marketing to combine strengths for the benefit of the customer.
Davis Blair
Techaisle
As some IT companies continue to consolidate and others split up, Dell is promising its channel partners consistency, stability and increased profitability. And it is showing:
- Dell Channel revenue now represents more than 40 percent of overall Dell commercial revenue and its channel business is growing faster than the overall market
- Channel revenue growth is up double digits in 10 of Dell’s top 11 countries year-over-year
- Dell solutions are now available through three of top Distributors - Ingram, TechData and Synnex - and where Dell is experiencing growth in excess of 50 percent
To keep the channel momentum intact, Dell is pledging US$125 million in enhanced incentives to help channel partners bid and close new customer acquisitions and also deploy towards retention deals with existing customers.
As always, not willing to take any hype on face value Techaisle took to the streets to really talk with Dell SMB channel partners and especially those who have partnered with both Dell and HP. Over the course of last three weeks, Techaisle conducted over 25 depth interviews with SMB channel partners. The discussions clearly revealed that the partners have started to look at Dell rather seriously. As one of them said, “Dell has changed its approach and outlook towards channel partners after it went private. They monitor and coordinate with their partners just like any other OEM. They have changed their ways in how they strategize and have created their training plans to cater to our needs and are succeeding by actively collaborating.”
Another partner, based in Texas and focused on SMBs was more direct, “Dell hasn’t been looking at channel partners as a key to gain market share unlike OEMs like HP. A few months back only about a 30 percent of sales were driven by the channel partners and the rest was a result of Dell’s direct sales efforts. The reason is that Dell itself had a large sales team managing sales accounts. However, after Dell went private they have mended their ways in how they look at us. They have kept the key sales accounts with themselves and the rest have been distributed amongst the channel partners for further management and revenue generation which is a good step as it inculcates trust and sense of real partnership.”
Impressive Numerics
At one of my sit-down meetings, Cheryl Cook, VP, Global Channels and Alliances shared some impressive statistics:
- Dell has 167,000 channel partners out of which 4,255 are Preferred and Premium partners.
- Nearly 700 channel partners chose to become premier or preferred partners of Dell in 2014, a testament to channel commitment
- Training uptake, (a top requirement of channel partners as per Techaisle SMB Channel study), was up by 54 percent in 1H’14. But more importantly, training on software solutions increased by 102 percent.
- Over 82,000 deal registrations were processed, up 8 percent YoY and software (security, device management, data protection, systems management) deal registration was up by 32 percent
- Rebates processed was also up by 23 percent during the same time frame
- 4400 new customers were acquired through channels, transacted 10,000 new orders out of which 1200 were for storage and 1600 for software
Although she deftly skipped my question on how many named accounts have been formally handed over to channel partners she reiterated that Dell is continuing to maintain its compensation accelerator program which is yielding good results. Recently, a little over 200,000 greenfield accounts have been posted on the Partner Portal.
Investment in Training, Support, Lead generation, Consultative partnerships
Most channel partners that Techaisle spoke with agreed that Dell has been concentrating on technical training sessions and regularly assessing partners’ performance with a clear objective of empowering them with required product knowledge to be able to pitch to the right set of SMB customers in the best possible way. Unlike the immediate past, account managers from Dell have suddenly become approachable. Some partners went to the extent of telling Techaisle “we specifically like the pre-sales and sales trainings that Dell has designed for Channel Partners. At times I feel that their efforts in the field of training annoy us as there are multiple and repetitive requests for attending or undergoing the same set of trainings that we have already gone through. They do not yet have a system to remove these redundancies”.
Channels are also having good experiences working with Dell’s consultative approach. “Lately, we were dealing with a few SMB customers and they wanted the account managers and few other technical experts to be available on call. We worked together with Dell and closed 3 deals where the consultative partnership worked in our favor”, said an SMB channel partner based in California.
Dell is also investing in supporting the channels when they bid for complex engagements. Their pre-sales support has improved as compared to before as channels now have access to their technical resources who work along with partners’ technical teams in understanding customer requirements, existing customer infrastructure to suggest suitable solutions.
In addition to training and support Dell is making a series of investments to help channel partners by:
- Making available 5X demo gear to facilitate proof-of-concept
- Increasing number of Solution centers for partners to showcase Dell end-to-end solutions to their customers (granted not many SMB channel partners will take advantage)
- Improving areas of financing such as extending credit and payment terms thereby assisting channel partners in better managing their cash flows. The terms announced are 75 days interest-free financing on all Dell purchases for an introductory period of 180 days
Are conflicts a thing of the past? Channels are cautiously optimistic
Dell seems to be diligently working towards building trust within its channel partners. Dell and its partners have had a love-hate relationship due to conflicts with Dell’s strong direct sales force across all divisions. In fact, with the progress made, channels are wishing that Dell limits its investment in its internal sales teams as it would in all probability bring back the channels to “square one”.
The channel partner community reminded us of unpleasant past experiences of “Dell snatching customers from their partners and dealing with them directly”. But they quickly added, “We haven’t come across such a scenario (lately) and would never want to face a situation like that”.
Another partner said, “Dell has always been known for their direct business and has ramped up their efforts in the indirect sales through channels around a year ago. Earlier, we never knew if a deal which is routed through us will be closed keeping us in loop (with our margins intact) or Dell may go ahead and deal with the customer directly. Now, this has completely changed and Dell itself directs the customers to go through us”.
An HP and Dell partner was eager to get his point across regarding lead generation saying that Dell is managing a nice balance while sharing potential customer details with only one partner. HP is not following this approach triggering conflicts.
End-to-End Solutions message is resonating
Dell is steadfastly focused on its end-to-end solutions strategy and channels are paying attention. “Dell offers support in implementing end-to-end solutions. They work with us in consultation to determine the best product and solutions based on SMB customer requirements. Account Manager from Dell works with us closely when we deal with such deployments. We get all the technical help required, if skills are not available with us. Dell offers us access to experts (both on calls and physically, when required) from functional areas when we deal with SMBs for deployment of end-to-end solutions”.
Channels are finding that not only end-to-end solution deals give them extra margins but also makes it easier to deal with Dell, namely, channels get a better attention from Dell. Techaisle feels that if selective attention becomes the norm then many Dell SMB channel partners may flounder.
A mid-west Dell SMB channel partner was very vocal when we spoke with him. “Dell is important while we engage in end-to-end deals with our customers. Dell’s role starts from pre-sales to the deployment of such engagements. They offer the required marketing set-up for the products and solutions. If we have to take care of these things on our own, I think our margins will squeeze and it will be difficult to sustain our business”.
Having a full portfolio of offerings also allows “non-end-to-end solution channel partners” to sell adjacent technologies. For example, “we have clubbed and sold Dell hardware with Cisco, NetApp and IBM storage management and security solutions”.
Then there are other channel partners who try and build solutions with a product from Dell as the center-point. “Based on customer requirements we will see if there is a Dell product suited to meet the needs. If yes, we pitch for it and if there isn’t a product suited, we may bundle it up with other solutions and design an end-to-end solution for our customer. If the customer wants to go with a specific product and Dell doesn’t have promising product in the area; in these cases we will bundle it up with other product and present it as an end-to-end solution to our customers”.
Lingering Channel Challenges
To my question on what should channel partners be expecting next from Dell, Cheryl Cook quickly points out her focus on strategic pillars of mobility, security and Big Data with big push on converged infrastructure and innovative storage solutions. She counters me with a question on VMware EVO:RAIL and its “fantastic” suitability for the SMB market segment.
Channels are listening and echoing that the fastest selling Dell solutions are Rack and Blade servers. But they feel that Dell has not yet been able to position its Force10 and SonicWall offerings effectively and channels are losing to Cisco or HP.
As conflict is disappearing, trust is settling in, channels have a new gripe. When a customer floats an RFP to a number of partners, Dell seizes the responsibility to directly speak with the customer, decides which partner is in the best position to offer most favorable terms and informs other partners to step aside and not waste their time on a deal which may not land with them at all. This annoys the channel partners as they would like a fair opportunity to win the deal and gain a customer by cutting down on own their margins.
No Regrets – but could have been bolder
Looking at the last one year since taking the helm, Cheryl Cook has no visible regrets. After much coaxing and cogitating she says, “Perhaps we could have been bolder in our move” referring to speed of Dell’s organizational moves and intuitive proactive thinking. The future is bright and she and her team are committed to helping all partners – “narrow or broadline”.
