The traditional channel for IT hardware and infrastructure is changing rapidly. The Cloud and SaaS created the change, and the channel is still trying to figure out how to embrace this new set of business models. Here are some solutions for IT hardware and Cloud service providers to adapt or get ahead of the coming changes as people continue to profit from selling SaaS services.
How channel partners make their money selling services is fairly simple in the pure Cloud model. When a new or existing customer wants to add Cloud services, the primary partner makes a referral and collaborates with Cloud sales people, consultants, and integrators to add Cloud services to the infrastructure already in place for that customer. In return they receive a referral fee and some sort of annuity.
The complexity comes when the partner is a traditional channel partner, which by definition means they are not operating on a pure Cloud model. The bulk of the partner’s business relies on hardware and infrastructure sales and IT services. While Cloud services referral fees and annuities are a key part of the partner’s revenue growth strategy in the new paradigm, it is not the partner’s primary source of income.
The unique challenge that Cloud service providers have is compensating everyone. This includes a referral and annuity to the primary channel partner or partner on record, payment to the Cloud service sales person, to the referring sales person, payments to any outside consultant, reseller, to an integrator. And none of these payments can occur ahead of revenue. It’s a different concept than the channel is used to, made more complex when the partner has one foot on premise and one foot in the Cloud.
There is a huge trend underway (Salesforce is one example) where the Cloud services vendor signs the deal and sends in the partner. You pretty much have to do this in a pure Cloud model, where the vendor does the billing and the partner gets a commission check at the end of the month. Given the proliferation of SaaS services available, there are also companies basically “white labelling” the billing process in the vendor’s name, allowing partners to instruct customers to consolidate billing across multiple SaaS vendors.
Bottom line, if growth requires selling services, then the business model for how those services are sold needs to evolve. This new pitch needs to be posted on the landing page of your partner portal, become the primary communication to existing partners, and should be used as tool to recruit the next generation of Cloud-only partners. Where traditional channels are concerned, it is important not to say you are switching completely to a Cloud-based business model. Instead, vendors need to augment their current channel offering and clarify their commitment to helping partners make money-selling services.
What’s the solution for making money by selling Cloud services? How about vendors start paying existing and new partners “X” in Year 1 and “X+Y” in Year 2 and so on, in perpetuity, as long as the client remains in that contract. Yes, pay them incrementally more year after year as time goes on, not diminishing returns. Tell your partners that you expect them to drive your Cloud business for them and show them the reward for doing so. Your CFO will tell you that this will create millions of dollars of exposure, but if you cut your partner off in a couple of years, all you are offering is a referral—basically an old-deal registration—and in the changing channel dynamic, that is not enough. Your go-to market offer for Cloud Services needs to be a simple, growth-oriented, win-win proposition for all parties and, yes, everyone will need to get paid in perpetuity. Anything else is simply not compelling.