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Born-in-the-cloud companies trigger a new partner world order

The new breed of born-in-the-cloud partners have some overlap with traditional partners but are square pegs in the round holes of traditional channel partner programs.

The expanding channel partner ecosystem now embraces the new breed of partner known as "born in the cloud," those partners whose business models revolve around cloud-based delivery of computing resources and software rather than on-premises hardware and licensed software. But are the business needs of these trailblazing organizations being addressed by vendors' traditional partner programs, or are they in their own ecosphere?

Definitely the latter, according to industry participants.

Born-in-the-cloud companies, while hailed by technology vendors as the leaders of the cloud pack, have some overlap with partners in the larger partner ecosystem but are square pegs in the round holes of traditional vendor partner programs.

"The older generation of programs that are tailored more toward the on-premises world are not for us. We stay away from them," said Alex Brown, CEO at 10th Magnitude Inc., a four-year-old born-in-the-cloud company that provides managed services, software subscription sales, professional services and custom application development to its customers.

Partner programs developed decades ago were designed for reselling hardware and software to be used on premises. Born-in-the-cloud partners aren't encumbered by the need to support a transaction-oriented, on-premises business model and so have no need for a partner program that is oriented to those sources of revenue.

Born-in-the-cloud partners aren't encumbered by the need to support a transaction-oriented, on-premises business model and so have no need for a partner program that is oriented to those sources of revenue.

Tiffani Bova, vice president and distinguished analyst with Gartner Research, refers to born-in-the-cloud partners as the most misunderstood by traditional technology vendors and the most disruptive to resale-oriented channel programs.

Bova noted that traditional partner programs are unnecessary for born-in-the-cloud partners because they're a different kind of partner. "[Cloud-centric] vendor programs focus on the development embed guy, services influence and not the sale of goods," she said.

Cloud-centric vendors are less concerned with the amount of revenue generated by their channel partners and are more interested in working with partner organizations that help their solutions gain traction, or stickiness, in the market, she said.

"It's not about how much revenue a partner generates at the end of the day -- [cloud-centric] vendors just want a lot of them developing on their platform because it's the mass or mindshare of the developer community that they want," Bova said.

So, what does matter to born-in-the-cloud partners in terms of what they need from their vendor partners?

According to Erik Duffield, senior vice president of consulting services at Appirio, a global services company and born-in-the-cloud partner founded in 2006, cloud partners need a different approach from that taken with more traditional partners. Appirio's revenue comes from a mix of professional services, managed services, technology sales and crowdsourcing fees.

His company's relationship with the vendor partners it does business with, primarily Salesforce but also Workday, Cornerstone, Work.com, Google and Amazon, focuses on software development.

"We need technical training enablement and a relationship with the vendor that is closer and contact between us is frequent," said Duffield.

In the cloud world, new product iterations and changes are rolled out more frequently. As a result, certifications on new product releases are not as important as training.

"We need training on new sub areas, new modules and feature areas that are being rolled out," he said.

Eric Berridge, CEO of born-in-the-cloud global consultancy Bluewolf, agrees.

"I need good training, advance notification of new product features, access to product roadmaps and a certain amount of latitude so when I make recommendations to a client, the vendor will back me up on that recommendation," he said. About 60% of Bluewolf's revenue comes from project-based work, while 40% comes from managed services.

As one of the largest pure-play Azure companies in the country, 10th Magnitude is a much-esteemed Microsoft partner.

"Microsoft does quite a bit for us and we do get value from the partner program -- it's just a different type of value than a more classic partner might get," said Brown.

As the partner's chosen strategic vendor, Microsoft in return provides 10th Magnitude with excellent access to technology on top of training and exposure to get the ability to sandbox development projects as well as engineering resources needed to gain mastery in the technology, he said.

"The current generation of technologists -- or most of our staff -- put emphasis on experiential knowledge and learning rather than book learning and certifications," said Brown.

While Microsoft doesn't have a formal program in place to meet the needs of born-in-the-cloud partners like 10th Magnitude (though it does have a cloud partner program), Brown said his organization and Microsoft work together in a more informal vendor-partner relationship, one that he rated as "fantastic."

In addition to placing a high priority on technical training and an open door to the latest in product innovation, cloud partners value sales support and an arm-in-arm relationship with the vendor to make sure a customer engagement goes smoothly.

Berridge of Bluewolf said the level of communication between his company and Salesforce is extremely high. "Our success is dictated by how well we know their product and how effective we can make their product for their customer," he said. Cooperation and a consolidated front are vital.

So, the experts advise, forget about "coop" dollars, MDF, lead distribution, deal registrations, partner account managers, channel account managers, etc. -- all of the traditional ways we think about channel partner programs -- and begin to think differently about programs for born-in-the-cloud partners.

"The challenge for the traditional vendor community is that they're trying to change existing programs to fit these [born-in-the-cloud companies] rather than create new programs to fit them," said Diane Krakora, CEO of channel consultancy PartnerPath.

A good example of a traditional vendor clawing its way out of this larger industry identity crisis is Cisco. From a partner perspective, Cisco has taken significant steps to rethink the cloud and its partners. First the vendor created a new cloud organization. Then, this past May, Cisco moved longtime worldwide channel chief Edison Peres from that channel team to the cloud team as a channel leader.

"Cisco is doing an admirable job of speaking about it differently though I haven't seen how they're executing on it yet," said Krakora.

Born-in-the-cloud partners aren't seduced by margins, they're seduced by technology. In other words, the economics for born-in-the-cloud partners is upside down from where most partners operate today.

Cloud-centric partner programs are an independent software vendor program, a developer program, said Bova. "You, partner, are going to pay so much to use my technology, and you're going to pay so much to develop on top of my technology," she said.

That doesn't mean that cloud vendors aren't giving marketing support or marketing development dollars but for cloud partners who are developer-oriented and professional services-oriented -- and able to drive their own profitability -- it all comes down to technology.

Next Steps

How channel companies are making money from the cloud

Managed services in the cloud

This was last published in September 2014

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