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Cloud distribution: The race for relevance

If traditional distributors are to gain traction in the cloud-based IT economy, they will have to overcome competition from unexpected corners.

IT distributors have an opportunity to gain a toehold in the new cloud-based IT economy, but only if they are able to overcome some significant challenges, including competition from previously unexpected corners, industry observers believe.

The issues that resellers face trying to find and manage relationships with hardware and software vendors also exist in the cloud: It is impractical for one reseller to manage relationships with hundreds of cloud providers, noted Terry Hedden, CEO of Cloud Guru and Marketopia, two companies that consult to cloud vendors, distributors and IT resellers. This is where IT distributors have a new opportunity to provide value add, since distribution was born out of the need for vendors and resellers to find one another. "From a reseller perspective, there are simply too many vendors to establish individual relationships wmith [each of] them … so there is a huge need for cloud vendors to work with distributors to access and manage their channels, because they're not built for it."

In a similar vein, resellers need distributors because they don't have purchasing departments or research departments to identify the literally thousands of cloud vendors that are cropping up, he added.

The cloud market is on a significant upswing. IDC is predicting that over 90% of net-new commercial apps will be developed for the cloud going forward, and that 70% of CIOs will adopt a cloud-first strategy by 2016.

Will traditional distribution take that role or [electronic distribution] exchanges? My gut tells me that this is the year that will determine that.
Terry HeddenCEO, Cloud Guru and Marketopia

This year will be pivotal for IT distributors, according to Hedden. "Will traditional distribution take that role or [electronic distribution] exchanges? My gut tells me that this is the year that will determine that," he said.

What IT distributors bring to the table

"Distributors can add value by providing new cloud-specific 'virtual' logistics and continuing to provide credit and financing, aggregation, partner management, training and enablement, marketing and sales, technical support and more," said Darren Bibby, vice president of IDC Channels and Alliances Research, in the 2014 report he co-authored, Do We Need IT Distributors in the Cloud? "But each of these services needs to be modified and optimized for the cloud to meet the needs of vendors, partners and end customers."

Echoing Hedden, the IDC report states that the fact that distributors have a proven ability to work with hundreds or thousands of partners is probably the most compelling reason they have an important role in the cloud. Other advantages that distributors offer are efficient, scalable access to small and medium-sized businesses (SMBs), multivendor consolidated billing and financial services, the report said. "Over the years, it has been proven that distribution and partners are the best way for vendors to sell solutions to SMBs and to play the role of trusted advisor," Bibby said. "It will be difficult for vendors to go it alone and hard for partners to survive without the support of distribution."

Another issue is that cloud vendors struggle to manage their channel, Hedden said. "They don't understand the amount of hand-holding and mentoring that it takes to be successful in the cloud," which is the fundamental reason why the cloud isn't accelerating through the channel the way it should, he said. "It's a combination of vendors not understanding what it takes to make a partner successful and the partners not knowing how to market the cloud vendors' services."

How distributors can stay relevant

But IT distributors also face significant competition, notably from electronic cloud distribution networks that are cropping up. "If distributors don't get their acts together, then they risk being replaced by these electronic distribution exchanges," Hedden said. These electronic distribution networks include Salesforce's Appexchange, Pax8, GetApp, Cloud Showplace, SaasDirectory and ReadySaaSGo.

There are also professional service automation (PSA) tools from companies like ConnectWise, Autotask and Tigerpaw Software to compete with, as well as remote management and monitoring (RMM) tools from companies like Kaseya, LabTech and MAXfocus. Both represent "a single pane of glass" for service departments and managed services providers to do their jobs, Hedden said. If, for example, Kaseya is remotely managing a customer's PCs and a virus is discovered, a support person might contact them and say there's a cloud product for $29.99 that can remove the virus, and then click on that pane of glass to purchase and install the tool. Then the PSA tool would communicate with the RMM tool to do the billing for the client, he said. Although that functionality isn't widespread right now, Hedden believes it is a logical extension of those tools for procuring and managing technology.

All three of these categories are vying to become the distributors of the cloud, Hedden said. "It remains to be seen who will run it and become the distributor of the cloud. It's very interesting to say that, because we're so far in. But most people don't understand the importance of centrally managing and procuring cloud."

There are a number of steps IT distributors need to take if they are to solidify their role, Hedden said. In addition to representing thousands of vendors, they must improve their product set to include "vastly more offerings in the marketplace." They also must improve their ability to let IT resellers efficiently compare offerings. Additionally, they must demonstrate the value that cloud distribution has with respect to vetting vendors' financial strengths and scalability -- information that's not easy to glean from a website. Lastly, they need to improve their ability to help their resellers efficiently procure and manage cloud services.

"Frankly, it's a race,'' Hedden said. He added that he gives the nod to the distributors, since they have the assets necessary to win out and because they have managed to stay relevant in the industry for so long. He also predicts there will be consolidation in the industry and the marketplaces will end up being purchased by distributors.

"I think you'll see the software used to run businesses make a go at becoming more of a distribution play. It remains to be seen,'' he said. "Last year, I would have told you that the distributors are so far behind, [because] they don't understand the business very well." But recently, he has seen moves by distributors to elevate the executives running the cloud products, which indicates an understanding of how important cloud is to their businesses.

Tim Curran, CEO of the Global Technology Distribution Council, a trade association representing the large technology distributors, said he isn't concerned about the future of distributors since they have made several successful transitions over the years. "Cloud is a huge opportunity, and the distributors are all investing in cloud programs in order to be able to support their vendor partners and resellers," he said. "So it's clear they take the issue seriously and are preparing for it and already are executing their cloud programs, and I believe that will continue to be the case."

Bibby said he expects distributors to have a more important role in the cloud with time. "The place of distributors in the cloud world is getting clearer but is far from settled," he said. "We'll see lots of interesting moves and announcements from both distributors and their suppliers in the next two years."

Next Steps

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This was last published in January 2015

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How does your company manage its cloud vendor relationships?
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Interesting, Brian. So where do you expect the consolidation to occur?
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The way to think about this is to draw a straight line from the cloud provider to the customer. The cloud provider is the role that the vendor used to be. Now map all the people involved on that line (SI/VAR/Distributor) and figure out who still actually adds value between the customer and cloud. There's lots of room for consolidation, and opportunities for roles to shift if companies with customer-control can operate certain services for the customers on-demand. 
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Interesting, Brian. So where do you expect the consolidation to occur?
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