White labeling cloud services pros and cons

The decision to white label a vendor's cloud services requires careful consideration. Weigh the pros and cons to decide if it's right for your firm.

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Earthlink Business is something of a veteran in the white labeling space. Among its portfolio of products, the provider of managed services is white labeling a desktop as a service (DaaS) product from independenceIT Inc. that it has branded as Earthlink Business' Cloud Workspace. It's a product that works well for channel clients in certain parts of the country, said Clark Crook, director of tech care at Earthlink Business in Buffalo, New York.

"There are specific technologies and features built into [independenceIT's] product that are well suited for white labeling, most important being the ability to offer different types of support," Crook explained. Specifically, Earthlink Business can provide support down to a single user, or a channel partner can use its tool set to provide that same customized support to its own end users. In addition, the product can be configured for customers to provide their own service as well as if they were large organizations with their own IT staff, he said. "So, we find that incredibly powerful."

Solutions providers have traditionally marketed their businesses by promoting the vendors they specialize in and touting a particular status they have obtained. But as more companies find themselves increasingly turning to cloud services, providers are responding by seeking vendor products they can white label as a way to develop their own branding for greater name recognition and to build their reputation. White labeling is often seen as a driver to work with a particular vendor, and not all vendors allow it, said Carolyn April, director of industry analysis at CompTIA.

Yet it's a trend that appears to be on the rise. Last year, six in 10 channel firms involved in cloud reported they were white labeling a vendor's cloud offerings with their own brand, according to CompTIA's 4th Annual Trends in Cloud Computing report. Slightly more than half the respondents (54%) were reselling vendor-based cloud services, including software as a service (SaaS) and infrastructure as a service (IaaS) offerings.

"It's not a big leap to resell a vendor's SaaS applications if you are already reselling that vendor's other products and services,'' the report stated. "However, the margins on vendor SaaS sales tend to be on the lower side, which requires channel firms to find ways to add value to increase profitability."

Commitment requirements and rewards

White labeling a vendor's cloud services lets solutions providers set their own pricing, but it requires a commitment to market and brand the products, April said. "There is a definite investment that has to take place on the marketing side and contractual issues," with terms and conditions signed with a vendor independent of any other contract involved with partnering. Some of the investment includes retooling the vendor's brand to the solution provider's brand and creating collateral in the solution provider's own name.

"With a cloud service, it's less challenging because it's not a physical thing you're changing,'' April noted. Unlike on-premises hardware or software products, where a partner would want to leverage vendors' names in order to sell best of breed, "the vendor brand becomes less important in the cloud because you're selling the customer on the intangible service the solutions provider will be managing," she said.

The cloud is a lot more nebulous, and "if you're a good solution provider, you're going in and selling a service that will deal with a particular customer pain point and having conversations around the business benefits of a particular service" as opposed to technical issues, April said. The client is going to mainly be interested in the reputation of the provider rather than in whatever product is on the back end, since they are now selling to line-of-business executives more frequently than to IT, she said.

We're very cautious when white labeling [because] the challenge is now that's your product; there's no separation between you and the vendor.

Andrew Walsh, director of operations, Avitar Solutions

The financial benefits of white labeling will vary based on how the solution providers decide to mark up the product and margins, April said.

From the channel perspective, once a product is white labeled, the channel partners own the customer relationship and their margins will be higher, said Seth Bostock, CEO of independenceIT. "So, the channel partner doing the white labeling solution will have a larger margin because they're packaging multiple solutions for that business and basically setting their own price."

Echoing April, Bostock said channel partners are bringing additional value based on services and capabilities they're selling versus when a partner is reselling a solution from a vendor that has gone direct with stated published prices. In the latter instance, "They're stuck with the margin based on the stated published price, so a partner has lost a lot of control."

For the customer the benefit is "you essentially have one throat to choke,'' Bostock observed. "The customer is going to get a higher level of service because it's cohesive now and partners are bringing something together that's seamless rather than when you sell pieces."

Weighing the pros and cons

The decision to white label is not always a no-brainer, however. For Avitar Solutions Inc., which is white labeling DaaS from dinCloud, it was difficult, said Andrew Walsh, director of operations at the Syosset, New York, company. "We're very cautious when white labeling [because] the challenge is now that's your product; there's no separation between you and the vendor,'' he said. "If IBM drops the ball, they drop the ball; they're IBM. Now it's your problem."

Avitar ultimately made the decision to white label Hosted Virtual Desktop and Hosted Virtual Server from dinCloud (changing the name to Secure Hosted Desktop and Secure Hosted Server), because the vendor was "reliable and solid," and it was a good fit. Avitar felt comfortable white labeling dinCloud's product and "pushing it to our customers as our own," Walsh said.

There were not a lot of steps involved, especially since Avitar didn't already offer a competing product and dinCloud provided all the collateral, making it very easy for Avitar, Walsh said. In addition to dinCloud's Hosted Secure Desktops, Avitar also white labels hosted email and collaboration products from SherWeb.

Walsh said there aren't many stipulations in Avitar's contract with dinCloud. "There might be something in the contract that says you agree to behave in a certain way when it comes to handling tech support issues," he said. "I don't think they'll talk to my customers directly; [customers will] call me and I'll call dinCloud."

Depending on the contract terms, some vendors that offer white labeled products will provide technical support directly to the end user, along with a dedicated support phone number where all of the branding has been removed and the technicians will answer questions "in a generic way," Walsh said. Some charge a premium for this service and others include it in their price. Other vendors will allow a partner's end users to call but will not disclose who they are, while some won't take calls from anyone other than the partner, he added. "dinCloud answers the phone as dinCloud. I think that's the only gotcha,'' he said.

There also wasn't a big upfront financial commitment aside from the limited amount of marketing Avitar does, Walsh said. "Whether it was really dinCloud as a white label or we just went with dinCloud [as a reseller] I don't see anything different in the upfront financial commitment." On the back end, though, Avitar has the opportunity to price the service however it sees fit. "If you don't white label, then you're restricted in your pricing model to the pricing they have on their website," he said. On the flip side, Walsh concurred that Avitar has to really work in the value-add since a customer could just go direct to dinCloud.

Walsh said Avitar is "not taking the trouble to white label every product we sell," but opted to do so with dinCloud because it provides the entire infrastructure that Avitar can deliver to its customers. In terms of pricing their services, he said white labeling makes it easier to bundle together products instead of having to line-item everything.

"The more service you give a prospective customer, the more lines on a proposal you give them, the more areas they have to question,'' Walsh said, "and if you're confident in what you're providing your customer, you … should be able to deliver one amount and one package."

This was first published in June 2014

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