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Solution providers have two options: 1) Transition their businesses to derive a healthy percentage of their revenue from the cloud or 2) Go out of business. And solution providers that haven't yet made the transition should be willing to go into debt, if that's what it takes to cross the chasm.
The webinar discussion drilled down into a theme that many vendors and industry analysts have already spoken extensively about, which is that there could be greater risks in resisting the cloud transition than there are in attempting one. But Schwan added that for solution providers that have added a percentage of cloud-based business to their revenue, small percentages won't cut it. "I think if you're less than 10% cloud … you've got a great going-out-of-business strategy, because you're not growing as fast as the other elements are and your margin is compressed already," he said. In Schwan's opinion, if a traditional solution provider wants success in today's evolving market, the company must not only get on board with cloud but balance its portfolio between both on-premises and cloud-based offerings.
Exploring partners' resistance to cloud, PartnerPath's vice president of consulting, Tim Lowe, shared data from the company's 2014 "State of the Partnering" study, where partners were asked the question, "Why are you not likely to offer cloud solutions to your customers?" The No. 1 reason partners cited for forgoing cloud offerings was that customers have not yet expressed interest in cloud. Schwan was skeptical about this claim. "I find it hard to believe that any customer right now is not in some degree interested in trying to figure out what cloud means to them, whether it's cost-savings, whether it's time to market. These are really all the things that really drive adoption of cloud," he said.
According to Schwan, the problem that some partners may be experiencing in this regard relates not to a lack of customer interest, but to sales strategy. Solution providers might be approaching the right customers with cloud offerings but speaking with the wrong people within that customer organization. Instead of selling to the line-of-business (LOB) people, many solution providers may look to IT shops as the decision makers instead, whereas much of the IT purchasing power has moved to the LOB realm in many organizations. Additionally, when they do speak to potential LOB buyers, they aren't adjusting their selling tactics accordingly.
John Schwanvice president of the Americas channel, Tintri
"Line-of-business people don't care about the bits and bytes," he said. "They are absolutely just looking at the financial decision of rent versus buy." Training a solution provider's sales team to sell cloud is a piece of the transition that needs to occur. Schwan compared the adjustments that solution providers now have to make to their sales strategy with cloud to the adjustments they have made in the past with managed print services. "[With managed print,] you saw that you're selling in a different way to different people and selling something different than [the] speeds and feeds of the printer."
Prompted to discuss the cash flow trough that solution providers face when transitioning to a recurring revenue model, Schwan had stern opinions about those companies that have not yet or have tepidly made the move to cloud services for fear of the cash flow impact. "My firm belief is that you have to be willing to go to the red to get into the black on some emerging technologies, and cloud's a big one of those," he said. "If you can't shift [your business] and understand that it's going to cost you a little bit to get into that business as you transition your systems and your compensations [and] the other things that go into it, you're not going to be successful, because you have to understand that we're in a transitional point right now -- not just [with] the technology but for the way that the technology gets delivered. … We [the vendors] have to have this belief that you guys [the solution providers] are shifting some of your business to be more than 5, 10, 15, 20% cloud-based."
Schwan quickly followed this by stressing what many vendors and solution providers have said about the cloud transition already. "Nobody has the exact blueprint on this. I don't think that I've ever seen anybody that's figured it out perfectly. And that's the challenge. You have to understand that there's not the exact, clear path to profitability on some of these things, but the reality is that's where the market's going." On the bright side, he said, while a roadmap to cloud profitability remains nonexistent, industry players have better data today to work with than they did two years ago.
But even without a clear path to profitability, making the transition and diversifying the portfolio between on-premises and cloud offerings is now a key strategy for success, he said. "The partners that are succeeding … are those that are balancing the scorecard and able to diversify their portfolio of business with both selling on-[premises] [and] basically understanding the annuity approach which cloud-based services offer them and offer … their customers," he said.
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