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Five business challenges every cloud reseller should prepare to tackle

The migration away from hardware and software sales to cloud services meanstraditional resellers

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must reevaluate their business models, staffing strategies and means of generating revenue. Partners that aren't accustomed to a services-oriented business model may find that becoming a cloud reseller requires a number of strategic changes. Thinking of entering the market? Check out these five business challenges every cloud reseller should be prepared to tackle:  

1. Selecting the right cloud partner

Traditional value-added resellers (VARs) know that a high-quality product is only one factor in what makes a good vendor partner. The best piece of hardware or software matters little if the vendor's technical support is lacking or its financial health is on life support. The same is true for cloud partnerships.

The cloud services market is active with mergers, acquisitions and consolidation. If the cloud reseller is partnering with a cloud provider that becomes an acquisition target, what protects the cloud reseller? Will the partnership agreement still hold, and if so, how might it change after the merger?

Cloud resellers will likely find more willing partners in smaller cloud service providers, as opposed to larger cloud providers that often sell directly to the customer to bypass the reseller. In that sense, it is often safer for the cloud reseller to work with smaller, channel-friendly cloud providers that need the reseller for sales support. The risk, however, is that these smaller cloud providers are likely to fall prey to acquisition or simply buckle under competitive pressures.

2. Compliance and legal issues for cloud resellers

Another challenge facing cloud resellers is the legal issues surrounding a cloud service partnership. The customer may have regulatory and compliance requirements, such as e-discovery, which must be upheld during and for a certain time after the services contract.

Cloud resellers must determine whether their partnership agreement obliges them to assume a customer's regulatory and compliance requirements or if the onus falls on the cloud provider. The issue becomes more complicated when the parent provider fails to comply with the customer's legal requirements, possibly exposing the cloud reseller to legal actions. Cloud resellers should thoroughly review all cloud agreements to protect themselves from any liabilities.

3. Working with (and against) hardware/software vendor partners

Most cloud resellers will have existing partnerships with hardware and software vendors that in turn may be developing their own cloud services. This can create opportunity or conflict.

Working within existing partnerships -- that is, using the same partner for cloud services and hardware or software sales -- could strengthen the vendor/reseller relationship. Working in concert with the vendor/cloud provider also enables cloud resellers to develop creative packages of cloud-based and on-premises products.

That same partnership, however, may also cause friction between the cloud reseller and vendor/cloud provider. If the vendor partner is making a big push for its public cloud services, conflicts may arise when a customer prefers to tap the reseller for a more lucrative private cloud project for the enterprise. Additionally, cloud resellers that choose a different cloud provider may find themselves competing with their vendor-turned-provider partner.

A healthy cloud services resale business may create other conflicts for resellers as well. Anemic hardware and software sales could affect purchasing discounts and profit margins.

4. Staffing needs change to address new demands for cloud resellers

The move from traditional hardware/software sales into cloud services also shakes up the division of labor for many resellers. For cloud resellers, staff labor time will be less focused on initializing services -- a process that will take hours, not days. Implementation staff may be retained to work on integrating those cloud services with enterprise infrastructures, but that staff will likely see a diminishing amount of work with on-premises servers and storage systems as those devices get farmed out to the cloud.

If the cloud reseller can sustain its systems sales, the hardware and software implementation staff will remain. If the system sales decrease, the implementation staff can be retrained to support the cloud services.  And as shorter implementation cycles free up personnel, cloud resellers will be able to support more customers at or near current staffing levels.

But if the sales of systems implementations or cloud services do not grow quickly enough, then the cloud reseller will be forced to begin layoffs. In that case, the first targets for downsizing may be hardware/ software installation and implementation staff, leaving the cloud reseller to grow its business via sales, service initialization support and help desk personnel.

5. Cloud services shake up old revenue models

The business models for cloud resellers must evolve to survive the growth of cloud services. Small- to medium-sized businesses (SMBs) want one bill and one provider, creating an opportunity for cloud resellers to create attractive packages of cloud services with other hardware and software purchases.

If the partner program includes a royalty, then the cloud reseller will wait some months or a year before it can recoup its sales cost for the services sold. This long-term window creates some risks for cloud resellers. If the customer cancels the service, if the parent provider goes out of business or if the enterprise goes under, then the cloud reseller may be shortchanged on any royalties. Traditional managed services will also be affected by cloud competition, potentially resulting in another revenue loss for channel pros.

Smaller traditional VARs will likely receive less attention and fewer discounts from vendors and distributors over time, leaving no room for them in the market and forcing their transformation into cloud resellers to compensate for the lost system sales.

About the author: Gary Audin has more than 40 years of computer, communications and security experience. He has planned, designed, specified, implemented and operated data, LAN and telephone networks. These have included local area, national and international networks, as well as VoIP and IP convergent networks, in the U.S., Canada, Europe, Australia and Asia.

This was first published in November 2011

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