In my last blog post, Cloud growth brings new opportunities for profitability in 2014, I discussed how IDC research had shown that Cloud-oriented partners experienced, on average, 1.6x the gross profit and 2.4x faster growth than other partners. Naturally, the question I received in response was "How are these partners able to experience such profitability?" The answer is primarily due to the successful Cloud partners that have accelerated their revenue streams and customer targeting into new and evolving directions, as the growth of the Cloud has opened up new opportunities across multiple business models. These partners have used this as the foundation to increase margins and establish annuity combined with aggressive growth through new customer acquisition in the whitespace, and have done so much faster than their non-Cloud competitors.
Optimizing your business model for the Cloud
Despite what others will tell you, there are truly only two types of partners out there - partners that resell others’ solutions and those that sell their own solutions. Sustainable profitability is coming from the unique value and differentiated offerings that partners deliver with online services. In many cases this includes reselling, but pivots on the value add from our partners. And while Cloud solutions are transforming vendor-to-customer relationships to always-on, customer expectations of our partners are for continuous engagement.
This dynamic has implications on traditional partner business models and opportunities, the first of which is on project based services, a business model that experiences volatile peaks and valleys of billable utilization dependent on the lifecycle of big projects. Utilization is not constant. It spikes and it lulls in a cyclical pattern which can prove both hard to manage and predict. There is still money to be made in the Cloud with this model, especially now, but it takes more of these projects to match the on premise deals of the past. This means partners need to optimize their delivery model and up level their consulting engagements focusing on the business problems, first and foremost, versus the IT challenges.
The continuous engagement model is loosely referred to as managed services. Managed services promises a steadier stream of revenue where the focus is the value of the customer lifecycle over time instead of the upfront value of the project. This model typically involves a longer ramp to profitability, but it creates annuity where it didn’t exist before.
The last model is centered around IP creation. Development of IP in the Cloud is much easier to do now than in the past and the barriers to entry are much lower. A partner’s unique IP enables it to create valuation, which, combined with both project based and managed services, offers a potentially powerful combination.
We see partners around the world honing in on the right combination of services that combine our platform, our Cloud services, and hybrid solutions to win deals with a new conversation and drive the future models of profitability, ahead of their competition.
The benefits are being realized by the first movers, and your move needs to make sense for you. Finding the right combination of business model mix is essential for long-term profitability. One thing is very clear – Cloud computing is here now and you should not wait to start investing in your future.
For more details, check out the full IDC study.