In the past, success for a partner in any given year was more or less the sum of the successes of each deal you did. Partner businesses lived and died based on short-term project performance.
But the cloud is different.
The cloud business model is all about the long game.
What’s changed with the cloud business model
Certain investments must be made upfront.
In the cloud, different marketing and sales infrastructures are needed to adapt to new buying behaviors and win customers. Offerings must be far more “productized” as well, since customers want integrated, industry-specific solutions. These factors both represent very real, and largely fixed, costs that must be incurred up-front in order to achieve success in the cloud business model.
Return on investment is realized over time.
Cloud revenue is “annuitized” and comes in over time in the form of subscriptions for both products and services. This is because the customer is now reluctant to fund the large projects they once did, and expects lower upfront costs. For the partner, a short-term cash flow “trough” results, which must be funded in order to realize substantial long-term returns.
Maximizing the initial cloud investment
Given the changes in customer buying behavior and expectations, how do you maximize your cloud investment and drive meaningful long-term results?
My advice: put a fence around as big a customer base as possible, before someone else does. And ensure your offerings, whether products or services, have a healthy gross margin structure. The subscription model will do the rest in terms of generating long-term profitability, and significantly increased shareholder value.
The fact is that company valuations are highest for those who are posting strong recurring revenue growth, even if short term profitability is negative. In effect, technology is being viewed as a “utility,” and the market is rewarding those who carve out a meaningful niche for themselves as an ongoing product or service provider, rather than as simple one-time project services vendors.
Because of these factors, there’s no time to waste—win the long game by building your cloud market share aggressively, now.