Do not rush into cloud

If you work in what is known as the IT channel, chances are you will already have been courted by at least one big player trying to get you to resell their cloud services. The message here is often that the world of IT is seeing a huge revolution, so unless you move quickly, you’ll get left behind.

Two observations we have made about this supposed time bomb: firstly, a lot of what people are talking about in relation to cloud computing translates to extensions of existing markets; and secondly, what the customer is actually asking for, particularly in the SMB space, isn’t changing that rapidly.

Let’s explore these points further. From our research, we see three types of cloud proposition worth thinking about as a reseller or integrator in the short term.

To begin with, we have Infrastructure as a Service (IaaS), an evolution of the traditional ISP hosting model – basically more of the same (hosted server and storage resources), but with additional flexibility.

If you are in the hosted infrastructure space yourself, or make use of such services on behalf of your customers (for example, to host applications you have sold or built), then you should check out IaaS. The economics of more efficient infrastructure and the emergence of the ‘elastic’ and ‘pay as you go’ models affect when infrastructure hosting is feasible or relevant, broadening the addressable market for infrastructure services.

The next category worth considering is utility-style SaaS. The tendency has been to lump all hosted application services into the same SaaS bucket. It helps, however, to distinguish between services generally implemented by customers ‘as they come’ and services based on applications needing a lot of configuration, tailoring and integration work, which we call complex or bespoke SaaS.

The market for complex SaaS will develop quite slowly, but utility-style SaaS, with. straightforward solutions such as email, basic content management, social business, and even unified communications (UC), and collaboration, represents a respectable short to medium term opportunity.
You can offer both existing customers and new prospects incremental capability that they would never implement on-premise. Again, it’s mostly about extending your addressable market, rather than switching or cannibalising existing business.

The challenge is that both IaaS and utility SaaS affect how money changes hands. While infrastructure services have always been an annuity revenue game, the variable and short-commitment nature of on-demand and elastic services does require adjusted billing models and salesforce remuneration.

Furthermore, the street price for emerging IaaS has still to shake out, so it could be a while before margins are predictable.

With utility SaaS, the switch from up-front licences and hardware sales to annuities can be even more of a challenge. Here too, prices need to settle, and customers need to become comfortable. Apart from objections to SaaS around risk and security, our research indicates that customers still generally prefer traditional asset ownership and depreciation, and are wary of unpredictable opex.

The speed at which issues and adjustments will be made is difficult to anticipate. If you bet your business on cloud services today before demand has firmed up and commercials have settled down, you are taking a gamble.

Sure, there are pure-plays doing very well, but we would generally advise
extending rather than switching your business. Gathering experience is healthy, and recommended in a controlled manner, but unless your core business is really in trouble, don’t take your eye off that ball just yet.

Meanwhile, many of the big vendors are heavily promoting private cloud. What this boils down to is on-premise technology pooling server and storage resources. This is almost business as usual for resellers and integrators, in that private cloud simply represents a range of new product options to lay on the table when customers are considering infrastructure refresh or new infrastructure requirements. It’s still a bit of an evangelical sale, but demand will undoubtedly pick up, as the proposition is actually quite solid.

The overarching advice is not to be tempted or panicked into acting hastily on cloud. Things are not going to change overnight, so take your time and do your homework.

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Dale Vile

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Dale is a co-founder of Freeform Dynamics, and today runs the company. As part of this, he oversees the organisation’s industry coverage and research agenda, which tracks technology trends and developments, along with IT-related buying behaviour among mainstream enterprises, SMBs and public sector organisations.