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How to start a cloud business: A channel partner guide

Channel companies entering the cloud computing business must prepare for a subscription-based revenue model, cultivate partnerships and differentiate their services.

If your IT services company is wondering how to start a cloud business, you should take heed: Many IT executives are giving fair warning that starting a cloud business takes a well-developed strategy, as well as changes to your internal business processes.

Time has passed for those IT providers that sat on the sidelines because customers weren't ready for the cloud, cash flow problems stymied their efforts or they were unsure of how to monetize cloud services. In less than a decade cloud has become a bedrock technology that is deeply entrenched and continues to be deployed at large enterprises, medium-sized businesses and small companies. A TriCore Solutions study found that 85% of the organizations it surveyed are adopting the cloud or planning to do so. TriCore Solutions, a managed applications, infrastructure and consulting company in Boston, polled more than 200 IT professionals for its study, which was published in May 2017.

Even with the complexities that come with the growing maturity around the cloud computing business, IT service providers that are just beginning to offer the technology to their customers can still find opportunities.

Jamison West, co-founder, TeamaticsJamison West

"It's absolutely not too late, but definitely more difficult to enter the market than it would have been if you had begun moving the ship a couple years ago," said Jamison West, a channel executive who founded Arterian and guided that service provider's transition to the cloud. West left Arterian to launch a new venture, Teamatics, in April 2017.

West added that not only have traditional competitors entered the market, but new "born in the cloud" firms are popping up everywhere, and they have the inherent advantage of inventing themselves in the cloud without the traditional IT provider's baggage.

Want to learn how to start a cloud business? Here are five tips to get you started:

Prepare for a subscription-based revenue model

Arlin Sorensen, CEO at HTG Peer Groups , an organization in Harlan, Iowa, that coaches managed service providers (MSPs), said less than 10% of its peer group members' revenue comes from cloud computing. He noted some members are just beginning to enter the cloud services market.

Arlin Sorensen, CEO, HTG Peer GroupsArlin Sorensen

For these members, transitioning to cloud requires helping customers identify what type of cloud services they want, which in turn helps them find their own value as a cloud partner. First, though, they have to make sure to facilitate the change to a subscription model

"The biggest challenge we see in the transition to cloud is related to cash flow because for most MSPs the business model is built around selling products and projects to implement on-premises solutions where they get the majority of their revenue upfront, not spread over 36 or 48 months," Sorensen said.

To keep the revenue cycle constantly flowing, Sorensen advises new cloud entrants to migrate new customers to the cloud before turning their attention to offering Cloud services to current customers. 

Leverage distributor, vendor partnerships

Partnerships are another important consideration for channel companies learning how to start a cloud business.

Sorensen said cloud services beginners should keep in mind that while Amazon Web Services and Microsoft Azure have more advanced partner ecosystems, smaller cloud vendors lack channel support such as marketing development funds and lead generation programs, which enable partners to grow their business by supporting their customers' needs.

"Many cloud vendors are just trying to figure out how to even have conversations with a managed service provider," Sorensen said.

Ryan Walsh, senior vice president, Pax8Ryan Walsh

Ryan Walsh, senior vice president of partner solutions at Pax8, a value-added cloud distributor based in Denver said there's no reason new cloud service providers can't speed up their time-to-market with cloud offerings, especially if they strike the right partnerships with distributors.

He said IT companies that begin offering cloud solutions already have some domain level of expertise whether it's with a market segment they work with, such as healthcare or financial institutions, or a company working within a geographic region. However, they might not know what cloud products are pertinent, how to pick cloud products or how to sell and market what they are offering.

"If these companies are just getting started they'll want to find a distributor that has a proven template that can guide them through the process of picking from a list of prospects they'll want to talk to, and identifying what are the attributes of various cloud products. That's invaluable," Walsh said.

On the cloud vendor side of the business, newly established cloud solution providers should look for vendor partnerships that offer reliable, scalable and economically viable services that incent resellers, said Jeff Kaplan, managing director at THINKstrategies Inc., a strategic consulting company based in Wellesley, Mass.

Jeff Kaplan, managing director, THINKstrategiesJeff Kaplan

Additionally, cloud vendors must provide the right level of support so that if any issues arise the IT service provider can properly service and support their customers. Furthermore, as technology evolves cloud vendors must offer their channel partners continuous innovation.

"These have always been the rules for channel partner relationships in the marketplace. What has changed is that we are now talking about virtual services as opposed to selling stand-alone assets," Kaplan said.   

Find an entry point

Another path forward for cloud service providers entering the cloud market is to develop a launch strategy. One way to do this, Walsh said, is to begin by offering valuable and strategic technology deployments as a way to open the door to the cloud service market.   

"Security is a great entry point because it's a business essential," Walsh said.

A channel partner, for example, may have a customer using an on-premises security product such as an email gateway. When the customer is ready to refresh that product, the partner has an opportunity to propose a cloud-based email filtering offering in its stead, he noted. In this cloud technology niche, Pax8 sells Symantec's cloud-based email security products to channel companies.

Jumping in with a vanilla offering probably won't make a good first impression.
Greg Piercechief cloud officer, Concerto Cloud Services

He added Office 365 is another easy way to introduce customers to the cloud and also cited cloud backup/disaster recovery and mobility management of distributed workforces as cloud products that are simple to sell. In the mobility management area, Pax8 sells IBM's MaaS360 mobility-as-a-service offering. Walsh said the product lets channel partners manage multiple customers through a single management console. And as with other cloud-based products, MaaS360 is an API-enabled service that channel partners can activate instantly and make available for customers, he added.

When starting to offer these services, however, IT providers need to do more than implement a cloud product, West said.

"The core challenge for most IT providers I work with is relearning the core understanding of how users are managed," he explained. "Most providers believe they can simply start offering services like Office 365 or the [Google] G Suite products, put some servers on an [infrastructure-as-a-service] platform and that makes them a 'cloud provider,'  but most often this is just a half measure."

He added that the key is to relearn how to manage identity in the cloud, and observed that user management and security look entirely different in a pure-cloud environment. "Very few traditional IT providers have made that pivot," West said.

Forecast calls for more cloud growth

Recent evidence from IT research firms suggests there's more cloud revenue growth ahead. Estimates from Gartner show that the worldwide public cloud services market will grow 18% in 2017 to $246.8 billion up from $209.2 billion in 2016. Deloitte Global predicts that spending on IT as a service for data centers, software and services will accelerate from $361 billion in 2016 to $547 billion by the end of 2018.

More data from IT research firm IDC forecasts total spending on IT infrastructure products (server, enterprise storage and Ethernet switches) for deployment in cloud environments will see a year-over-year increase of 15.3% in 2017 to $41.7 billion. The majority of spending (60.5%) will occur in public cloud data centers, while spending in off-premises private cloud environments will represent 14.9%.

In this environment, newly minted cloud providers will be thrust into handling the demands that come with widespread cloud adoption and will be required to learn new approaches to serving their customers. Additionally, their own companies will undergo fundamental change. 

Differentiate your services

Once channel partners discover how to start a cloud business, the next task becomes learning how to differentiate in the market.

Greg Pierce, chief cloud officer, Concerto Cloud ServicesGreg Pierce

Greg Pierce, chief cloud officer at Concerto Cloud Services, a Tampa, Fla., company that provides multicloud management, application expertise and consulting services, said cloud projects will be easier to handle if the IT service provider brings their own technical expertise to a cloud migration project.

"It is important to figure out what your differentiation is going to be," Pierce said. "That differentiation is probably tied to the differentiation that you had in the past, such as expertise in an industry solution or around some specific type of mission-critical technology. Jumping in with a vanilla offering probably won't make a good first impression."

Pierce observed that the cloud service provider market is becoming more difficult to enter because there's a degree of saturation now taking place. For new cloud service providers, the best way to forge ahead is to make cloud the focal point of their go-to-market strategy, he added. 

"Companies are moving toward a cloud method of deployment and if that's not what you talk to your customer about first then what's going to end up happening is you will keep falling further behind," Pierce said. "Your sales force, and your delivery group, will be predisposed and still in the mindset of delivering on-premises implementation."

Develop cloud skills, retrain infrastructure engineers  

In the area of technology skills, Pierce said skills development for starter firms will be driven by market forces.

"It's a two-public-cloud game now and that's AWS and Microsoft Azure. You have to have skills around those two offerings, and private cloud isn't going away," Pierce said. "I think you would want skills around virtual private clouds or private clouds, to a certain extent, to be able to help customers make the right decision on how they manage, maintain and tie into cloud services."

He added that companies have to figure out how to train their staff in an environment where new features are being introduced on cloud platforms.

"AWS released over 1,000 new features on their platform last year and being able to keep up with that can be very difficult," Pierce said. "It can be challenging to train your staff to be able to deploy a service when that service may not be relevant, may already be obsolete and a new software feature has replaced it."

West said the cloud computing business reveals a larger skill set challenge, as customers shift more of their infrastructure to the cloud.

"I believe the help desk staff can transition fairly easily," West said. "The struggle I repeatedly see is with the more senior infrastructure engineers. They need to learn very different skills as infrastructure disappears."

He said new cloud service providers need to keep in mind that the more costly human resources, such as software engineers or network administrators, must develop new skills that drive business value in the cloud environment of the future.

"We've seen companies that have made this transition successfully retrain or replace engineers with business analysts and techs who can build workflows or business intelligence systems," West said. "It is a huge change."

Additional reporting by John Moore.

Next Steps

Read more about how channel partners differentiate cloud services

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