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The changing channel – seeing the cloud as an opportunity, not a threat

January 23, 2013 • Opinion

A depressed economic climate, coupled with the ever-present challenges of shrinking IT budgets, reduced spend and lower margins, are issues which have plagued the channel for many years.

Alain Schram, Chief Operating Officer at Kathea. (Image: Kathea)

More recently the traditional channel has come under threat from the growth of cloud computing, which enables users to gain access to services from service providers rather than purchasing product from resellers. However, the cloud does not necessarily spell the end for the channel.

A slight adjustment to the business model can see channel partners take advantage of the opportunities offered by the cloud, accessing new markets and enabling more businesses of all sizes to gain access to advanced enterprise-grade technology.

As bandwidth has become increasingly available, stable and affordable in South Africa, cloud computing has become more of a viable option, leading more and more technologies to be offered as services. This benefits businesses of all sizes, particularly the burgeoning Small Medium Enterprise (SME) market in South Africa, by enabling them to access technologies they could not before due to the cost of infrastructure required.

However, the growth of cloud services is seen as infringing upon the traditional channel of vendor-distributor-reseller, as many service providers now act as a middleman and cut the reseller out of the chain.

In order to keep the channel alive, business models need to adapt and both distributors and resellers need to change their offerings slightly, catering for demand for services while maintaining traditional distribution channels.

The key to the survival of the channel is a change of mind-set. Currently, distributors take their products to market through the channel. The distributor distributes products, which are then resold by the reseller. As products become services, this does not mean that the channel needs to collapse, because effectively the model remains the same. Distributors are still buying products from vendors, but instead of moving boxes, the cloud model means that the distributor then takes these products and builds solutions, which can still be resold to the end customer.

In this model, it does not pay the distributor to take services directly to the market, as this will require a sales force and greater focus on customer service. Nor does it pay for the reseller to attempt to buy products and resell services straight from the vendor, as this will require the building of substantial infrastructure at a high cost.

With the expected growth of cloud and hosted services, the channel needs to change to more of a service model if it is to remain competitive, which opens up multiple opportunities and allows for access to a far broader market than previously. Many technologies, including video conferencing and video collaboration, have typically been the domain of the large enterprise exclusively. The channel however, has a large market base that falls outside of the large enterprise space.

By offering technology such as video as a service, distributors can effectively create a new market for resellers, enabling them to offer enterprise-grade services to SMEs and small corporates.

The shift of the channel however, is not just about new markets and selling services instead of products. In the new channel, resellers will focus on offering on-site customer services focused on optimising the functions and capabilities of the solutions offered, user training and adoption services as well as the traditional repair services for on-site equipment, rather than physical product sales. The emphasis on system integration will fall away in favour of end user and customer support.

Integration will happen at vendor level however, as much as end users are able to purchase products directly from vendors in many instances, customer service and after-sales support remains an issue. When things go wrong, the end user wants to be able to talk to a person for support, not a faceless website. This means that the role of the channel will become more people and support oriented, focusing on configuration and user support, amongst other roles.

The year 2013 is set to be the year of services, as the cloud gains popularity and more service providers deliver their offerings into the market. Moving towards a hosted model can create opportunities for the channel bringing in a new portfolio of services for them to resell. The key to keeping the channel alive is for distributors and vendors to work with channel partners rather than undermining them or cutting them out. If this can be successfully achieved, the cloud will not erode the channel’s business but rather change the business model, offering opportunities and new markets to be explored.

Alain Schram, Chief Operating Officer at Kathea

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