When Marc Andreessen said “software is eating the world,” he could have been referring to the channel enterprise and business communications marketplace. The days of the big-iron computing are in the past. The big-iron has been transformed into software only solution and further thru the power of virtualization and shared computing the same solutions are now being placed into data center and cloud infrastructure. And as more and more real time communications solutions move into the cloud, entrepreneurial and successful channels are transforming themselves into IT and systems integrations experts, leveraging the cloud rather than attempting to cling to the past.
Even the big companies are not immune; in fact they are scrambling to figure out how to replace revenue from “servers” with revenue from “business services wrapped around value-add applications.”
Here are a few examples:
Oracle’s proprietary hardware division has consistently failed to meet analyst expectations as their “on-premise” appliance strategy is slow to take hold;
IBM announced it will sell its server division to Lenovo due to decreasing hardware margins as the rise of cloud systems and cheap servers have caused deep discounting;
SAP is restructuring itself for the cloud future, while they are carrying out some “unavoidable” layoffs to help boost profitability;
Cisco is being hit by a slowdown in its traditional business as software becomes increasingly open, and international competitors continue to deliver much less expensive appliances with equal capabilities.
On the other hand, cloud-based companies like Amazon, Facebook, and Salesforce are thriving and many are adding “voice” to their solutions, including embedded voice and fully mobile capabilities, with awesome features for free or very low priced freemium prices.
Eat or Be Eaten: Move Up To the Cloud, Without Abandoning Your Healthy Legacy Business
The pace of change has never been faster, which is why it is important for channels to find the right future technology partners.
The traditional revenue stream for the VAR (Value-Add Reseller) has been selling hardware and software with pro-services wrapped around it. But as the solution becomes software only that’s transitioning to the cloud, the traditional revenue stream around pro-services such as installation, commissioning and second-day support diminish. More or less the cloud-game is now starting to become dominated by the data center providers and the network providers.
How does a VAR transform their business to play in the cloud game and effectively compete with the data center and the network providers?
So here’s the top 10 check list that you need to consider to help you move into the cloud and dominate it:
1. You want a technology partner that will require zero CAPEX. If you’ve to spend $2M to build out your own cloud is a huge business risk. You cannot build and over-build hoping that the demand will come. You want a technology partner who can have a true cloud-based solution up and running, enable the VAR to white-label and sell that solution in the market place.
2. White label, white label and white label. The VAR needs to be able truly white-label the solution in the market place.
3. The VAR needs to own the customer. Bringing a cloud solution as an agent is asking the VAR to abandon the #1 equity valuation component of their business – the number of end users or subscribers! The VAR still needs to own their customers and run their service under the standard MSAs (Master Supply Agreements) that they already have in place.
4. Minimize your OPEX. The VAR wants to leverage the technology vendor to reduce the OPEX around real-estate, power and resource cost to do moves-adds-changes.
5. You want to provide a cloud solution that can overlay the on-prem applications (like a PBX) or do a complete day-one transition into the cloud. The hybrid model is critical to provide a seamless and phased migration into the cloud. Also, the hybrid model can help you curtail some of the security governance requirements.
6. Provide a comprehensive disaster recovery strategy for the end-customer at a very minimum cost framework.
7. Create WebRTC applications via an open SDK. This helps you create incremental value-add applications that can solve real business problems. The VAR has to do rapid application development and low-cost application roll-out from the cloud.
8. Burst, burst and burst. The ability to provide capacity elasticity and do dynamic bandwidth/capacity to match the customer needs can drive interesting pricing and service bundle offering from the VAR to the end-customer.
9. The value equation is changing with the cloud. Beyond, the ownership of the users it’s also about creating IPR (intellectual property). The VAR can drive incredible valuation by creating a deeper IPR portfolio by creating a unique application library.
10. Reduce your customer churn. Once the applications get embedded in the workflow, it’s almost impossible to remove them. Look at salesforce. Once the customer loads their customer lists, contacts lists, forecasts, pipelines, it’s almost impossible to move from one CRM to another. It’s key to provide those sticky applications from the cloud.
For those channels without a plan and action steps as the move to cloud communications accelerates – the future is grim.
For many vendors, it’s a bad time to be a small provider of cloud services or a big provider of on-premises software. This is causing those who are late in the real time communications cloud movement to try and extract millions more in revenue our of channels, who are wising up to this even as they and their customers become smarter by the minute.
GENBAND has no traditional business to protect, and we’ve placed our bet on the cloud – big time. Not just any cloud, but a cloud that scales and software applications that work from that cloud, enabling our channel partners to elegantly migrate from their in-place systems, including interoperability with nearly all IP desktop phones and PBX, to the inevitable mobile experience which is still reliable and secure.
The Good News About Margins
With a software approach, the rewards are software margins. Hardware margins? Very low to non-existent and often the hardware is given away as a trick to get more recurring maintenance and licensing fees (which are largely out of control as old fashioned vendors struggle to hold onto the past).
Software margins? Well above 50% with the added benefit of new revenue sources, including applications development for customers, particularly when channels leverage APIs and SDKs through platforms-as-a-service.
The high growth, glory days of telephony are over – we are entering a new world now, and the bridge from “Sip” to “Software” is getting more interesting every day. That bridge leads right into the real time communications cloud, and stickier services, more value for customers, and higher margins for those channels who get it and are getting on with it.