Zero One: Can the Channel Pivot to Digital Business in the Cloud?

The rise of the line-of-business executive (LOB) as the new shot-caller has tossed tech into a frenzy of motley cloud services. Random suppliers join the fray at any moment in the buying cycle. Long-time partners become competitors overnight. And strangers hastily jump into bed together. Everyone wants to woo a new tech buyer consumed with business outcomes, not tech infrastructure.

Heavyweights Avnet, Amazon, Oracle and Microsoft, for instance, have built new-fangled cloud marketplaces just for them. New independent software vendors (ISVs) arrive on the scene daily wanting to plug their business apps into the cloud ecosystem. Original equipment manufacturers march toward full-consumption models that make it easier for LOBs to sign on the proverbial dotted line.

Can the channel pivot to the brave new world of LOBs, digital business and the cloud?

Value-added resellers face a daunting makeover, from pushing technology products to selling cloud-based business solutions. Tim Fitzgerald, vice president of digital transformation at Avnet Technology Solutions, believes resellers must create a separate, dedicated business model to make this shift.

“If we sit with [traditional reseller] ownership and they’re like, ‘Yeah, if my sales guys find a deal, we’ll be able to sell it,’ then we take our pail and shovel and go home,” said Fitzgerald, speaking at Channel Visionaries in San Jose, Calif., last month. “They’re the most dangerous partners in the ecosystem. They’re not willing to make the bet to be successful. They’ll continue to get smoked by partners that are deeply committed to the as-a-service business.”

Related: Digital Business Transformation: A Channel Story

Even if a channel company wants to get in the cloud game, this doesn’t mean it can carry the ball. Amazon Web Services (AWS), for instance, has channel certification programs with increasingly stringent requirements. AWS demands potential partners bring something different to the party. In return, channel partners reap the benefits of giving customers a full experience with AWS, from selling to managing and billing.

“We had a lot of hard conversations in the early days with really large, interesting resellers that vendors in the past would be thrilled to have approach them,” Dorothy Copeland, general manager of the global partner ecosystem at AWS, said at Channel Visionaries. “We’d say, ‘You don’t have any certified resources, and I don’t understand your value-add.’”

AWS only wants partners that can help customers achieve good outcomes in their cloud journey. Customers need help identifying apps that should be moved to the cloud, migrating and managing those apps, and, critically, what new apps to consider. AWS partners need to train their technical teams in various competencies, such as big data, mobile and Internet of Things, as well as vertical markets.

“We got really focused on training our partners and making sure they had AWS certifications and had built out interesting practices and expertise in different areas,” Copeland said. “With infrastructure as a service, the sky’s the limit in terms of the kinds of workloads customers are running.”

But none of this is easy. For example, managed service providers (MSPs) with lots of experience in on-premise infrastructure will need to build a portfolio of new cloud-based skills in automation, migration, devops and security. AWS’s MSP channel program has more than 80 requirements and a validation audit to ensure the customer will receive a good experience.

Despite rigorous vetting, AWS boasts tens of thousands of channel partners – more than 10,000 joined last year – with some 60 percent coming from outside the United States. In 2016, AWS revenue flowing through the channel more than doubled, Copeland said, and internal studies show channel partners to be highly profitable.

“Those that have built out really technical managed services or consulting services on top of AWS, in addition to reselling, are the ones gaining a lot more profit,” Copeland said.

Nevertheless, AWS launched its own managed services in December, causing confusion and angst among MSPs concerned they’ll be competing with AWS. AWS Managed Services is reportedly aimed at Fortune 1000 and Global 2000 companies, leaving the small-to-midsized market for channel partners. Will this change down the road? Either way, MSPs better be looking for ways to move up the value-add chain.

It’s another sign of muddy relationships and strange alliances. AWS itself isn’t immune, either. In the last 18 months, AWS has begun working with former competitors, most notably VMware and Rackspace.

“Keep in mind, your arch enemy today, you might be in a room with them next year talking about how you can partner,” Copeland said.

Tom Kaneshige writes the Zero One blog covering digital transformation, big data, AI, marketing tech and the Internet of Things for line-of-business executives. He is based in Silicon Valley. You can reach him at [email protected].