Carriers In the Cloud: Channel Enablers or Competitors?

By Beth Vanni

Selling IT services has not been the legacy sales skill of the Tier 1 telecom service providers nor has building downstream channel programs to recruit other solution providers, for that matter. So, how are these giants going to equally invest in their direct sales and marketing resources and build channel ecosystems to extend their reach into the burgeoning IT and cloud services market, at the same time?

In a recent study of 64 unique IT vendors conducted by Amazon Consulting, its clear that IT vendors value most the ability for the large service providers to directly sell and evangelize cloud services to their broad end-user base (See Figure 1: Vendors perceptions of the key role of service providers as a cloud services channel). In the next two years, its expected that these giants will create and deliver new cloud services that vendors traditional IT channels are not.

However, more than 30 percent of vendors also think its critical for service providers to promote their extensive network and computing infrastructure to other smaller service providers and/or their agents and resellers, especially as a way to supplement the service providers professional services and SaaS development capabilities or lack thereof (See Figure 2: Vendors perceptions of service provider collaboration, based on cloud customer needs). In vendors minds, this would include leveraging the carriers extensive contract management and billing-on-behalf-of services.

The IT vendors have an invested interest in helping their VARs and regional systems integrators, which typically dont have these service management capabilities, actively partner with these large providers and become part of their channel ecosystem. As they look to coach the service providers about how to do this successfully, we expect theyll bring their own expectations for how to build and execute comprehensive channel support, including training and enablement, onboarding support, robust financial incentives and field support. Assuming the service providers apply the right level of resources to engage their own agents and resellers, the marriage between the vendors IT on-premises legacy channel partners and the service providers emerging ecosystem is an important market dynamic that the vendors will forcefully support.

One of the biggest investments service providers will have to make is in their sales teams. They need salespeople who are savvy with on-premises IT solutions and capable of transitioning customers to private or hybrid cloud implementations. Given that IT vendors expect the larger service providers to focus their cloud services evangelism on enterprise and upper midmarket customers first, vendors will have to carefully orchestrate effective sales teaming with their own direct sales forces to create early cloud success in these important accounts. 

This sales teaming is not an insignificant task, as the services-based sales teams of the carriers and the vendors product-based sales teams still have fairly different sales processes, compensation plans and unproven local relationships. Beyond enterprise accounts, service providers ranked their sales opportunity in small business much higher for cloud services than the vendors did. This is a telltale sign that the service providers will want and need the personalized, consultative selling approach of VARs and regional systems integrators to build SaaS and cloud momentum in smaller companies, especially those in key SMB vertical markets such as higher education, state and local government and manufacturing. But what will the big carriers do in their channel programs to help sales mentor the local VAR? Its questionable, frankly, who will be mentoring whom.

Despite the fact that the service providers expect healthy growth from their investments in direct cloud services selling, most carriers we interviewed project even higher growth from their indirect channel development efforts some nearly double their direct growth. They recognize that leveraging a broad network of local IT solution providers with close, long-standing customer relationships is critical to their success. Theyve enjoyed a thriving business here historically with their traditional agent programs for voice services and have offered their network through wholesale to other carriers, wireless service providers, cable providers, systems integrators, Internet service providers, ISVs and content providers. But, to become a truly channel-friendly organization and grow and manage a channel community over time, these giants will need to invest in more complete sales, technical and marketing support of their resellers, agents and brokers. 

This longer-term channel development is not yet in their DNA. Yes, most of the major carriers have sold at a wholesale level for years, but thats been a more OEM-like model with little to no go-to-market support and training expectations from their downstream providers. More than half (57 percent) of IT vendors we surveyed are already working with the leading global and national service providers on their channel programs, and the carriers weve talked to expect ongoing program development support and/or funding from their vendors to offset initial program development costs and/or help them gain initial traction with smaller IT VARs as agents and or resellers.

So, where will the investment dollars go first? Direct enterprise selling with specialized overlay data/cloud sales teams? Big outbound marketing campaigns to establish a presence as IT services and cloud leaders? A staff of channel sales managers to recruit and onboard new partnerships?

On the direct side, many of the larger carriers are in conversations with global systems integrators, cloud integrators and/or IT outsourcers to buy or partner with in order to provide pre- and post-sale professional services capabilities, at least to architect cloud solutions in large enterprise accounts. Some are also in conversations with SaaS developers to build out their portfolio of horizontal applications. However, this is an advanced topic for many of the global providers who have not been known for their IT application insights but plan to leverage their ISV customers/partners for these capabilities.

We think the global providers who will be cloud leaders over the next three to five years will be those who invest heavily in building their partnering ecosystems, with at least a five-year horizon of ROI, and leaning heavily on their IT suppliers to do so. This time horizon of investment will be a tough pill to swallow for most, given that they change their pricing, contract structures and marketing for (at least) their consumer business on what seems to be nearly a monthly basis.

The good news? They have most of what they already need in contract and pricing management automation. They also have massive customer databases with detailed insights about service usage and corporate profiles.

The bad news? Theyll have to start thinking like a partnering organization and begin (or continue) to build out the following partner management processes:

In our research, we asked the question, Will the large telecom service providers be leaders or laggards over the next two years in migrating customers to cloud solutions?”  Its clear that they are not investing at the pace the average IT vendor would like them to in order to make a market” for cloud services. However, if they change their investment appetite for longer-term ecosystem development and leverage their IT suppliers hard for partner recruitment, they have the ability to be the most powerful and disruptive force in channel-led services selling in the last 30 years.

Beth Vanni is vice president at Amazon Consulting, where she is responsible for research and market intelligence.  She can be contacted at [email protected]. Amazon Consulting helps IT vendors and service providers elevate the impact of their partnering efforts and investments.