The Business

Do you get your cut from the cloud?

Cloud computing stands to be the most significant transformation for the IT industry in a generation. Analysts predict that within a few years, almost all companies will run at least some of their IT in the cloud; a minority will run all their computing that way.

But cloud computing will also transform the way the IT industry does business. Cloud means a shift away from hardware sales and, in many cases, upfront software licences to a subscription or even pay per use model.

IT resellers who rely heavily on hardware sales may find that they lose some of that revenue to cloud computing. Even consultants whose focus is on on-premise solutions risk seeing some of their earnings move towards cloud providers competing directly with IT systems they would have built or configured for clients.

In some cases, large IT firms, including Microsoft and Google, are offering services such as email directly to clients, cutting out the reseller.

None the less, there is a silver lining. Whilst Microsoft, for example, sells hosted Exchange di-rectly to small businesses in the form of its BPOS offering, it sells many more ‘seats’ through the channel. And whilst products such as BPOS and Google Apps are of interest to small businesses, often it is the configuration and customisation that a reseller can offer that makes the technology work that much harder. There are even consultants who specialise in migrating businesses back from Google’s offering.

“Microsoft, and others, encourage resellers to create their own cloud offerings based on their products,” says Bob Tarzey, director at the IT analysts Quocirca. “This is not as unachievable as one might think, as resellers can use cloud infrastructure to create the service and resell it, espe-cially in specialist markets.”

And there is another element that allows the cloud to work for, rather than against, the interest of resellers. Some cloud providers pay resellers a one off, ‘finder’s fee’, but others pay a percentage of ongoing subscriptions. That gives resellers the chance to smooth out their income.

“Subscription fees are the Holy Grail for many resellers as it gives them the recurring revenues they’ve been seeking for so long,” says Rob Lovell, CEO of ThinkGrid, a UK-based cloud provider. As Lovell points out, top-tier resellers can make margins of up to 30%.

“Cloud models do allow for more flexible billing but we are still seeing 12 months contracts, not necessarily fixed but with minimums that the end-user can choose how to spend, guaranteeing the partner revenues,” he says.

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