I read with great interest a recent article in the trade press about the growth in cloud services and current levels of demand from customers and what struck me as interesting, as a sales and operations professional with relatively fresh eyes on the sector; (after all it has only been 3 and a half years since I was asked to construct and deliver the first sales, marketing and new business development campaign for an MSP’s taking cloud services to verticalisied markets), is the fact that the market seems to be unprepared for the demand from customers for cloud services, in fact everything around an easy cost per month disposable IT model.
This general lack of unpreparedness is not unusual, I have seen this situation before in other markets, (especially the real estate and automotive markets), but I caution, it can lead to a vacuum for a new business threat to fill, and I think there is a real danger that this is about to happen in the IT sector. Invariably, as has been the case in the automotive and real estate sectors, this void gets filled by a new competitor, perhaps initially from outside or on the fringes of the sector; the threat that no one sees coming. As the real estate and automotive sectors are learning, this new business, the company perceived as the customer’s friend will enjoy positive sentiment and high levels of obligation from customers, and once they control large proportions of customers, they have the ability to further change customer behaviour to their benefit.
Over the last 5 years companies like Carwow in the automotive sector and Purple Bricks in the real estate sector have tapped into a demand from customers to do business in a different way, and the effect has been devastating on the businesses deploying what was, up until then, the traditional trading model. I’m not going to spend any time delving into the aggressive third party business models, who have been able to attack established markets in this post, (they are a thesis in themselves), but the reason for mentioning them briefly, is because I see the same vulnerability in the channel at the moment, in terms of traditional, (but becoming outdated), business models, and it is MSP’s that are potentially most vulnerable.
And why do I say this? Well if customers are driving demand for cloud services and quite understandably turning their backs on the in-house hardware infrastructure model, which is now looking rather old fashioned, the role of the traditional MSP is beginning to look threatened and rather redundant.
This statement will no doubt ensure I receive some comments from owners of MSP’s, those I read quotes from who continually go on about the value they add, and this might have been true in the days of building and supporting complex on-site IT systems. But if customers are moving away from on-site IT networks, (which are beginning to look like the typewriter compared to the shiny new home PC equivalent, which is the cloud based network), the opportunity for the owner of an MSP to “Add Value” or shall we be honest and term it as “Build in Margin,” could be coming to an end.
Let me explain why; I have always looked at the perilous relationship that exists between vendors and the channel, (not so much for the vendors, but for the MSP’s), and if I’m honest I always wondered why vendors spent so much time building relationships with businesses they can’t control, in order to build their success, and I always thought that commercially this just did not make sense; why are vendors not selling this themselves?
Now, having worked extensively in the sector during the last 3 and half years I understand the requirement for this unhealthy relationship, and I say unhealthy because I sense that in the main, this is how some vendors view this relationship. Now to explain this statement, let’s pretend that I am a vendor and then think what a vendor goes through when launching a new product. Although this is going to be simplistic, it will go to the heart of the problem and my frustration as a vendor.
So, as a vendor we have a tremendous new product and in order to take it to market I have to invest vast sums of money and time convincing individual MSP partners to take on board this new product and take it out to their consumers, whilst not knowing the circumstances surrounding their business, their embedded relationships with other vendors, or their customers; as a business model this is mad but hey-ho, up until now I have had accept this status quo!
But the cloud changes this; why? Well unlike Dell, who in the past tried and failed to go direct to customers therefore bypassing the channel, we now have a wholly different and more financially powerful business to contend with, Amazon. Let’s take Amazon as an example, who already have about 40% of the cloud market; now if I was Jeff Bezos, (and I am not), I would be thinking like the disruptors who targeted other markets and coming to the conclusion that the secret to my success may just be about getting the message out to customers, customers who are already hungry to take up my services, many of whom already have via MSP’s building networks using my cloud services.
I would then think that this is potentially leaving my future success in the hands of third parties I do not know and now that we have a product that doesn’t need supporting in the way that traditional in-house hardware infrastructure needs supporting, why don’t I bring this whole operation in house.
After all, I have the best marketing platforms available to me, (my own), a trusted brand to die for and no one understands my product like I do; and more, having been emboldened by the recent £600 Million contract signed by Amazon Business, (albeit not for cloud Services), I have proven beyond doubt that I can go directly to customers and bypass the channel.
So if cloud services are the way ahead and I already have a 40% market share, why don’t I leverage my commercial advantages and be the first to offer an “Easy-IT” model to businesses and customers based on my own AWS cloud offering? For sure there will be some investment involved, but what’s easier, trying to convince individual business owners with no loyalty to me, to sell my products or to sell and support them myself? In terms of a long term growth model it really is a “No Brainer!”
Should Amazon make the decision to go direct to customers with AWS, the decision I’m sure that you all hope won’t happen, (and who are you really trying to convince on this point would be my question to the owners of MSP’s?), the decision to market, deliver and support cloud services themselves, just who do you think has the deepest pockets in the dash for market share and in controlling customers requiring IT services?
In my opinion the dash for customers is well and truly on and funnily enough it should be both vendors and the owners of MSP’s who should worry about the potential threat from Amazon. If there is customer demand for cloud based IT services, which there clearly is, those MSP’s without a cloud offering are on borrowed time; not only are they selling to a diminishing market, they are doing so with no current ability to expand and take cloud offerings to verticalised markets, in order to transition to the safer haven of being cloud services provider.
As for those MSP’s with cloud offerings, well it is a dash for market share and building loyalty with customers before the inevitable branded vendor models hit the marketing channels; the days of waiting for customers to contact us and having no effective new business development campaigns continually running are over, if MSP’s want to survive.
For traditional vendors, well there is also a threat; the market share held by Amazon is huge and remember, they do not think like a traditional vendor, Amazon is expanding into the territory of the traditional vendor from the safe foundations of an already successful business, (and boy is it successful), so they are probably looking at the sector and the opportunity from a fresh perspective, that gleaned for their existing businesses and successes.
If there is no appetite from other vendors to go direct to customers, but someone like Amazon go direct to customers, then vendor partner programmes are going to have to be able meet head on the challenges that may be coming their way.
An interesting and thought provoking discussion for sure and over the next 2 articles I will expand more on the challenges facing both vendors and the owners of MSP’s. Should you be a senior professional at a vendor or the owner of an MSP, and this article has raised some questions that you would like to discuss, over the last 3 years we have worked with both vendors and MSP’s to deliver strategies for taking cloud services to verticalised markets.
So if this post has resonated with you and you would like to explore how we can help you achieve your growth aspirations, then please do not hesitate to contact myself or my colleague Jane Gatfield on 0118 947 1010, or email us at andrewb@virtuosoconsultancy.co.uk or janeg@virtuosoconsultancy.co.uk
For more information about our services please visit www.virtuosoconsultancy.co.uk
To read more posts covering all aspects of sales, marketing and business development for MSP’s and VAR’s, please visit our blog; http://it-business-growth-strategies.blogspot.co.uk
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