Understanding the Role of the Channel in Cloud Computing
Larry Walsh, of Channel Insider, recently tackled the sensitive subject of the role of the IT service Channel in the burgeoning market for cloud computing services and then subsequently posted a follow up. Since 6fusion is the only 100% Channel focused cloud computing provider in the market that I know of, I naturally read Larry’s piece with an extra amount of attention.
Walsh makes a couple of very poignant observations about what is happening in the market regarding Cloud computing and the impact it has on the thousands of IT intermediaries we often call Resellers or Managed Service Providers (MSPs) but I think Walsh’s perspective on the role of the Channel is somewhat uninviting.
The first point he makes is that the majority of Cloud service offerings are aimed at cutting out the Channel from the business equation. He couldn’t be more right about this. Maybe I’ve been in this business for too long, but everything you hear and read about regarding the Channel and Cloud computing stinks like some Michael Dell ‘how to’ screw the Channel guide from the 1990s. Make no mistake. There is no room for the Channel in the cloud business plans of Microsoft, Salesfore.com, Google Apps (as I recently wrote about) or any of the other hosting providers that have jumped into Cloud computing.
What I would add to Larry’s analysis is that the threat of disintermediation is like none other we’ve seen in the industry. I know we’ve all heard the displacement theory before, but it’s not like the old days. Cloud computing is very much a paradigm shift. It is not about a more efficient way to package, sell and ship the same commodity hardware and software. Cloud computing is a business model rooted in the fundamentals of how we consume technology. It’s much bigger than most IT service providers can imagine and it’s about control over the very elements that keep IT service providers in business.
The second point that Larry makes is that the Channel would be ill-advised to build a mini-cloud and hope for a measure of insulation from the threat. He points to tough slogging MSPs had when they built out big NOCs for the rising tide of support subscriptions, but here is the true reality: Cloud economics is about sheer volume. This is why Google, Microsoft, Hosting shops, big telcos and the hardware vendors are leading the charge. An IT Service Provider thinking about dropping a couple hundred grand on some kit and virtualization software to ‘take on the Man’ better think again. This is a mistake of epic proportions. It would be like bringing a hundred dollar bill to a high-stakes poker room.
So what is a Channel company to do in this situation? Walsh says MSPs and VARs should adopt an ‘agency’ approach acting as an advisor to customers trying to sort out the malaise of application integration, SLAs and contract matters.
6fusion is taking a much different approach with the Channel.
When we started our company a few years ago and told our peers, investors and others that 6fusion’s technology was going to be 100% Channel focused we got a lot of quizzical looks. Channel focused? Huh? Isn’t the middle man dead? I don’t know. Why don’t you go ask Michael Dell. Dell isn’t so brave these days and contrary to the pundits predictions 15 years ago the Channel is alive and kicking. But seriously, here is why 6fusion is the only Channel focused company in the Cloud Service business today: Because Cloud Computing is about business processes, operational improvement and cost containment as much as it is about purely innovative technology or cool apps. And we understand that. Period. We resisted the temptation to become an apps vendor because we are not the ones that should be deciding what apps to run and where to run them. We simply provide the cloud infrastructure and tools to help you build what YOUR customers want and need to integrate with how they run their businesses today. And most importantly, we can do this with zero capital investment from the Partner. We operate 6fusion the same way an Electric Light Co. would. Pure consumption.
So my experience makes me disagree with Walsh in that I believe whole-heartedly that VARs and MSPs can and should build Cloud services into their portfolio without compromising their client base to the likes of Google and Microsoft or picking up the tab to launch a rack full of servers to get into the game. We are helping the Channel go to market faster and with fewer financial resources every day. And if you speak with our growing number of Channel customers about it, they will tell you they are beginning to make more money than they could ever make peddling someone else’s SaaS or yielding the infrastructure market to others. This in spite of the fact that the world is telling them they no longer matter. Again.
Cleaning Up the Cloud Computing Pricing Mess
Cloud Computing is the next great land rush and it is happening now. All the major technology companies have their offerings. And it seems like everyone is entering the market – even the hosting companies want in on the land rush.
In theory, migration to the Cloud makes business sense; you’re enabling companies to rent computing power that would cost them too much to buy. I won’t bore you with yet another blog post on the ‘what is it’ topic. There is a great synopsis of Cloud Computing published by Mache Creeger and I recommend checking it out. In our model, we’re allowing companies to pool their resources on the supply side of Cloud Computing and leverage a much bigger, better shared infrastructure on the demand side of the equation.
Cloud Computing is about lower costs and greater use of resources. Greater flexibility, more options and overall, more computing power. It’s a shared cost. And it’s based on what you use. Or is it?
One of the areas of Cloud Computing that still needs to be addressed is the issue of pricing. Pricing the Cloud has gone beyond complex and confusing and entered the realm of ridiculous on some levels. We’ve met with countless service providers in the past year and the basic message is clear: Come back when you can give me something that doesn’t need a PhD from MIT to decipher. This message was also pretty clear at last month’s Interop Las Vegas event.
The odd thing is that everyone agrees that Cloud Computing pricing needs to be standardized. Many companies want this to be an industry group that develops standardization. Industry groups and alliances have been throwing this topic around for a long time now – we’ve seen this question come up for more than two years. But why is it that nothing has happened? As a company that has what I would call truly transparent pricing, I’ve been confused about this for a while.
I was recently on a conference call with a potential data center partner when I got insight into what I truly believe is the answer.
Standardized pricing and corresponding tools that allow end user customers to peer into the rack and seriously drill down into the granular cost of the Cloud are simply bad for business.
In fact, the parties on the supply side of Cloud Computing – elastic computing providers, managed hosting companies, platform-as-a-service shops, big iron manufacturers, etc. – don’t have much incentive at all to strive toward pricing transparency and standardization. Why would magic quadrant hosting providers or heavily vested IaaS providers effectively even the playing field by adopting a standard pricing metric when it is their brand that is ultimately buttering their bread today? Is a company like Amazon or Google really going to adopt the same pricing standard as every other company getting into the race? Maybe, but don’t hold your breath in hopes to see them at the front of the line.
I think the work of Cloud standards advocates like Reuven Cohen of Enomoly has been really great for cracking the nut of Cloud interoperability. But it may be a stretch when they dream of Cloud interoperability extending beyond the technical exchange and integration of systems and data. Here is a reality check: All the big Cloud Computing providers in the market are profiting from preventing the very process of commoditization they allegedly support. And even if you aren’t part of that group, pricing is an integral part of the profit picture and thus cannot be decoupled from the discussion. Just because you get together and document some sort of standard or benchmark doesn’t mean you’ve solved the problem for the stakeholder that matters most (the customer). In fact, I think these types of standards groups may only serve to muddy the waters further on the subject because they don’t pay enough attention to the connection with the bottom line for a Cloud operator.
Understanding the profit motivations of the Cloud providers and then dissecting the current modus operandi for pricing exposes a huge gap that I think will shape a big part of cloud development initiatives in the next few years.
Let me give you an example to prove my point:
Cloud Computing service providers seem to believe that they can and should charge for the Cloud on an hourly basis. On the surface that sounds great, because it’s better than paying for a machine for the whole month, isn’t it? But underneath there is a lot more to it. Think about it. If you use a server for one minute of an hour, you’re charged for the whole hour. That’s crazy. One sixtieth of an hour costs you the whole hour? Sure the pricing is reduced, but what are you really getting? I think Allan Leinwand captures broader implications of this silliness quite well when analyzing the state of Cloud pricing. He said, “CPU hours: that’s not something I go buy. I buy a blade server, and the hours are infinite, they’re mine.” Leinwand has a big point and it has a direct impact on the future capability of Cloud Providers to achieve mainstream relevance to the average enterprise. 6fusion’s CEO and co-founder John Cowan analyzes the implications of pricing on the buying community here in a separate post.
And if it were really just as simple as clocking CPU hours and sending out a bill, maybe we could alleviate this pain point in the Cloud and move on. But it doesn’t end there. Invariably, Cloud Vendors have to “tack on” all sorts of ancillary charges and fees to make money. Everything from RAM to storage to bandwidth and even Support get thrown in as separate line items. The pricing becomes convoluted and difficult to predict. It’s a huge mess, but there is no incentive to solve the problem, given there is a lot of money to be made from the confusion.
I have no problem with the supply side making money. After all, that’s what a company is in business to do. What I have a problem with is the lack of transparency or ability to leverage these systems for anything more than just the technical accomplishment of elastic computing (don’t get me wrong, that is a biggie!). When Cloud providers don’t give you proper insight into what you are using, and if you can’t make the mental jump between what you do today (ex, buy more blades) and what the Cloud represents, the advancement of the industry suffers.
Herein lies the gap.
Service Providers must deliver more insight and transparency into the Cloud, not fog the pricing just to earn more margins for a brief time. Customers are far too smart for this to work long term. Ultimately, we believe that in order for the Cloud to succeed, the industry needs to help customers understand their true usage and the true value they are getting before and after they make the decision to use Cloud Computing to run critical IT systems. A granular metering and billing technology that transcends the politics of brand and vertical silos, while satisfying the need to be a ‘profitable’ service provider, will go a long way to helping to clean up the mess that is Cloud pricing today.
Is Google Dealing from the Bottom of the Deck When It Comes to the Channel?
I just watched Google’s Jeff Ragusa’s video clip explaining the Google Apps reseller model. If I didn’t know any better I would have thought the Just for Laughs Festival I attend every year started early. Here is the big joke: Google is offering a whopping 20% of the Google Apps revenue generated by the Channel for directing their customers to Google’s coffers. For those of you that don’t know yet, let me give you the math: Google charges $50 per year per user for access to Google Apps. Gee Goog, you shouldn’t have. I mean really! A cool $10 per year for every user I hand over? Where do I sign up for this cash bonanza!
The financial scraps approach to building a Channel play and my sarcasm aside, this is where it appears Google is dealing from the bottom of the deck when it comes to the Channel: You are giving up the control over the operation of your customer most important applications: Productivity and Email. Opening up your IT Service practice to Google is nothing short asking the fox to guard the henhouse.
If you are seriously considering the Google reseller program, ask tough questions. Here are 10 questions to get you started:
- How does Google Apps integrate with my clients other business systems?
- Will I be able to apply my remote monitoring and maintenance tools to Google Apps so that I can maintain SLA consistency with my client?
- Will Google Apps integrate with my Professional Services Automation (PSA) software?
- Who controls the database where customers are registered?
- Will my clients email be filled with Google ads, just like my Gmail account?
- Can I choose where my customer email data is stored geographically to satisfy data residency requirements?
- If I educate my customer about Google Apps and then they sign up directly, how do I get compensated?
- Can I just take the Google Apps software and run it on my how hardware?
- My customer has built an IT operation on Active Directory services. Is IT migration to Google Apps as easy as buying an Adword?
- Who owns the risk if Google Apps fails since I’m the one billing and collecting from the client?
Google’s ‘hand is quicker than the eye’ program comes with a nice slick portal, white labeling bells and whistles, a cool training program and the power of Google’s expertise in building a state of the art system from the ground up. But don’t be fooled. Google fails just like any other IT system. What matters in this is who owns the guts of the operation; it’s who controls the data. Google is right on point when they say that centralized application delivery is the future (SaaS), but IT Service Providers need to ARCHITECT hosted solutions for their clients to perpetually demonstrate value and relevance as the cloud computing paradigm continues its takeover of IT best practices and deployment strategies. It might be the harder road to travel in the near term, but your service practice will be better for it.
I truly believe IT Service Providers CAN succeed and actually beat Google at their own game. I spoke with one of our Service Provider clients recently that believed the price of Google Apps was going to ‘win’ the market because Microsoft on premise solutions are so expensive. I said to him, “look, if your customer is not married to the features and functions of the Microsoft solution, then don’t let them become susceptible to the Google pitch.” By that I meant begin exploring hosting open source software alternatives to Microsoft. Other Service Providers are flocking to open source mail systems and productivity software suites and the control over pricing to your customers is very compelling.
Naysayers point to the fact that Google’s price of $50 per year per user is simply so rock bottom that you can’t compete if you are a regional Service Provider. Not true. At 6fusion we are helping Service Providers go to market with open source services priced the SAME as Google and we are beating them at their own game. Google sees the commodity applications as a loss leader. They aren’t interested in building their business on Apps revenue. They are interested in everything that trails the wake of productivity and email application use. IT Service Providers working with us are starting to use the very same strategy (we give them commodity utility computing infrastructure so they can compete with the likes of Google and others). And it’s smart. Any mature IT Service Provider knows full well that the bread and butter are IT management, migrations, projects and ongoing fixed fee SLA revenues.
So Google now has over 1000 employees focused on cracking the Enterprise SaaS nut and you, the IT Service provider, have a team 12 consultants and 2 sales people. Worried? Don’t be. Here is what Google will never have that you will never have: Trusted advisor status with your customer’s decision makers and more to lose if things don’t work as advertised. This is a very valuable trump card. If you play your cards right, Google (and others) should never be a real threat to your business.
The Gartner Cloud Computing Smell Test
Sniff, sniff…. Yep, it’s a Cloud!
Gartner released five criteria to determine whether the pile you’ve been sniffing is in fact what you think it is. In general, I think this type of shoehorn analysis is dangerous because it never really goes deep enough. They are invariably so nebulous that in some small way my hacker nephew could probably qualify his College project. The problem with top down research like this is that the devil is always in the details.
I took the liberty of regurgitating the list for you to peruse here:
Service-Based: Consumer concerns are abstracted from provider concerns through service interfaces that are well-defined. The interfaces hide the implementation details and enable a completely automated response by the provider of the service to the consumer of the service. The service could be considered “ready to use” or “off the shelf” because the service is designed to serve the specific needs of a set of consumers, and the technologies are tailored to that need rather than the service being tailored to how the technology works.
The articulation of the service feature is based on service levels and IT outcomes (availability, response time, performance versus price, and clear and predefined operational processes), rather than technology and its capabilities. In other words, what the service needs to do is more important than how the technologies are used to implement the solution.
Scalable and Elastic: The service can scale capacity up or down as the consumer demands at the speed of full automation (which may be seconds for some services and hours for others). Elasticity is a trait of shared pools of resources. Scalability is a feature of the underlying infrastructure and software platforms. Elasticity is associated with not only scale, but also an economic model that enables scaling in both directions in an automated fashion. This means that services scale on demand to add or remove resources as needed.
Shared: Services share a pool of resources to build economies of scale. IT resources are used with maximum efficiency. The underlying infrastructure, software or platforms are shared among the consumers of the service (usually unknown to the consumers). This enables unused resources to serve multiple needs for multiple consumers, all working at the same time.
Metered by Use: Services are tracked with usage metrics to enable multiple payment models. The service provider has a usage accounting model for measuring the use of the services, which could then be used to create different pricing plans and models. These may include pay-as-you go plans, subscriptions, fixed plans and even free plans. The implied payment plans will be based on usage, not on the cost of the equipment. These plans are based on the amount of the service used by the consumers, which may be in terms of hours, data transfers or other use-based attributes delivered.
Uses Internet Technologies: The service is delivered using Internet identifiers, formats and protocols, such as URLs, HTTP, IP and representational state transfer Web-oriented architecture. Many examples of Web technology exist as the foundation for Internet-based services. Google’s Gmail, Amazon.com’s book buying, eBay’s auctions and Lolcats’ picture sharing all exhibit the use of Internet and Web technologies and protocols.
So 6fusion officially passes the Gartner smell test. Woop-dee-doo! Can a service provider actually use what we cooked up? The Gartner criteria can’t tell you.
What is going to matter most in the coming years is the next set of five criteria, which will measure the Cloud service provider’s actual relevance (now there’s a term right out of the .bomb era, eh?) to a service organization (outsourced or internal, it doesn’t matter). Here are the next five criteria you need to think about in for Gartner’s smell test to really help you tell the difference between the piles you are sniffing, especially if you are thinking about using cloud services to offer solutions to real business customers:
Business Value: The service can clearly demonstrate business value to the customer. Two examples of business value are proven and documented (maybe even guaranteed) TCO improvement (or operational efficiency gains), and an SLA with teeth (real financial risk for the service provider if they blow it). A real cloud service must do more than pay these subjects casual lip service.
Data Residency Control & Interoperability: The service provider is able to allow the customer to choose where data resides in the cloud (physically). Compliance is not something that can be ignored just because Gmail is cool. That may fly during the honeymoon period, but business customers care where their data (such as email or CRM) is sitting and who can potentially get their hands on it (just ask Liquid Motors what they think). In addition, the service provider must support a minimum standard for interoperability. If a customer builds a workload on your cloud today, they should be able to move to some other cloud tomorrow. Proprietary lock in is so 1999. Examples of supported interoperability include standards like Open Virtualization Format (OVF).
Any App Architecture: The service provider must be able to address non-web services applications. Contrary to the folks with SaaS on the brain these days, the vast majority of businesses in fact do *not* run web services applications. In order for a cloud service provider to prove relevance they must be able to enable or assist with the transition from the old paradigm to the new without first selling the customer a shiny new forklift.
Business Process Integration: The services provided cannot be an island. This is not called island computing. This is called cloud computing. Therefore, cloud services must be able to integrate with existing customer business process (particularly the automated ones) practices. A good indication as to the level of sophistication your cloud service provider maintains is the number of use cases. Does their cloud service interweave with your DR plan and your production collaboration suite? Or are they a one-trick pony?
Cost Profiling: The service provider must allow the customer to profile their applications before moving to the cloud service in order to gauge performance, and most importantly, the cost. Metered use is great. But if a customer can’t translate that into what they will really pay for services, it is not enough. Simplicity is the hallmark of cost profiling and automation is a cornerstone.
Knowing what cloud computing should smell so that when it comes along you can recognize it is obviously important to mainstream adoption of cloud computing. But this alone isn’t enough of a guide as you find your way through the dark. Being able to independently judge a service offering for relevance to your most prized possession (your customers) will prove to be a much more poignant test.