The channel impact of cloud computing

Will the domino effect undermine traditional business?

(Thoughts for Distributors, Resellers and System Integrators)

The writing is on the wall. As cloud computing steamrollers across the market, on-premise infrastructure will be the first to go. And with nothing to implement or look after, there’ll no longer be a need for in-house IT staff. Then, of course, the traditional channel business will collapse, as there will be no one left to buy anything. Oh yes, and after all of the dominos have tumbled, Amazon, Google and the like will inherit the earth.

Well that’s the line we hear from cloud evangelists and suppliers trying to drum up business for hosted services of one kind or another. If you subscribe to this view, then you’d better stop reading now, as we are not going to entertain such nonsense in the remainder of this article. Instead, we are going to apply some common sense and take a more grounded look at how cloud computing in its various forms will co-exist with more traditional approaches to solving business computing needs.

Given the ambiguity around the meaning of cloud, for the purposes of our discussion we are going to consider two categories of offering. Firstly, ‘private cloud’, which allows organisations to aggregate server and/or storage equipment in their data centre or computer room to form pools of virtualised resources. Compute power or disk space can then potentially be allocated flexibly on-demand, boosting overall efficiency and enabling IT to respond more quickly to new requirements and change requests from the business.

Private cloud is an evolution of the activity we have seen around virtualisation. At the moment, it is the form of cloud computing in which mainstream customers are most interested. With equipment and software running on-premise, the opportunity for resellers and SIs is clear, especially those targeting mid-sized and large organisations. As we are still in the early market, however, exploiting the opportunity will require more of a consultative/educational approach. Fortunately, key vendors are now well geared up to help channel partners with cross-sell and up-sell techniques and collateral.

The second category of cloud we shall consider is on-demand hosted services. Within this, we find a range of offerings such as Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and Software as a Service (SaaS). If you want an explanation of these, and other forms of hosted service that fall under the cloud banner, then check out our recent paper ‘Applied Cloud Computing’. Suffice it to say for now that similar technology advances to those underpinning private cloud are allowing service providers to deliver more flexible and cost effective hosted services of all kinds. This, in turn, is shifting the line in terms of what is feasible or attractive for customers to outsource to a third party hosting company.

Despite the possibilities, the demand for hosted cloud services, whilst growing, is still relatively small compared to the overall activity in the IT marketplace. Furthermore, rightly or wrongly, a general lack of trust in the model continues to act a brake on mainstream progress. With a deep cultural dimension to this, the situation is not going to suddenly change. We are therefore unlikely to see a wholesale shift in emphasis from on-premise to hosted solutions overnight.

Even as the comfort level grows, the market can only shift so far. For all but the smallest customers, the notional ‘move to the cloud’ would typically involve subscribing to many services from many different providers to meet the wide and varied needs of the business. The integration, maintenance, support, accountability, and supplier management issues that arise when dependencies cross many different operational domains are daunting. So too are the practicalities of coordinating security and compliance policy across jurisdictions.

Things will get less scary over time as interoperability and service assurance standards emerge, and as the service provider community matures beyond the current ‘every provider for themselves’ mentality that prevails. The continued evolution of monitoring and management tools will also help to keep things working as smoothly as possible across a distributed on-premise/provider landscape. All of this will simply reduce rather than eradicate the risks, however – hence there being a natural limit to how much of a shift to cloud services will take place in most organisations.

Having said this, as we discuss in the aforementioned paper, cloud computing is creating both choice and complexity for customers, so it cannot be ignored by those in the IT channel. Skilling up will therefore be necessary to maintain account control and exploit the spin-off business. There may also be some incremental margin to be gained from hosted service resale or referral. For small customers in particular, it may be possible to meet needs through hosted services in areas such as messaging, collaboration and CRM that would otherwise not be feasible for commercial or practical reasons through the on-premise alternative.

The bottom line is that there is no need for resellers and SIs to panic about the rug suddenly being pulled from under them by the emergence of cloud. However, doing nothing about it could represent an increasingly high opportunity cost over time, especially as more service providers figure out the importance of the channel in reaching and supporting customers. There are therefore definitely advantages to embracing cloud computing proactively.