Distributors Reaching New Heights in CloudLearn why established and emerging technology companies are turning to supply-chain leaders to support their cloud business growth.

GLOBAL TECHNOLOGY DISTRIBUTION COUNCILGTDC

Table of Contents

Force Multipliers Fulfilling a Need . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

From the Frontier to the Front Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Enabling the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Building for Tomorrow, with Sharp Eye on the Present . . . . . . . . . . . . . . . . . . 7

Selling Cloud to the Channel, Not Through the Channel . . . . . . . . . . . . . . . . 9

Expanding the Foundation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

One Size Doesn’t Fit All . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Cloud Is Here to Stay, And So Is Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

About the Report Distributors Reaching New Heights in Cloud was developed based on comprehensive interviews and surveys with both born-in-the-cloud and longstanding technology companies expanding into this marketplace. The Global Technology Distribution Council commissioned this independent study with CommCentric Solutions, a channel-focused communications agency bringing more than two decades of related experience to this undertaking.

About the AuthorScott Campbell, Senior IT Channel Communications Specialist at CommCentric, heads up the agency’s channel market research and analytics practice. Prior to joining the firm, he spent more than 15 years reporting on technology and channel business issues for CRN, the channel’s leading trade magazine.

www.commcentric.com(813) 876-0414info@commcentric.com www.gtdc.org

(813) 412-1148info@gtdc.org

GLOBAL TECHNOLOGY DISTRIBUTION COUNCILGTDC

Top 3 Bene�tsof Distributors in the Cloud

1 Partner Recruitment

2 Partner Enablement

3 Partner Financing

4 5

How Technology Distributors and Partners Are Growing in the CloudAs demand for cloud computing increases, questions loom about IT channels, how current partnerships are evolving and new entrants participate. This report provides comprehensive insight on the developments – from the perspectives of both born-in-the-cloud companies as well as longstanding technology leaders making this transformation with distributors.

Distribution’s role largely centers on the recruitment, enablement and support of a wide variety of partners on behalf of cloud vendors, according to those interviewed. They acknowledge there’s still much work to be done to fully capitalize, though they also point to significant strides to date.

In some respects, cloud is still in a frontier-like era, with plenty of avenues and room for expansion for those that can act swiftly, said the executives who represent companies ranging from longtime industry bellwethers that have expanded into cloud to emerging cloud companies utilizing the channel for the first time.

Vendor executives agree that cloud success will accelerate for their companies as well as distributors and solution providers based on how well respective infrastructure, programs and resources collectively advance. It’s both “shared burden” and golden opportunity unlike any the channel has ever faced.

Force Multipliers Fulfilling a Need

“Distribution success in the cloud is inevitable, as distributors will play a material and value-added role for cloud vendors,” said Pete Lamson, senior vice president of global sales at Carbonite, a Boston-based developer of cloud-based data protection solutions. “They have the means of penetrating the cloud market at unparalleled scale. That’s the end game and highest value proposition for cloud vendors.”

Carbonite was founded in 2005, having made its mark selling cloud-based data protection solutions and establishing solid relationships with a core of about 3,700 partners in its first 10 years. Two years ago, the company realized that in order to continue a high rate of growth, it needed more partners. So it turned to distribution.

“For Carbonite, the value distribution offers really is about partner reach and end user acquisition. Carbonite needs to onboard more VARs in more regions, so that we can accelerate end user acquisition in a manner that is economically favorable in comparison to the cost of customer acquisition through direct means,” Lamson said. “Carbonite benefits from distribution by acquiring VARs that are new to Carbonite”.

Carbonite sees the potential to add many more partners, particularly from the ranks of the tens of thousands of traditional solution providers not currently offering cloud solutions.

The company is hardly alone in its quest to find more solution providers. Partner recruitment (finding new partners) was cited as the top distribution benefit in a survey

of the cloud vendors interviewed for this study.

Partner financing, partner enablement (training new partners), partner program enablement (helping vendors develop/execute partner programs) and aggregating or integrating multi-vendor products into complete solutions were also chosen by at least half of the companies surveyed as valuable or highly beneficial.

“Distributors must deliver accelerated sales performance for cloud vendors. Distributors have unmatched scalable access to the VARs cloud vendors need. It’s as simple as that,” Lamson said.

From the Frontier to the Front Line

Like Carbonite, Faction is also looking to capitalize on the current Cloud Rush. After selling direct to VARs and MSPs for about five years, the company (formerly known as Peak) signed its first distribution deal in 2011. This year, about 60% of revenue will flow through distributors, said Luke Norris, founder and CEO of the Denver-based cloud IaaS provider.

“We were looking to achieve two things through distribution. First, achieve scale on our ability to attract and manage partners without having our costs get out of control,” Norris said.

Faction now has more than 200 active MSPs and solution providers, and about 70% of that business is “white-labeled” by those partners, Norris said.

Faction also sought distribution’s help to get its IaaS solutions sold at the same time that VARs purchase Cisco, NetApp and other data center technologies, Norris said.

100%of vendors surveyed expect

year-over-year cloud sales growth

through distribution in

2016

6 7

“We are a natural tag-along, and by combining purchasing and procurement, it’s allowed us to streamline our days of sales outstanding and made other accounts payable through distribution,” he said.

As a new company built for the cloud, Faction initially had to sell distributors that it could be a great vendor partner, Norris said.

“In 2011-12, they kind of viewed us as quasi competition because they made their money with on-premise solutions. That’s drastically changed,” he said. “I still think we’re trying to get them to recognize the value in joining efforts with us and say a NetApp, but we’re getting there.”

Just a few years ago, for example, distributors’ billing systems couldn’t even handle recurring revenue models. “For example, they’d sign a customer for 36 months for a cloud service and they’d essentially hand them 36 bills,” Norris said. “There are still billing system issues, but it’s getting better. It’s been a great pivot. They’re more engaged and have more recurring revenue streams now that related resources and dedicated cloud teams are in place.”

Going forward, Faction wants to build on this foundation with distributors by helping its solution provider customers see tighter alignment with sales and marketing programs and credits. In addition, distributors can better help Faction increase its partner base.

“I want distribution to focus on our long tail, smaller up-and-coming partners. Maybe they don’t have a lot of credit history. Let distribution aid with the ramping up of those partners,” Norris said.

Enabling the Future

While newer companies like Carbonite and Faction continue to develop their distribution relationships, more established vendors like Hewlett-Packard and Microsoft have been just as busy evolving their longstanding relationships to include cloud.

HP is no stranger to the channel, of course. The Palo Alto, Calif.-based company leverages solution providers—and distribution—for everything from PCs and tablets to networking equipment to high-end storage and other data center solutions. And, of course, cloud.

Time to Elevate HQ Awareness!

When asked how well their

senior management understand the value that distributors can provide in the cloud, the vast majority of vendor responses was merely...

”SOMEWHAT”

With such strong ties to distribution, there was little debate internally as to whether HP would leverage distribution to bring those products to market, said Jim Wittry, cloud business partner manager at Hewlett-Packard.

HP views cloud as a transformative activity for most of its reseller community, a means to engage partners to sell a wider range of HP products and services, Wittry said. Distributors, he added, are vital to expanding that solution provider activity.

“It’s all about training and enablement dissemination of cloud. That’s all classic, normal stuff with distribution. We’ve just added cloud to it,” Wittry said.

Meanwhile, Microsoft’s primary goal for distributors around its cloud solutions was simple: get more active and capable solution providers to lead with Microsoft-based cloud services, said Peter Davidson, director of worldwide cloud channel sales at the Redmond, Wash.-based company.

“Distributors play a key role in enabling the channel to lead with the cloud. They have been able to reinforce their channel leadership and value in showing resellers how to begin to think about cloud-based services and solutions. As a vendor, we are pretty happy with that effort and have seen success,” Davidson said.

“Distributors continue to evolve and invest in their capabilities to lead the channel to the cloud. That’s exciting to see. It never ceases to amaze me how innovative our distribution partners are and how they respond to market opportunity.”

Building for Tomorrow, With Sharp Eye on the Present

On one hand, the interviewed vendors think it’s great that distributors are evolving and investing in cloud, building relationships with cloud vendors of all types and sizes. On the other hand, those cloud

businesses still need revenue today to ensure that they’ll be around tomorrow. And therein lies a challenge still facing the channel.

Several vendors interviewed said they were surprised by the relatively light channel ramp-up in cloud to date. “It’s evolution, not revolution. It’s coming fast, but it’s not a light switch, and we are ready now to be ahead of the demand,” explained Gil Morales, director of distribution channel sales for Trend Micro.

“It’s all about training and enablement dissemination of cloud. That’s all classic, normal stuff with distribution. We’ve just added cloud to it.”

Jim Wittry Cloud Business Partner Manager, HP

8 9

“The biggest challenge is reseller readiness to support and deliver cloud solutions. Distributors have built the right processes; auto billing, provisioning and syndication capabilities, but many reseller partners have yet to fully embrace this transition. Distributors sell Trend Micro cloud solutions today, but resellers have not fully utilized distribution cloud marketplaces. It’s difficult to break from a longstanding traditional procurement model,” Morales said.

Executives interviewed agree that the biggest inhibitor to distributors’ cloud success is the lack of—or at least the perceived lack of—traditional solution providers/VAR/resellers that have transformed their business to sell cloud solutions.

“If it was pain free, we wouldn’t be making progress. The process has been ongoing because distributors are reinventing their own business models. It can take six months to a year and a half because so many people need to be trained,” said John Zanni, senior vice president of cloud and hosting sales at Acronis, a Woburn, Mass.-based data protection vendor. “Are we all in sync? No. But we’re getting more in sync. “

A recent survey by The Channel Company reveals that 38% of solution providers that identify themselves as cloud VARs believe that distributors are capable of adding meaningful value to their cloud business. Another 30% also believe that’s the case, but they haven’t had much experience with distributors yet. Only 4% said distributors’ services are not meaningful to their own company’s cloud services.

Meanwhile, 72% of cloud solution providers see value in working with distributors around cloud services today, and 76% said they expect to see value in the next 12-18 months. At issue is how best to try to cloud-enable the hordes of non-cloud solution providers around the world, assuming those partners even want to sell cloud. Those are the partners that cloud vendors desperately want distributors to enable.

Thus far, distributors are doing a “reasonable” job with cloud, HP’s Wittry said, cautioning that both distributors and vendors need to do more in evangelizing cloud across their broad reseller base.

“They are helping us recruit the appropriate numbers into our cloud programs, but not all of the resellers in today’s ecosystem have the appetite or the ability to move into the services or consultative sales model required for cloud,” Wittry said. “I think the evangelism of cloud partner recruitment has to be a very measured step.”

Selling Cloud to the Channel, Not Through the Channel

ConnectWise has a different perspective on distribution relationships. The Tampa, Fla.-based company primarily focuses on selling cloud-based services and tools that solution providers use to run their business.

ConnectWise recently rebranded a slew of its tools including the flagship ConnectWise business management platform, LabTech RMM, Quosal for quote and proposal, and ScreenConnect’s remote control solutions, as the ConnectWise Business Suite and

made it available through distributors.

“By leveraging distribution, ConnectWise expands into new vertical markets such as physical security, telco, video, and retail focused Solution Providers,” said Keith Graham, worldwide channel manager for ConnectWise. “It’s an amplifier of programs, it helps us accelerate to different markets. My background is with the cloud platform. We distribute ConnectWise Business Suite through distribution today, by which our licensee is the solution provider.”

ConnectWise adopted a compensation-neutral program for its sales reps to encourage them to work with distributors. Today, the company sees more growth opportunities coming out of distribution, said Graham, who spent almost a decade working for IT distributors.

“Each distributor has an emerging market team. Each time they onboard a new customer the value for us is they have a discussion on how a solution

provider is running their business today. Our tool sets fit well in this space and enables the Solution Provider to run a more efficient business.

Many of the new leads come from employees that left a solution provider to start their own company, Graham said. “That’s a growth market for us, but there are others. From a startup, to an organization in growth mode, to the established Solution Provider, they need software to run their business. As an example, every solution provider needs to provide quotes to customers. ConnectWise can enable them with Quosal to provide a professional quote every time. That’s why we look at distribution to help expand our reach.”

ConnectWise’s challenge is that a bulk of distributors’ business is still a traditional resell model of hardware and software. Also, many of the distributor cloud teams experience high employee turnover. Therefore there is always a constant enablement requirement with the cloud teams on how ConnectWise resolves a partner’s business challenges.

“Each time they onboard a new customer the value for us is they have a discussion on how a solution provider is running their business today.”

Keith Graham Worldwide Manager Labtech and ScreenConnect

72% of cloud solution providers

see value in working with distributors around cloud services today

10 11

“We think their cloud adoption could be greater overall. Since compensation drives behavior on a sales floor, you need to take into consideration the recurring revenue models cloud solutions provide and how can they compensate their core team to work with their overlay cloud team,” Graham said.

Success with distribution also depends on how much vendors and distributors work to fund dedicated resources within the distributor’s cloud team.

“A funded head allows us to establish a subject matter expert within a distributor’s cloud team. We have seen success in having a dedicated product manager who can communicate outside the cloud team to their core team about the value our software brings the solution provider and the immediate opportunity available for the core reps.,” Graham said.

Expanding the Foundation

The argument has been around as long as distribution itself: “Why should I use distributors? I can streamline my supply chain if I deal directly with partners and customers.”

In most cases, the opposite has proven true each time. Distributors’ size, scale, credit, relationships and reach are always too much of an advantage for vendors looking to lower costs and increase efficiency of getting their products and services to market.

Why would the cloud be any different? It’s not, according to the diverse range of vendors interviewed. All of the respondents expect their company’s cloud revenue through distribution to increase next year compared to this year.

In 2014, Acronis’ cloud revenue accounted for less than 5% of total sales. By the end of 2015, cloud will account for more than 20% of business, Zanni said. Much of that growth has been through service providers, but distribution sales are quickly catching up, he said.

“I can say without a doubt that distribution is contributing to us being able to grow our partner base by 20%. We couldn’t do that without distribution. You just can’t get that number of good partners on your own,” Zanni said. “Using distribution allows us to focus on building out a better product. They come back to us with new ideas: how to integrate into public sector, how to penetrate healthcare. Distribution is vital to penetrating new markets and getting new customers.”

On the other hand, most of the companies interviewed said their senior executives are only “somewhat aware” of distribution’s value in the cloud. The respondents, however, indicated that HQ engagement is on the rise with distributors regarding emerging cloud business opportunities.

“Our executives are open-minded. We made a business case that we can have distributors do financing so that we don’t need to do credit cards anymore. We can combine with other solutions. Be part of a vertical solution,” said Frank Hansen, director of distribution at StorageCraft, a Draper, Utah-based developer of backup and disaster recovery solutions. “Let’s leverage distribution and be bigger than we look by reaching more than we can by ourselves.”

Distribution provides vendors with a chance to be part of something bigger: a complete, ready-to-go solution that solves a business problem, Hansen said.

“If you’re just selling a pencil, you charge for that pencil. But if you want to write a book, you need pencils, paper and more to be effective. Distribution sells all that,” Hansen said. “We position our product with all that goes along with disaster recovery. That makes us a more valuable solution.”

Likewise, Trend Micro’s Morales said distribution provides value that the company couldn’t achieve on its own. Distributors now integrate the company’s solutions into their cloud platforms, marketplaces and cloud-focused operations, allowing solution providers to purchase Trend Micro along with their other cloud-based solutions as needed.

“In most cases, distributors sell the same product; with reseller partners buying in a different manner. There seems to be a misunderstanding around marketplaces for cloud solutions,” he said.

More than 90% of Trend Micro’s business flows through distributors, Morales said.

“Once you strip away the mystique, distributors continue to add value for all aspects of the channel,

and cloud marketplaces are a perfect example. Distributor cloud marketplaces are highly automated, provide instant provisioning and allow billing in the background. All this provides great value to reseller partners” he said.

One Size Doesn’t Fit All

In addition to enabling non-cloud partners, vendors said another challenge is the fact that each distributor has its own model for building out cloud operations and its own aggregation methodologies for selling cloud, software-as-a-service and other subscription-like offerings, HP’s Wittry said.

“Once you strip away the mystique, distributors continue to add value for all aspects of the channel, and cloud marketplaces are a perfect example.”

Gil Morales Director, Distribution Channel Sales Trend Micro

#1 CHALLENGEfor distributors in the cloud, according to vendors surveyed:

Helping VARs develop cloud solutions/business

12 13

“All the big vendors like HP, Cisco Systems, VCE, we are all pursuing private and hybrid environments. And knitting those together inside an organization is a challenge for distribution and for the market,” Wittry said. “You need to figure out what belongs in private cloud, on premise in a data center, what belongs in hosted environments, and what is managed by the customer. And what is cloud-ready to be put into a public cloud environment. All that is being put through as we speak.”

The complexity required for a reseller partner to offer multiple solutions from multiple vendors and purchases from multiple marketplaces, may be inhibiting some non-cloud VARs from entering the market. Distributor marketplaces remove all this pain, said Trend Micro’s Morales.

“As easy, transparent and painless that distribution marketplaces can make it, that’s where partners will say, ‘I get this’ and the more they will sell cloud-based solutions,” Morales said.

Creating a standardized approach when it comes to distribution cloud programs and marketplaces would increase efficiencies between distributors and solution providers, as well as create more interest in cloud from VARs, said Faction’s Norris.

“All the distributors create portals and hope the VARs buy through the portal. But if you can increase the value of the portal, you’ll see more interest. For example, allow for special provisioning,” Norris said.

The ultimate end game for cloud through distribution is to be able to buy cloud, managed services and hardware from one place. That’s the next step for distributors and vendors working together, said StorageCraft’s Hansen.

“We’re not seeing it yet, but I know there’s a real chance to empower resellers in that way,” he said. “A reseller’s offering has to make it look like he’s special. Once you can personalize the ordering of services and make it very consumer-oriented, that will be huge. That’s how the cloud started: Amazon, eBay, Hotmail and others making it personal and easy to buy and access services.”

The aggregation of cloud services, much like the aggregation of products for sale, is one of distribution’s key tenets, said HP’s Wittry.

“If you’re selling an environment with HP, Cisco, and Microsoft, your classic one-stop shop is still of high value in the cloud space. The whole concept of distribution being

disintermediated has gone by the wayside,” Wittry said. “One of the leverage points distribution has is its ability to aggregate service providers and reach a large partner ecosystem. Cisco’s InterCloud and HP’s Helion Network are examples of the recognition of the power of a federated cloud world. Distribution will play a strong role in helping solution providers reach an expanded ecosystem for their services through the VAR and MSP partners that distributors sell to today.”

Cloud Is Here to Stay, And So Is Distribution

One thing the interviewed vendors had less consensus on is what their companies will do to support cloud growth through distribution. Their answers ranged from

introducing enhanced channel programs or special initiatives, to shifting more cloud business through the channel and increasing related resources, as well as sharing more qualified leads with the channel.

But the common themes expressed by all executives are optimism and patience. Distributors recognize they have to be more agile, and focus less around the things they’ve traditionally done to become more of a “market maker,” said Microsoft’s Davidson.

He cited focus areas such as “offering vendors’ market insights, recruiting net-new partners that can penetrate emerging customer segments and verticals, as well as building innovative, go-to-market approaches to activate the channel at scale.” Davidson also underscored that “distributor services now include support for white labeling, billing, customer and partner support, as well as sales automation and CRM services.”

Cloud success through distribution will come, added Acronis’s Zanni, echoing the sentiments of all the executives.

“We knew distributors would be critical to our cloud success, and they will be even more valuable

as these partnerships evolve,” he said. “They have to be. We all know the channel will be instrumental in unlocking cloud success on a massive scale. Distributors will be at the center of this dramatic transformation that’s still in the very early stages of development.”

“Key cloud focus areas for distributors include offering vendors’ market insights, recruiting net-new partners, and building innovative go-to-market approaches that activate the channel at scale.”

Peter Davidson Director, Worldwide Cloud Channel Sales Microsoft

Biggest opportunities

for distributors in the cloud

1 Aggregatingcloud solutions

2 Marketingcloud solutions to VARs currently not selling cloud

3 Enablingthe channel in cloud marketplaces

Source: CommCentric Solutions vendor survey

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