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GreenPages Technology Solutions CEO Ron Dupler sees big changes over the next five years as he moves his company at a breakneck pace to a cloud computing services model.
"We have sort of put the ship on warp drive right now," said the 24-year IT industry veteran, reflecting on the treacherous business model shift -- a tornado of sorts -- that has resulted in record consolidation in the solution provider market in the past several years.
The winners in the channel of 2018, Dupler said, will be nimble, agile and comfortable operating in a world where information technology innovation is moving at an exponential rate. That exponential rate of change has obliterated the old product-dominated solution provider business model in favor of a services model where annuity-based managed services/professional services with a high quotient of a partner's own intellectual property are front and center.
Making the cut for partners used to the old legacy IT product world is a Herculean task. The balance sheets of most large enterprise partners, insiders say, are dominated by on-premise infrastructure products with a services component that usually comes in at less than 10 percent of sales or at best 20 percent of sales, little of it annuity-based and with a meager 2 percent operating profit.
"The biggest challenge for people is not moving fast enough to transform their business," Dupler said.
Indeed, solution providers that do not change and change quickly are going to find it difficult to survive against a new class of cloud computing solution providers that have been built from the ground up to be a cloud services provider or those that have made big investments necessary to transform their businesses so they are leading with off-premise, annuity-based cloud services.
John Ross, a technology consultant and onetime chief technology officer of GreenPages, said his former company is one of the few that gets the dramatic business transformation that is forcing resellers to either become IT service providers or die. He predicts that 50 percent of the current crop of resellers will either be gone or have flipped their model by 2018. What's more, he said he's talked to at least 20 CIOs in the past 30 days who are in the process of buying hardware for the last time as they build their own Infrastructure- and Platform-as-a-Service models.
"This is the last time we are going to see hardware purchases through resellers for many, many years," he said.
The new breed of cloud computing solution providers emerging as a formidable channel force is described as transformative by UBM Tech Channel, the parent company of CRN. Transformative partners are pure-play cloud players basing their business on annuity-based, off-premise services rather than capital expenditure-based, on-premise IT project sales.
Solution providers operating in the old on-premise resale model, referred to in UBM Tech Channel parlance as vintage VARs, are facing a cloud tsunami that's forcing them to navigate a business model change unprecedented in the 31-year history of the modern IT channel. The shift requires that partners add at least 50 percent more customers to derive the same amount of sales in the current on-premise model, according to UBM Tech Channel research.
Partners making huge investments in new intellectual property to succeed in the cloud computing era are what UBM Tech Channel calls progressive. Those partners, many of them cash-strapped, have to make hefty financial investments in new cloud services technical and sales expertise, new vendor partnerships and, on top of that, must increase their marketing budget by an order of magnitude under the transformative model to get new customers. It's those big investments that have resulted in a flurry of mergers and acquisitions in the solution provider market as partners scale up to compete in what some are calling the dawn of the mega solution provider.
The battle cry for solution providers is either go big or go small by offering niche services in vertical or specialized markets. Partners say the worst place to be is stuck in the middle in the midmarket, where regional infrastructure partners have thrived for many years building data centers. Those midmarket infrastructure providers are being forced to change every nook and cranny of their business, technology and go-to- market model.