Cloud VARs Must Add ISV Flavor To Taste 'Channel 2.0'

Cloud computing changes the game for VARs and solution providers, and to gain an edge in the increasingly competitive cloud channel, solution providers are adopting some of the traits inherent to ISVs, heralding a tectonic shift in how solution providers do business.

Whether it's custom application development or building software, cloud VARs aren't just selling the cloud, but are creating the tools and solutions that ride on top of it. That infusion of added value and intellectual property is creating new opportunities for cloud VARs and creating a new channel business model that one solution provider dubbed "Channel 2.0."

"I look at the cloud channel -- Channel 2.0 if you will -- as a hybrid of what we saw in the past … the line is being blurred," said Michael Cohn, vice president of marketing at Cloud Sherpas, an Atlanta-based cloud solution provider. "We have to be a reseller and an integrator and we have to be the ISV. This is actually part of the thesis around the business model we have here. It's going to be difficult for a traditional VAR to become a cloud VAR."

Cloud Sherpas, for example, resells cloud solutions from Google, but couples that with a suite of cloud computing services and offers its own application play, SherpaTools, which adds management functions on top of Google Apps not available elsewhere. The combination is a powerful proposition and gives Cloud Sherpas a major differentiator -- not to mention a new inroads that delivers recurring revenue -- into customer accounts.

"For us, one of the elements that's a big part of our business is the recurring revenue we get from the vendor, in this case Google," he said. It will be difficult for traditional VARs to transition to the cloud leveraging their typical sales model where there are up front transactions, which are not there with cloud computing offerings, Cohn noted.

Cohn said when Cloud Sherpas launched, the company found the VAR model attractive but discovered that operating sort of like a SaaS business brought big rewards. And through that SaaS-type business, Cloud Sherpas is adding value by providing its own intellectual property.

San Mateo, Calif.-based cloud solution provider Appirio came to a similar realization early on: "Traditional partners aren't going to cut it," said Ryan Nichols, Appirio's head of product management and marketing. "The founding of Appirio was based on this."

NEXT: ISV Capabilities Get Cloud VARs A Party Invite

John Barnes, CTO of Model Metrics, a Chicago-based mobility and cloud solution provider, said his company leverages some elements typically leveraged by ISVs such as custom development to differentiate itself from the growing pack of cloud VARs -- especially the increasing number of cloud VARs in the Salesforce.com space, where Model Metrics lives.

"It's kind of difficult to be both a solution provider and an ISV and do that well," he said. Barnes added that he prefers to refer to Model Metrics as a services company that adds "frameworks and accelerators" on top of its cloud offerings through custom application development on the Force.com platform and other platforms.

Model Metrics has received recognition for its expertise with custom, mobile and multi-cloud deployments and boasts more than 100,000 mobile application customers and has completed more than 1,300 cloud computing implementations for mid-sized and Fortune 1000 companies

"This invites us to the party where we wouldn't be part of the conversation," Barnes said, adding that offering app development and other services on top of traditional cloud plays leads to more strategic engagements.

Matthew Richards, senior director of product marketing for the Cloud Computing business at CA, said cloud VARs' uptake of ISV characteristics is key to their differentiation in the marketplace and will help them better compete. He said a cloud sale isn't just about infrastructure anymore, but must add value, and that value is often on the application and SaaS side.

"The marketplace is volatile and you'll see a lot of things that are different," he said. One new twist the cloud model is creating in the channel is a partnership paradigm where traditional ISVs and traditional infrastructure players are pairing up to deliver deeper solutions.

CA Vice President of Cloud Computing Marketing Jay Fry added: "The infrastructure side is the table stakes, but it's not the piece of it that's most interesting to the people you're trying to sell to."

Richards said a good number of CA partners are taking on ISV-like duties, and are seeing big benefit because of it. "To gain that margin and maintain that margin, they have to differentiate," he said.

Nichols said Appirio describes itself as a "cloud solution provider" and that moniker means it's not a pure-play ISV, not a pure-play systems integrator and not a pure-play VAR, but an amalgamation of the three the combines into a hybrid business model.

"It all starts with the clients," he said. "Customers have been telling us they need a mix of services and technology to make this transition to cloud computing."

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And taking on the role of cloud solution provider and peppering in custom cloud development has created a host of opportunities Appirio, Nichols said. Since it launched in 2006, Appirio has helped more than 180 enterprises implement, build and manage mission critical cloud solutions using Salesforce.com, Google, Workday, and Amazon. Additionally, more than 5,000 companies use Appirio's products to connect and extend cloud platforms.

"We see a much bigger opportunity in being a cloud solution provider than a VAR or SI," he said, noting that a services and technologies mix has been a boon. And Appirio's custom app development and its software plays, like its Appirio CloudWorks and its Appirio SalesWorks offerings which tie together cloud offerings from various vendors like Salesforce.com, Google and Workday, among others, create a level of stickiness that straight resale or integration doesn't offer.

According to Nichols, when Appirio builds a customer a custom application, it creates a unique business opportunity in which Appirio can support those applications and improve them over time. It creates a new revenue stream and gives cloud solution providers stickiness.

"It's the ongoing capability to make these improvements," Nichols said. "Once we build that app it ensures the customer relationship doesn't go stale. It's sticky because we're there and we're adding value every day."

Cloud Sherpas is seeing a similar dynamic. While SherpaTools indirectly drives revenue, it keeps customers from churning.

"We're building our intellectual property on Google's cloud, so we don't have a lot of expense to build that product," he said.

It's the value add on top of the cloud that is the key difference between Cloud Sherpas and other cloud solution providers, Cohn said. Cohn said Cloud Sherpas is seeing an increased demand for building custom solutions and more customers are looking for custom app development on the Google Apps platform. Since being founded in 2008, Cloud Sherpas has brought more than 600,000 end-users from hundreds organizations onto Google Apps.

And the new cloud VAR model, Cohn said, relies heavily on the recurring revenue stream, which takes many queues from a SaaS business. That, plus the lack of reliance on up-front transactions, gives VARs with a SaaS model a new, almost self-sustaining business model.

"When we're born in the cloud it's a whole lot easier. We don't have a lot of that baggage … we're starting with a clean slate," Cohn said. "This is the Channel 2.0 model. The lines between resellers, integrators and ISVs blur."