Cloud Connect: The Cloud Threatens The SMB Channel


The move toward cloud computing will force the small to medium-sized business channel to either quickly change its model or die while in the process of trying to do so, according to research experts at consulting management firm McKinsey & Company.

According to Kara Sprague, a principal with McKinsey & Company, the research house will soon be launching a survey aimed at gaining additional data on how the move toward cloud computing is impacting SMB customers. But, she says last year's data issued dire warnings for channel partners addressing the SMB segment.

"Hardware OEMs are increasingly turning to service partners to access the customers, at the same time that independent software vendors are using the SaaS model to go to the customer directly," she said. "This is bad news for VARs, integrators and distributors, many of whom are trying to either become cloud service providers themselves or move into a cloud brokerage model."

[Related: Cloud Connect: Cloud Adoption Will Eventually Support Billions Of Connected Devices]

Sprague told CRN that on-premises applications sales to SMBs historically ran 80 percent of revenue through the channel. But in situations where those applications are delivered through the cloud, the channel only represents 5 to 15 percent of revenue.

"Yes, resellers continue to function as trusted advisors," she said. "But service providers are now providing that same caliber of advice."

Sprague said that in many cases, their efforts to make a successful business model transitions are hampered by undercapitalization combined with the obvious need to develop effective strategies for making the transition. In many cases, SMB-focused partners are skilled technologists, but they are largely unfamiliar with how about making the shift from traditional resale to the adoption of annuitized revenue streams, which bring about substantial changes to sales and operational processes and strategies.

"They're definitely trying to move toward the cloud, but they're moving much too slowly," she said. "They will either need to make that transition more quickly, or their businesses will not survive."

Sprague made her comments during the Q&A portion of a market research presentation on cloud adoption, which took place at UBM's Cloud Connect conference, under way this week in Santa Clara, Calif.

PUBLISHED APRIL 3, 2013

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