Cloud Confusion? Tackling 7 Financing Challenges Head On

Preparing For The Cloud

Companies that make the jump to the cloud are also jumping into a new way of doing business, putting aside the high-dollar, cash-up-front contracts that came with hardware-intensive capital expenditure deals and embracing a software-focused operational expenditure model that works more like a lease agreement.

There's no shortage of experts willing to convince solution providers to make the jump to the cloud, whether it's head first and all at once, or gradually.

For some, these changes are in the bag. They've planned, they've prepared, and they're equipped to be successful using an op-ex model. Those who haven't prepared, though, are in danger of running headlong into trouble and out of business if they don't fully consider the dollars and cents of the new IT.

Here are some of the biggest financing concerns that come along with adoption of the cloud.

Banks Would Rather Do It This Way

Even if solution providers aren't quite sure they're ready to jump into cloud, the bankers they'll need to rely on for financing know they are. Cloud deals, which require customers to pay as they go, are more like traditional lease agreements, and banks don't have to worry about financing projects such as traditional capital expenditure projects, for which all of the services are yet to be rendered.

Speed Kills

The pace of change in the industry is accelerating by the day, which can create great opportunity, but magnify mistakes or misjudgments. Banks and finance companies feel this too. Because things move and change so quickly, it's difficult to become a savvy borrower, or a savvy lender.

Vendor Relationships Are Changing

Channel partners need money for cloud projects, and they're likely to approach the finance arms of their big vendors to get it. But they've got a new wrinkle that could be uncomfortable for both parties. Because cloud projects are complex, partners may be asking a vendor for money to finance a deal that only includes a small percentage of hardware or software from that vendor.

Don't Go It Alone

Some channel partners CRN spoke with said they had never taken on outside debt before getting into the cloud. The industry's finance experts say partners should shy away from taking on debt. In fact, they must. When a big cloud project takes longer than expected to develop, or begin generating cash, it puts a huge burden on solution providers that have relied on their own capital to complete the project rather than borrowing.

Much Is Still Unknown

"Over time, I think it will get more standardized," said Darren Federowitz, executive director of Dell Financial Services. "For now, what does cloud even mean? It's different to everyone. It's like in the '90s when people were asking, ’What is the Internet?’ Cloud will also get to the point where it gets more standardized."

Deals Are Still A Bit Imprecise

"You buy a big chunk, and charge by usage. Somebody's paying for the extra capacity," said Steve Kaplan, a channel strategy vice president at Nutanix. "That extra capacity starts getting old as soon as it's purchased." And what if a customer needs more capacity? An upgrade because its initial buy was insufficient? Traditional financing is becoming less and less available for that kind of patch-up, Kaplan said.

Too Little Too Late

"Leading partners are moving over [to the cloud] pretty quickly, but overall, partners tend to be slow to adopt new technology," Nutanix’s Kaplan said. "They tend to lag the tech. With virtualization, you were able to acquire and spin up quickly, but the world has changed. Not everyone will be able to recover this time."