The Channel Wire

August 26, 2009

Cloud computing has matured to the point where vendors are getting serious about leveraging the channel. And although VARs won't be playing the same role in the cloud as they've played in on-premise software deployments, they're still going to have a chance to build solid revenue streams for the next several years.

With that as a backdrop, Salesforce.com on Wednesday launched a VAR program that allows solution providers to resell Force.com applications and build their own customized offerings on top of the platform. Channelweb.com looks at three industry forces that may have affected the timing of this particular cloud computing announcement.

1. The Channel Hasn't Had A Role In Cloud

Despite all the energy and momentum that exists around cloud computing, the channel hasn't had a clearly defined path to making money from cloud vendor partnerships. Salesforce sees its Force.com platform as an opportunity to take a pioneering role in showing VARs that there are riches in the cloud for those with the skill and moxie to adjust traditional business models.

"There really hasn't been a cloud platform vendor delivering the economics and enablement to allow partners to get introduced to the cloud," said Mark Trang, senior director global partner marketing, in an interview. "We think there is an opportunity to finally bring the cloud to the channel."

2. VARs Crave Customer Ownership

Customer ownership has been a major concern for VARs that have been investigating cloud computing opportunities. In Salesforce's VAR program, partners are wholly responsible for annual customer renewals. At the end of each month, Salesforce will bill partners for the number of licenses they have in production.

Salesforce partners have built more than 120,000 custom applications on Force.com, but until now there hasn't been an economic price tied to the platform licenses, according to Trang. "This is a new way for partners to make money in the Salesforce ecosystem," he said.

Rebecca Wettemann, vice president of research for Boston-based research firm Nucleus Research, says the ongoing relationship with the customer is the holy grail of cloud computing for VARs. "They get part of the licensing revenue by doing more customization over time. It's not the traditional big bang of software sales, but instead provides a recurring revenue stream," Wettemann said in an interview.

3. Microsoft Windows Azure Platform Looming

With Microsoft preparing to unveil Windows Azure in November, Salesforce may be looking to preemptively stoke the fires of its own channel buzz.

Microsoft faces a huge challenge in moving its gigantic partner base to cloud computing, but it also stands to dominate the space once the heavy lifting involved in this transition is completed. Seen in that light, Azure is vastly more important to the future of Microsoft's business than any other product, including Windows 7.

Microsoft is bringing the full might of its channel experience to bear in an effort to portray Azure as a moneymaking engine for its partners. Azure customers will be charged based on their consumption, with Microsoft calculating charges based on the number of service hours, storage, bandwidth and transactions between applications. Microsoft also is planning to offer Azure through a subscription-based model.

As with Salesforce, Microsoft will allow partners to bill their customers independently for the applications they develop. In this scenario, a VAR would build an Azure application, provision and run it, add customization on top of that and then bill customers directly for the completed package.

Salesforce appears to be taking some pages from Microsoft's channel playbook as it looks to build stronger relationships with channel partners, and if cloud computing ends up being as big as some expect, that's probably not a bad approach.