Cover Story: Rise Of The Cloud Provider

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Dave Rice knew it was time to make a break from the old-school solution provider set and start a cloud services business when he began playing the imaginative and mystical online interactive role-playing game "World of Warcraft" with his son.

When Rice saw the power of "World of Warcraft," a cloud-based application that boasts more than 10 million online subscribers, he knew the Internet was ready to handle complex business applications.

That "World of Warcraft" epiphany was the impetus in 2008 for Rice and a partner to found TrueCloud, which is riding the cloud computing wave with the robust Software-as-a-Service-based NetSuite business applications suite as its centerpiece. Scottsdale, Ariz.-based TrueCloud's mission is to provide cloud-based enterprise resource planning (ERP) for small and medium businesses.

"There is no shortage of customers," said Rice, a 35-year IT veteran and the former CIO of Insight Enterprises, a Fortune 500 behemoth. "All I know is that we're up against the worst economy in our lifetime and we're based in one of the hardest-hit metro areas in the country and we're seeing triple-digit growth across the board. My expectation is that this will continue at least through 2015 as more and more customers discover the incredible value associated with running their businesses in the cloud."

Rice usually finds himself in a battle with old-school solution providers selling on-premise solutions but said customers are embracing cloud partners because they see 'a stark contrast between cloud and on-premise' solutions. Stark contrast, indeed. TrueCloud is one of a new wave of what CRN parent Everything Channel is calling "Transformative" cloud services providers -- defined as having no revenue generated from on-premise solutions and with the large majority of sales coming from recurring revenue -- that are wreaking havoc on the traditional solution provider market. These Transformative companies are winning customers and growing sales at a breakneck pace.

Everything Channel research shows that one-third of all solution providers are expecting to change their business model in the next three years. This comes as solution providers anticipate that 36 percent of their sales will come from off-premise solutions by 2013, according to Everything Channel research.

Everything Channel CEO Robert Faletra has said the new Transformative solution providers are challenging the status quo model of "Vintage" solution providers, which garner the large majority of their revenue from on-premise capital-expense-based IT projects with little recurring revenue, and "Progressive" solution providers, which have a measure of recurring revenue generated from off-premise services and are making heavy investments to capture more recurring-revenue-based cloud/managed services sales.

Progressive solution providers currently make up the largest part of the market (62 percent), with Transformative players making up 20 percent and finally Vintage players accounting for 18 percent, Faletra has noted. The cloud computing revolution, he said, requires solution providers to 'remake the business,' tackling both a technology change and business model change at the same time.

"I have never seen anything like this," said Faletra in a keynote address at Everything Channel's XChange conference in August. "It is real and something everyone [in the channel] is going to have to think hard about. You are going to have to make a lot of technology decisions and a lot of vendor decisions. You are going to have to look at whether the vendor that got you here is the one that is going to get you to where you need to be. Should I partner with telcos? Should I white-label someone else's services? It is all about moving from on-premise transactional sales to off-premise recurring revenue," said Faletra, who has followed the solution provider business for the past 25 years.

TrueCloud's Rice said his decision to make a break from the old transactional sales model is paying off in astronomical sales growth. TrueCloud revenue is up 150 percent year over year and client interest in cloud solutions is up a whopping 400 percent based on his company's NetSuite "product demonstrations, implementations, cloud consulting engagements and direct inquiries' from customers," he said.

The success TrueCloud is seeing in the market validates Rice's view that the channel has not adequately been serving the small-business market (fewer than 200 seats) because there was no business model that could generate enough revenue, he said. The cloud, he felt, would change all that. Even small businesses could afford to take advantage of SaaS and be supported by solution providers.

"We built our business around public cloud and supporting customers--the 'S' size in SMB, to be frank," Rice said. "But we're not excluding the fact that cloud will start to move upmarket and become prime time, and we can use the same skills to help larger companies consider adopting [cloud]."

Everything Channel research shows that small and midsize businesses are the most rapid adopters of cloud services, with an estimated 33 percent of midsize businesses expected to deploy at least some cloud solutions this year.

"What we're trying to be is a one-stop shop for small businesses that don't want to operate from the traditional perspective of IT," said Rice. "If you haven't crossed into that big IT investment, you have better alternatives. You can acquire IT capability as a service and we can help you with that portfolio and product and service opportunities and provide ongoing support. That's been the basis for the first three and a half years."

The customer view of the cloud has changed dramatically since TrueCloud was founded, according to Rice. "Three and a half years ago, people would look at me like I had three and a half heads when I talked about cloud,' he said. "Now customers 'get' cloud and they are not sure how to get started."


NEXT: The Progressive Solution Provider

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