Will Cloud Computing Kill Distribution?

Distributors storm into the cloud arena with new business models, tools and resources. But will solution providers follow?

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By The Numbers

Overall, cloud services account for a miniscule portion of distributors’ annual revenue, distribution sources said. But with the global forecast for cloud computing revenue expected to hit more than $241 billion by 2020 from $40.7 billion in 2011, according to research firm Forrester, it’s little wonder that distributors want a piece of that pie.

In addition, between 36 percent and 38 percent of all IT spend is expected to move off-premise by 2013, according to a UBM Channel study completed in September. To meet this need, roughly one-third of all solution providers plan to change their business model in the next three years, the study found.

Growth of off-premise hosted solutions (7 percent) and pure cloud solutions (46 percent) are predicted to increase through 2013, while on-premise product sales and on-premise hosted solutions are predicted to fall 11 percent and 5 percent, respectively, according to the study.

It’s a steep learning curve and distributors need to act quickly, said Tiffani Bova, vice president of research focusing on IT marketing and channel strategies at research firm Gartner. Today, a distributor’s value in cloud computing is based on leveraging its scale to aggregate the provisioning, billing, metering and other value-based services such as partner recruitment, management and enablement, Bova said.

“Most distributors negotiate pricing, SLAs and support for third-party cloud services and have APIs built into their proprietary platforms, and create portals where customers can go for instant provisioning, billing and support. And they do so pretty well,” she said. “There’s lots of value to be had there. They’re saying this is what we have always done: We’ve aggregated all these manufacturers from around the world in terms of providing product, credit, billing, MDF management, really, the logistics for all these providers for on-premise products and services. The aggregation of cloud services is a mirror of that.”

The relevance of distributors shouldn’t be altered in the near term, said Brian Alexander, senior vice president and director of technology research for technology hardware/distribution/EMS at Raymond James & Associates, particularly for private cloud infrastructure. Research firm IDC estimates private cloud infrastructure will grow at a compound annual growth rate of 28.9 percent through 2015, compared to 23.6 percent for public cloud.

“Private cloud helps the channel because it accelerates the refresh cycle,” said Alexander.

But if businesses, particularly small businesses, eventually embrace public cloud, there is a risk for distributors, he said. “They won’t be supplying hardware to the end customer through the reseller anymore,” he said. “The good news is I don’t think the
move to public cloud as a model is imminent for the vast majority
of infrastructure that’s out there.”

Cloud Conversations Are Changing

Ingram Micro Sales Director of Services Jason Bystrak has declared 2012 as the year that the distributor “definitely” starts to move into a cloud implementation phase with solution providers.

“The conversation here is moving from what is the cloud and what should we be thinking about to talking about the financial aspects of converting to cloud, sales training, sales compensation plans and talking to the right people at the end client,” Bystrak said. “We’re definitely starting to move into an implementation phase for 2012.”

NEXT: Distributors Take Different Paths

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