Will Cloud Computing Vendors Washout The Channel?

Cloud computing will lead to a 12 percent to 15 percent decrease in channel companies within the next five years as more end customers turn to their vendors for cloud technologies and services and leave their partners behind, new research by Forrester warned.

But at the same time the demand for channel partner assets will remain high, creating new opportunities for partners that stay on the ball.

The channel "washout" will also include increased M&A activity as MSPs look to broaden the scope of their cloud offerings to include as many services as possible to better compete with vendors.

"As more and more technology moves to the cloud it raises the question of who is the vendor or who is the provider of these cloud-based services," said Tim Harmon, Forrester principal analyst and co-author of the report "Channel Models In The Era Of Cloud."

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According to Harmon, vendors and VARs are on a cloud collision course as vendors are now offering many of the cloud services and offerings that were offered via the channel in a pre-cloud world. And the threat of vendors taking away solution providers' business has the channel frightened.

"There's a significant amount of fear and confusion within the channel," he said.

Forrester is urging vendors to continue to rely on their channel partners, especially as the cloud market continues to evolve. And Harmon said channel partners, too, must keep on top of their vendors to continue utilizing the channel.

"[I]n the race to the cloud, many tech vendors have forgotten that ever-critical customer relationship vehicle: the channel," Harmon wrote in a blog post highlighting some of the findings of Forrester's recent survey with Outsource Channel Executives (OCE) of 165 channel partners in 39 countries. "Or if they haven’t forgotten it, they've coaxed channel partners with the pat mantra: 'Do more consulting (while we take care of delivery).'"

While the survey found that many channel partners have launched or plan to launch their own cloud business, Forrester's research found that many will fail and that vendors will take the cloud ball.

"The results of the survey are in, and they tell quite a story: that there is a good deal of angst and confusion among channel partners over their role/value in the cloud services technology value chain; that they aren’t sitting on their hands, waiting for tech vendors to tell them what to do; and that they need a lot of help in transforming their marketing and business models in this new era of cloud computing,"

Next: Vendors Become MSPs

Also fueling conflict is the increase and popularity of MSPs. As the cloud creates an inflection point where VARs and telcos make the transition to MSP, it also creates an environment where vendors also look to become MSPs.

Vendors are eyeing MSP-type businesses for several reasons, Harmon said, including because of trust and branding, gaining a first-mover advantage; and the increase in revenue available through cloud services. And while Forrester recommends that MSPs keep an eye on vendors and pay close attention to increased competition, it is the customer they should keep a keener watch on.

"If I was an MSP what I would be most watchful of is the customer side of the value chain, not the vendor side," he said, adding that as the MSP market has become fractured, enterprises are going to look for an all-in-one offering as opposed from getting various managed services from several MSPs. "They'd like to single-source that."

And as partners build out their own cloud practices, Harmon said the channel can begin offering new services not typically offered via the channel to stem the tide of vendor conflict. New service offerings like application development, outsourcing, smart computing integration, financial consulting and other services could prove to be key differentiators.

"I don't think we've seen the full economic impact of this yet," Harmon said. "This is really at the beginning of its lifecycle, but it's creating a new economic balance between vendors and the channel."