Pay Scale: The Cloud And Compensation Models

As the channel increasingly shifts to services, vendors have adopted new compensation models, solution providers have monetized more offerings and unconventional solution providers have emerged.

In a recent roundtable discussion among channel chiefs from Cisco Systems, Dell, Hewlett-Packard, IBM and Rackspace, the executives discussed changes in how they compensate solution provider partners and their own sales teams.

For its part, Cisco will institute quotas next year to its sales representatives for selling cloud services from the company's partners, said Bruce Klein, senior vice president of Cisco's Worldwide Partner Organization.

[Related: Look Ahead: The VAR Of The Future]

Partners have been asking Cisco to do this, Klein said, and they will soon be able to benefit from having the company's 17,000-person sales force out creating more demand for cloud services.

"They want to know that we're in it with them and we have a field sales force that's compensated to sell their services," Klein said.

Cisco sales reps previously didn't have to sell specific products or services to hit their quota, Klein said.

In 2012, HP introduced its Cloud Agile program, which compensates partners for selling services, said Stephen DiFranco, the company's vice president of Enterprise Group channels. The program is modeled after HP's PartnerOne program, he said.

"To make the industry work, a certain amount of the capital has to flow from the manufacturers into the VAR community," DiFranco said.

Kevin Van Mondfrans, a St. Louis-area cloud and managed services expert with 20 years of IT experience, said MSPs and hosting providers are paying the most attention to vendors that enable them to sell services with a minimal capital investment.

"The day of selling hardware and making a few point margins are over," Van Mondfrans said. "This is now an era of selling services."

IBM has a couple of channel-exclusive cloud offerings including Web accelerator IBM Edge Delivery and would love to introduce more in the future, said Tami Duncan, vice president, North America channels.

Dell hasn't instituted many formal changes to its compensation policy, but is working to locate and offer assistance to service providers through the company's direct sales teams, said Frank Vitagliano, vice president, channel sales.

Vitagliano said the transition was overdue since Dell had been treating some partners more like end users.

"For a long time, we sort of struggled with this," Vitagliano said. "You're not providing them [service providers] with the support they need to help drive their business into the marketplace."

Blade Technologies, an IT consulting services firm based in St. Louis, has seen its vendor partners and fellow solution providers moving their sales forces and marketing people to a cloud-based monthly subscription model, according to John Fields, vice president of client services.

Fields said the transition aligns incentives with emerging areas of business and indicates to end users that vendors and channel partners alike have skin in the game.

"In general, the industry as a whole is making a move toward that pattern," he said. "I think it's favorable for all involved."

But vendors aren't the only ones evolving. Legacy solution providers are also looking for entry points into the cloud and ways to monetize their consulting services.

DiFranco said solution providers have been giving away consulting services for decades since there was enough profit in the hardware to get away with it.

"In the future, can you give that consulting away?" DiFranco asked. "Is there going to be enough money in the hardware?"

Blade Technologies agrees completely. The company charges an hourly rate for all services and consultation, Fields said, and won't even do a network assessment for free.

"Everything we do is a charged model," he said.

However, Vitagliano said many traditional solution providers lack the expertise needed to convince end users to pay for their consulting advice.

Next: Getting Into The Software-Defined Game

Another area many solution providers are angling to get into is the software-defined data center.

But in order for that to happen, DiFranco said channel partners must get a sense of what the customers themselves would like to control in the data center. That raises questions as to how the customer wants to control that piece of the data center, what they're controlling it for, and who the company is authorizing to control it.

"We're all agreeing the data center's going to get controlled by software," DiFranco said. "It's not going to just be a bunch of hardware anymore, and that is going to bring efficiencies in what hardware you buy."
Van Mondfrans is less bullish, noting that even the IT departments at many end-user companies fail to understand the technology or see the upside to software-defined products.

"The software-defined data center is still a long ways away from being adopted," Van Mondfrans said.

Ultimately, though, he feels companies would benefit from the pay-for-use model and the ability to move workloads around.

As traditional VARs look to reinvent themselves, the channel chiefs said lots of new solution providers are popping up with unusual backgrounds.

Some of Rackspace's best partners are in the emerging private equity and venture capital spaces, said Will Knight, vice president of channel partner sales.

Those types of firms are more open to transitioning from a capital expenditure to an operating expenditure cash flow to improve their company's valuation, Knight said.

A plethora of cloud-focused brokerages have also emerged, Knight said, which are focused on truly understanding vendors' cloud offerings and building a sales, marketing, IT and consulting presence around that.

"I love seeing the new ones because they're pushing the business model, whether it be how to go to market or how to compensate, so we learn a lot from them," Knight said.

DiFranco said consulting companies such as Salesforce.com that traditionally stayed away from hardware have begun to look for partners to ensure their hardware gets delivered and their system is correctly integrated.

He cited SAP as an example of a company that now has a channel team to resell its business management software.

"People are going to buy hardware based on the platform they're running, not a piece of hardware to run some software," DiFranco said.

IBM SoftLayer is enjoying much of its initial success with software-only partners who have no interest in dealing with the complications of reselling hardware, Duncan said.

"They're picking that up because they don't have the baggage that a lot of our traditional hardware resellers have in terms of culture [and] compensation systems," she said.

Duncan has also witnessed the emergence of truly large and regional system integrators interested in reselling IBM hardware, software and SoftLayer.

Klein said he's been seeing lots of Internet of Things partners focused on fusing IT and operational technology environments together.

"I think we're going to be in a world where a partner's not going to be able to do it alone," he said. "They're really going to have to connect."