XChange 2015 Solution Provider Panel: Cloud Professional Services Driving Big Sales Growth

Professional services are driving astronomical sales gains with whopping 50 percent margins for solution providers helping customers successfully migrate to the cloud.

That was the big takeaway from four cloud superstars at a special panel titled "Why Cloud Professional Services Are The Key To Customer Success," hosted by The Channel Company CEO Robert Faletra at XChange 2015.

Faletra released new research from The Channel Company that shows partners are now driving 55 percent of their annual sales from professional services. The new research also shows that 34 percent of those professional services are recurring revenue offerings.

"It is one thing to have a great cloud business, but in order to really build a great business you have got to have professional services," said Faletra. "We are already seeing commoditization of some of the cloud services. You have to build a great professional services business if you want really good margins."

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[Related: As Cloud Rolls In, Partners Should Transition From VAR To Value-Added Service Provider]

Alex Brown, CEO of Chicago-based 10th Magnitude, one of the largest providers of cloud services for Microsoft Azure, said a sharply focused professional services team is driving 60 percent annual sales growth with 20 percent recurring revenue for 10th Magnitude.

"All of the services we are delivering start from a professional services engagement, whether it's a data center design and transformation engagement or a DevOps automation engagement," said Brown. The five-year-old born-in-the-cloud company's professional services team is billed out at $250 per hour, he said,

Midmarket companies are teaming with 10th Magnitude at a breakneck pace to gain the competitive advantages that come with the move to the cloud, said Brown. "We are helping them migrate their entire infrastructure and development processes into the cloud, adopting automation processes so they can get much faster and start delivering at cloud speed," he said.

His advice for fellow solution providers: "Pick your solutions and the areas you are really good at and make your stand there."

David Brimley, managing vice president of sales for PhoenixNAP, a Phoenix-based global Infrastructure-as-a-Service provider and IT provider, said professional services particularly in the health-care market helped drive a 35 percent increase in sales for PhoenixNAP in 2014. He expects sales to grow another 25 percent this year.

"Professional services add credibility," he said. "Customers are worried about the migration to the cloud and the security, all of the hot buttons. Professional services is a complete home run."

Luis Alvarez, president and CEO of Alvarez Technology Group, a Salinas, Calif., cloud specialist, said professional services powered 38 percent sales growth at the company in 2014. And he expects sales to grow anywhere from 23 percent to 27 percent this year.

"The cloud is a huge opportunity to develop a professional services practice if you haven’t already," he told several hundred solution providers gathered for the special XChange session. "You can't be a generalist in the cloud. You can't just sell cloud and say, 'I am done.' You have to provide the kind of advice and consulting that your clients are going to need in order to use those services. If you don't provide them, they are going to go out and get them from somebody else and you will lose that business."

Alvarez is already seeing Internet of Things professional services engagements with agricultural companies in drought-stricken California using sensors to monitor crops. That includes "smart mulch" in strawberry fields to monitor water utilization. "That feeds back to the growers to let them know how much water they need for those fields," he said, "It's a great business. We are now using technology for everything our clients are doing. They are into drones. They are into sensors. They are into big data and we are part of that journey. It is a lot of fun, but it is challenging."

Mike Aquino, director of cloud solutions for Cetan, a Chesapeake, Va.-based solution provider that derives 90 percent of its annual sales from professional services, said the key to professional services success is finding strong consulting talent. "IT used to change pretty quick, now it changes really quickly, if you don’t have people that love it, they are not going to make it," he said. "We also are trying to get people that have more business acumen. It is really about the solution -- not the technology."