Cloud Service Providers Can Take On Amazon, Google Using The Channel As A Weapon

When starting a cloud practice, the market-leading heavyweights – Amazon, Microsoft, and Google – are predictable partners. But solution providers say seeking out more channel-friendly cloud service providers can yield better education, ongoing support and higher margins.

"You're just a number out there to the large-scale cloud providers," said Tricia Ward, founder and managing director of Onward Communications. "AWS doesn't even have resources for their own direct customers."

Portland, Ore.-based Onward Communications is a telecom and cloud consulting firm that partners with several channel-focused cloud service providers, including Wayne, Pa.'s Evolve IP and Irvine, Calif.'s RapidScale. Ward said she wanted to select providers that relied on channel partners as their primary sales force.

Big cloud providers are in a self-service, high volume business, where price and scale are king. But that's not the whole market. And that approach, solution providers say, doesn't always mesh well with a channel partner's need for educational or marketing resources.

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Recalling one of her first cloud deals with RapidScale, a provider that offers managed cloud solutions through the channel, Ward said; "It was scary how much I didn't know at the time, and they were willing to lend all kinds of resources."

Onward isn't alone. Many solution providers are just entering the cloud arena and are looking for a cloud provider to offer more than commodity infrastructure – and will extend engineering, marketing, and education to VARs, MSPs and telecom agents. That's where the smaller, channel-friendly cloud service providers are cleaning up, according to a panel of cloud service providers, during a roundtable hosted by CRN.

The self-service, consumption-based model that the cloud market heavyweights employ today doesn't work for many small and midsized businesses that can't dedicate IT resources to spin up and manage increasingly complex cloud environments. These customers need IT consulting and ongoing support, said Scott Kinka, CTO and founding partner of Evolve IP, a cloud service provider that specializes in UCaaS, disaster recovery, and compliant cloud services.

Because many businesses need a more "hands on" approach to the cloud, solution providers should be working with providers who will extend the same level of consulting, design and support to their partners, Kinka said.

"[Amazon Web Services] is never going to be willing to do the same level of hand-to-hand combat in the field with partners that [channel-friendly cloud providers] have to do every day. They’re never going to do it. Neither is Microsoft, and neither is Google," he said.

Amazon did not respond to CRN's request for comment regarding its approach to the cloud market and channel strategy by publication time.

Amazon Web Services (AWS) today has more than one million active customers worldwide, according to Zack's Equity Research. The cloud computing giant generated revenues of $3.5 billion in Q4 2016, growing more than 45 percent year over year in each of the last four quarters.

But, while Amazon stands alone in public cloud dominance, but it's not the only game in town. Amazon accounted for more than 40 percent of the global market share in 2016. Its nearest competitors, Microsoft, Google and IBM, occupied a combined 23 percent of the global market share for both the IaaS and PaaS markets for 2016, according to Synergy Research Group.

With more than 30 percent of the global public cloud market share up for grabs by smaller cloud players, channel programs and reliability become huge differentiators.

Recent high-profile cloud outages are helping to shine a light on smaller, often more channel-focused cloud providers and the consultative sales process that these companies are good at, said Andy Stewart, chief strategy officer for St. Louis-based TierPoint, an IaaS and managed cloud service provider.

"The headlines on AWS having these massive, long-term outages, are very helpful for us because it helps the C-suite wake up a little bit and say … 'Maybe I need to have a different strategy or understand where the real risks are,'" Stewart said. "What workloads must have high redundancy, high availability? Which ones do you not mind have a five-hour outage with? It’s about selling a really full suite of IT services."

That high level of support coupled with conversations about a customer's unique requirements helps these cloud providers and their partners provide the best client experience. It's also the differentiating factor that is helping the smaller providers are competing against the big guys and win, said Randy Jeter, CEO of RapidScale.

Another appealing facet of working with smaller cloud providers are the higher margins that these companies offer channel partners compared to their hyperscale counterparts, Onward's Ward said.

"[Channel-friendly cloud service providers] can appeal to the masses and get the mindshare of partners because they are paying these outrageous compensation numbers right now," she said. "My company just can't earn a living reselling Amazon."

In hand with higher margins is an expectation of a complete service. Cloud service providers that offer managed services, design, and support wrapped around IaaS are beating the competition because customers realize that cheap cloud services can come at a high cost, RapidScale's Jeter said.

AWS was one of the early cloud providers on the scene. The cloud computing giant attracted many customers with its inexpensive and highly scalable IaaS offering since 2006. Between 2006 and 2016, AWS lowered its prices 51 times, according to the company's annual report.

But customers that initially went with a hyperscale cloud provider are starting to come back, said Keith Coker, CTO, and founder of Green Cloud Technologies, a Greenville, S.C., Cisco-powered cloud service provider that offers IaaS and disaster recovery exclusively through channel partners.

The complexity of hyperscale environments can put an administrative burden on businesses and introduce more unreliability into the overall cloud environment. At the same time, many businesses are finding that their budgeted cloud expenses with a large-scale cloud provider look very different from their actual bill every month, Coker said.

"When [businesses] wrap everything around cloud, support-wise, these services are at a much higher cost, especially when they look at the engineering talent needed to run that environment and to deliver applications better than they would at delivering it themselves," Jeter added.

The fact that the cloud giants can't do everything well for everyone is an advantage for the channel-friendly cloud providers and their partners, Coker said. "We have the advantage [because] the fact that they can move back into something that’s more comfortable, that’s more knowledgeable to the IT staff, gives them a place of refuge to leave one of the hyperscale guys," he said.

Onward's Ward said that she too has had customers go to Amazon for their cloud needs, only to return because they couldn't get the support they needed – the support that partners can wrap around cloud services for their end customers.

"I've had a couple of customers who have ripped [AWS] out and started over with us," she said. "For many customers, working with these large-scale providers isn't the experience they want."

When looking for the right cloud partner, solution providers should seek out cloud service providers that have staying power, Ward said. Solution providers should be on the lookout for the providers that are making acquisitions to stay sustainable in the crowded market.

Many businesses fall back on their trusted VAR or telecom agent partner that has helped them with their IT needs in the past, and that habit isn't changing with cloud. Unlike the large-scale cloud players, cloud service providers have realized that it's too costly to try to supplant long-term, partner-customer relationships.

Cloud service providers can also offer true partnership to solution providers, which is one of the main qualities that partners should look for in a cloud provider, Ward said.

"I look for who will help further my cloud education, who will be willing to give me engineering resources, and a provider that will really dig in with us."