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

The channel is jumping on the cloud bandwagon, and partners should be working toward making the transition from value-added reseller to value-added service provider, according to Tim Harmon, analyst covering B2B sales for Forrester Research.

"The days of the product resellers are pretty much gone," Harmon said during a keynote presentation at the XChange 2015 conference in Washington, D.C. hosted by The Channel Company, the publisher of CRN.

Offering cloud and professional services -- instead of peddling gear -- is a shake-up to the traditional sales model for many solution providers. But it's also a big opportunity to cash in on attractive reoccurring revenue. And as more customers adopt cloud, more integration skills will be sought. This is where solution providers come in, he said.

[Related: Partners Offering Hardware, Carrier Services Combo Get A Leg Up On The Competition]

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’Sometimes [customers] will need help managing a solution, sometimes they don’t, but they do need a full scope solution provider that can tell them all of their options,’ he said.

Solution providers could have the economic downturn to thank for the trend toward services and away from hardware-based sales. The cloud and managed services market took off in 2008 when IT organizations were hurting, and slashing their budgets as a result, Harmon said.

Revenue mix for partners today stands at about 65% products, 35% services. But by 2020, Forrester predicts the mix will look more like 40% and 60% in favor of services sales, Harmon said.

"Right now this practice is still lukewarm, but it's going to get hot," he said. Vendor discount margins are getting tighter for partners, another reason why building out a services practice will be important for solution providers to consider moving forward, Harmon added.

Raven Data Technologies, Inc., a solution provider based in Reisterstown, Md. has a revenue mix of 40% services sales. Matt Johnson, president and CEO of Raven Data Technologies believes that selling services is where the industry is going, and what most providers will have to do, he said.

"It’s shifting. We are getting to a point where people aren't buying product anymore. Anyone can go online and buy salesforce and Office 365, but customers are looking for integration and professional services to tie it all together," Johnson said.

For many solution providers, getting to that forecasted 60% services revenue mix won't happen overnight.

Many VARs start out as a "specialist shop," and will often try to cobble together whatever solutions customer ask for when they come to them. But in addition to moving towards being a more services-focused provider, partners should also productization, Harmon said.

’Think about being product shops where you engineer your services in the form of having tools and methodologies, blueprints, and frameworks that can be used on a repeatable basis,’ he said. ’This can help reduce costs and increase profit margins. That’s where the real rubber meets the road.’

The good news is that the managed services space is taking off, but the bad news is that it's getting saturated, Harmon said. To avoid this, solution providers have to know who to work with -- and know who to direct their pitch to, Harmon said.

The buying dynamics are shifting within customer IT organizations. Harmon pointed out that many partners are conditioned to sell to the IT purchaser – usually a CIO -- and not the line of business manager who is increasingly becoming involved in purchasing decisions, he said.

As professional and cloud services spaces grow, traditional telecommunication providers are also getting in on the action. These carriers are starting to become much more aggressive in the cloud space, but are willing to work in harmony with solution providers, Harmon said. ’Telcos are trying to recruit folks like you,’ he told the audience.

Raven Data Technologies is an example of a compay doing just that. The provider offers a wide swath of cloud solutions from many vendors, and partners with many large carriers through Telarius Communications, a Miami-based telecommunications provider and carrier partner, Johnson said. "We want to be a one-stop shop for customers," he said.

"As a small company, we want to own our customers completely, we don't want [customers] buying internet from anyone else, we want them buying it from us," he said. "It just increases our value as a company."\