Channel VP Jeff McCullough On How NetApp Partners Can Profit By Selling AWS, Azure, Google
Going Where The Real Money Is
NetApp Channel Chief Jeff McCullough says the storage provider is helping partners drive big recurring revenue sales by focusing on cloud with NetApp Cloud Volumes Ontap and Cloud Volumes Services.
"Whether it's Cloud Volumes Service, Cloud Volumes Ontap, SaaS backup, we're putting the mechanisms in place for partners to get payout through our benefits program as consumption happens. And it's for the life of the product," McCullough said.
The bottom line: up to a 15 percent benefit recurring revenue opportunity for NetApp partners selling Amazon Web Services, Microsoft Azure and Google storage, depending on each cloud provider’s program, McCullough said.
Top NetApp partners now deliver $7 of their own services for every $1 of NetApp storage that they sell, McCullough said. That's up from $5 of their own services for every dollar of NetApp sold just a few years ago, he said.
"We're one of the few vendors that actually puts support in the hands of our partners," McCullough said. "Partners want to deliver support services. They can get authorized to do first-level and second-level support, package that up as a service, and then offer it to their customers. So they can really provide cradle-to-grave life-cycle management for our customers all with their product, with their people. And that to me is the more powerful part of our channel story: what we do to put partners to work and create a really strong economy built around our product portfolio, which is also growing."
How are partners making money with NetApp in the public cloud?
One consistent thing I hear from all of the partners I engage with is that they still don't know how they make money with cloud. We have partners that are selling hundreds of millions of dollars in AWS and Azure. They're engaging in all of these activities. But they can't necessarily articulate, 'Here's how I'm making money in this like I make money in traditional on-premises sales, when I execute opportunities in the more traditional sense.'
What are some ways NetApp partners can engage with the cloud and recurring revenue?
When we have a customer buying on-premises storage, we need to talk to them about Cloud Volumes Ontap and the ability to sell our Ontap in the cloud. Or selling Cloud Volumes Services which, for every month the customer consumes, we're paying the partner. Or in the [AWS Consulting Partner Private Offer], we're one of the first vendors to participate in that, where partners can make 'traditional' margins in a recurring motion. And I think that's a real encouraging example of where things are going, to be able to align a recurring revenue model in a partner-managed pricing structure. And I do like the AWS model. There's a lot to like about their approach and how they've structured it. I think we still have a long way to go to tackle the complexity of it and the transactional nature of it. It's still in early days.
How much revenue is NetApp driving through the Consulting Partner Private Offer program?
When we launched our program in June, we started with a target of about 15 percent that we were paying on recurring revenue transactions. The challenge is, everybody has a different route to market. We were absolutely out in the forefront of trying to articulate ways for partners to make money when selling our portfolio. Whether it's Cloud Volumes Service, Cloud Volumes Ontap, SaaS backup, we're putting the mechanisms in place for partners to get payout through our benefits program as consumption happens. And it's for the life of the product. …
There's a little nuance to every provider because they all have different ways they track the revenue. But at a high level, our statement is we architected our June launch around our 15 percent benefit opportunity recurring for partners of, at that time, AWS and Azure, and now we're bringing Google online. I think we were live in January with Google.
How have partners benefited from that so far?
What we talk about publicly is our overall recurring revenue. We just announced our Q3 earnings and announced recurring revenue at $33 million [on an annual run rate]. … That doesn't count things like bring your own license and some of the cloud products that we sell traditionally.
What is the product breakdown for the cloud?
Products like Cloud Volumes Ontap, where it's a capacity-based license which a customer purchases on AWS, for example—that's not recurring revenue. That more like a traditional product sale. Cloud Volumes Service is a recurring revenue capacity model. Or SaaS backup is recurring revenue. The Cloud Orchestration suite is in there as well. But when we talk about those numbers, they're small numbers, but from a valuation perspective they're held at a much higher level. And for us, it's our early days of actually building out a business. And I like to think of it as a cloud-native business versus us just saying, ‘Hey, buy our storage and we're going to throw in some pre-packaged AWS services with it.’
How do these technologies differ?
We sell Cloud Volumes Service as enterprise-grade NFS for customers to move mission-critical applications into the cloud, which they've never had the ability to do before. When we're talking about Cloud Volumes Ontap, it's full-featured NetApp Ontap running in the cloud with the ability for customers to seamlessly move workloads and data sets from on-premises to the cloud simply. When an existing NetApp customer sees the capability to run Ontap, the thing they know and love so well, in the cloud, it's an easy answer for them. … We give them a real simple way of managing on-premises as well as cloud. And they're able to pretty easily move workloads back and forth and make those decisions about when's the right time to move applications to the cloud, when's the right time to move them back. Because at the end of the day, cloud isn't necessarily cheaper. It's an accelerant to agility and efficiency, and that's what we think we do really well.
How big of a money-making opportunity is this for partners?
It's not how much money you make selling our product. It's how much money you make selling our portfolio and partners' capabilities. If you look at our partner profitability report that we do every year, our best-in-class partners deliver over $7 of their own branded services for every $1 of NetApp that they sell. So if they're selling $1 million of NetApp, they have a $7 million services and support business sitting behind it. I am absolutely focused on profitability in terms of front-end margin. … For a lot of our partners, the money they make with NetApp is not about the product only. It's about all the things that they do. We are phenomenal at putting partners to work. You think about our partners, the teams they have, the people they employ, the number of jobs built around NetApp, it's a phenomenal situation.
Has that services attach rate changed at all?
It's gone up. Last study, we were over $5 of services attach, so it actually goes up. [It's because of] the increase and the complexity of the portfolio and the ability of the partners to build out [a larger] services portfolio. ... We're one of the few vendors that actually puts support in the hands of our partners. Partners want to deliver support services. The can get authorized to do first-level and second-level support, package that up as a service, and then offer it to their customers. So they can really provide cradle-to-grave life-cycle management for our customers, all with their product, with their people. And that to me is the more powerful part of our channel story: what we do to put partners to work and create a really strong economy built around our product portfolio, which is also growing.
How do different partner types work with NetApp services?
We have partners that resell our services [who] haven't invested in their bench. That's not part of their business model, especially in some of the newer partners. You look at some of the cloud-only partners where their portfolio all lives in the cloud. They don't sell product. They don't have any boxes showing up anywhere. It's all online. And those partners, for which we have our Cloud First partner program, they wouldn't fit the mold of a traditional resale partner from a legacy perspective. But they absolutely have a viable set of solutions that they sell. They sell services around their [intellectual property], and for any product-related stuff, they would resell NetApp-branded services. So we have a services team. I guess the key is, we don't compete with our partners for services. We absolutely complement them. In many cases, the first question is, what are the partner services that we want to lead with? And if there's none, then it's NetApp.
How about margins on NetApp products and services?
We have product margin. Partners see margin in our products. I spend lots of time with partners, and I would say we're consistently No. 1, No. 2, occasionally No. 3 in terms of profit on the product side. We're pretty decent in terms of front-end margin, what partners make at the deal level. And certainly some of our bigger deals are super competitive. But we work real closely with our partners. Our sales organization works closely with our partners. We don't get to 80-plus percent of our business going through the channel if we're not very partner-centric in terms of how we architect our deals to make sure that partners can be profitable and have good earnings in the deal.
How does that compare to competitors?
I'll compare us to some of the newer companies that don't even have partner programs, where everything is just front end, or it's spifs, transactional engagements. I'm thinking of a company like Pure [Storage]. They pay everything up front. A big part of our program is on the back end. These are the benefits we pay for being in our program, for having certain revenue requirements, for having capabilities in services [and] sales organizations. So when you start to look at those benefits, on a per-deal basis, we'll pay up to $100,000 on stackable benefits, new logo benefits, converged benefits. Those things can pay up to 15 percent. We cap out $100,000 per transaction, at the deal level. And I compare that to Dell, who I think [caps out at] $60,000 to $80,000 at their max payout on a per-transaction basis.
Is NetApp using that to recruit Pure Storage channel partners?
Pure is engaging with the same partners we're engaging with. What I will say is, Pure's very much focused on how do they pull in the transactional side of the business versus building a sustaining channel program, a channel business. I think that Pure has done a good job of driving attention with direct-to-rep spifs, and different incentives to create engagement. And they're doing a lot around demand, and handing opportunities to partners. Their route to market, very clearly, they've invested a lot in engaging with channel partners and in their business.
How about NetApp?
We're much more focused on the long-term transition from on-premises to cloud. If you look at our portfolio and the solutions that we're selling, our story today is so much different than it was three years ago. Think about NetApp three years ago: the NAS company and the on-premises storage company, just getting into flash. Today, we're accelerating and continuing to grow in flash, but we're in HCI, we're in cloud, we're in near-memory platforms, which is our Max Data platform, or StorageGrid object-based, or E-series low-cost capacity-based storage. Our portfolio is so much more different, and what we have to offer our partners in terms of solving the four big challenges that customers are facing today: How do they modernize enterprise applications? How do they tackle artificial intelligence? How do they migrate and continue to build innovation in the cloud? And how do they accelerate and grow DevOps?
What's the biggest growth opportunity for partners now?
For our partners, the biggest growth opportunities, from the technology perspective, are going to be those three areas of flash, cloud and converged. And I say that because when you look at all the market data, those are the areas that are all growing double digits. [Flash] is an accelerating market. Converged is another growth market. And I call converged both hyper-converged as well as traditional converged. And we continue to grow in both. We see growth in traditional converged with FlexPod and the work we do with Cisco in the market. And we're newer in HCI, or what we call the 'hybrid cloud infrastructure' space. But our HCI platform is growing triple digits, but obviously from a smaller base. We've come into this market with a very different value proposition. And then finally, cloud. Cloud is where we're seeing a lot of activity and engagement. And for us, it's a great opportunity to attach and create recurring revenue opportunities for partners to make money.