Is there more money to be made from the cloud?

PCR sat down with Microsoft and several retailers to find our the benefits and challenges of selling cloud
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While managed IT services are increasing in prominence, some PC resellers are still a little reluctant to make the jump over to the cloud. Microsoft, PCR and several resellers – some who sell cloud services and others who don’t – gathered in London to discuss the benefits and challenges of selling cloud-based products like Office 365.

GETTING STARTED IN THE CLOUD
PCR: How can a reseller start selling these kinds of services?

Mike Brown: Anybody can start selling Office 365 and Microsoft make it very easy to get into the market. It sells itself and it’s a nice flat revenue stream.

Once you get to a level whereby Microsoft see that you are making an effort, they will help you.

Once you become a managed partner, they will engage you with marketing and training materials and that type of thing.

Mike Barron: We represent over 600 resellers who traditionally sell hardware and want to get into the cloud. Where exactly do they start?

Brent Combest: I don’t see why you couldn’t SKU up Office 365 for them and maybe a migration service as well, like SkyKick. Our distributors (like Ingram Micro, Tech Data and Westcoast) in many cases have formed relationships with these types of partners and there could be a value- add service there.

Mark Adams: On the hardware side, we’re now engaging with end users and we’re seeing this wish from small customers to have a local appliance to shadow the data from the cloud, have backup capabilities and run a few apps that don’t run well in the cloud. You can manage this on their behalf, with utility servers in the cloud. It’s a step into the cloud rather than a jump.

Alexandria Ball: We’re also seeing that OneDrive is a really good first step into the cloud for a lot of customers. It’s essentially extra storage for a device. And we do have specific SKUs just for OneDrive, so it’s a really good option as a first step.

PARTNER PROFITABILITY
Brent: There are three primary buckets of revenue that partners monetise around Office 365. First is the license itself, and there’s a channel incentive or rebate that can be made off of selling that. The volume in which you sell dictates the percentage in which you earn – which can be as high as 23 per cent.

Then there’s traditional time and materials billable services. The third piece is around managed services and that can be charged as a billable fee on a monthly, quarterly or annualised basis.

A fourth one is also starting to take shape now – this concept of packaged IP, where partners are building solutions that reside on top of Sharepoint and they sell it in a repeatable way.

Ben Gower: The biggest opportunity around Office 365 at the minute is IP on Sharepoint. It’s the biggest untapped market by a country mile.

Craig Hume: As an app, would you be able to white label that and sell that as your own to your customers?

Mark Adams: At the moment the vendor who produces the app can put it into the marketplace, and then you can choose it from the marketplace. There’s a non- granular payment system so that can be quite nicely subscribed, but the concept of a proper marketplace – it hasn’t really matured into that yet. It will, because there will be demand for it, but it’s not quite there.

Mike Brown: When you start, the cheques you get from Microsoft are pretty small. If you go out and you do 50, 100 or 200 seats with Office 365, £100 comes through. But if you’ve done it for five years and you’ve sold 100,000 or 200,000 seats, you’re looking at tens of thousands of pounds per month coming in.

Brent Combest: In a study that we did with IDC, based on 709 partners surveyed, the average partner that has more than 50 per cent of revenue from the cloud is seeing profit levels 1.6 times higher than their peers, with a growth rate 2.4 times faster than their peers.

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IS THE CLOUD JUST FOR LARGER VOLUME RESELLERS?
Phil Hall: If a customer doesn’t have more than five to 10 seats, is it worth my sales effort as a Value Added Reseller (VAR)?

Ben Gower: We have about 2,000 customers, and if you take out the 20,000+ seat customers, the average seat size is about 18.

Is it worth it? Yes, for sure. You can make money, no question about it. Our recurring revenue just from licenses has gone past £10,000 a month now, excluding the larger businesses.

Clive Cowan: I have a massive inertia to the cloud. It seems Office 365 works well if you’re selling it in the thousands or tens of thousands of seats. But if I want to sell four seats, there’s nothing better than selling them a CD they can file away with a license number on it for that machine. I think this is a market that has been neglected with the cloud.

Brent Combest: I wouldn’t say that we’re neglecting it. I’d say Microsoft is one of the unique providers that give you the power of choice – we realise there will be customers that want option A versus option B, and we provide solutions that solve them both.

I wouldn’t say size dictates what is right for the customer – they will determine what they’re going to need. In the long term you’d be making far greater margins than selling the customer a CD on-premise.

Also, I’d be concerned that a CD could get lost, whereas with the cloud, if something were to happen to my PC, all I need is my username and password to re-download that. One subscription gives you access on five devices, too, so it offers more freedom in that regard.

Ben Gower: Cloud fundamentally changes the business model you have. So if you don’t want to change your business model, and your margins are to be made by what you already do, then maybe you shouldn’t change to cloud.

THE PRICING MODEL
Garry Stonehouse: For our SMB customers – and the majority of our business is B2B – we sell Google Apps rather than Office 365. We find the pricing model for Apps simpler to understand as there’s just one price. We did look at Office 365 as an option about a year ago, but we were confused by the Microsoft pricing model.

Brent Combest: I think we’re catching you on precisely the right day. Our SKU line-up had many variations. We have just announced a simplification of our SKU line-up that should make things considerably easier for you. So we hear your message loud and clear and we’re working to solve this problem.

Ben Gower: You look at the list of available SKUs and it’s complicated. But we use that to our advantage and beat our competition, because there’s so much granularity to what you can provide a customer that one simple pricing doesn’t necessarily fit all.

Mike Brown: When I first starting dealing with Office 365, it took me about a month to understand what each one would do and what a particular customer would need from a blend of licenses to suit their needs. You do need to stay on top of the services that Microsoft provides, but it is worth it.

Craig Hume: When we went onto the Microsoft site, we worked out what we thought we could provide to our customer, we then phoned up distribution and asked if we could order some SKUs and they didn’t know what we were talking about. It’s a shame that disconnect was there.

Ben Gower: I think in the early days a lot of what Microsoft and distributors say weren’t on message, but they have moved forward a lot in recent years.

Alexandria Ball: We are investing a lot locally with our distributors and with resources internally, because there is a lot to get through, and we want to handhold you through those first couple of deals, and speak with your customers to help you get that up and running. We also have an open site which talks through what’s out and what’s being planned in terms of new releases.

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SAFETY AND SECURITY
Clive Cowan: I think my clients’ data is far more secure on their own machines and back-up drive. I’m privy to all of my clients’ confidential data on their site – why would they want me to put that in the cloud?

Mike Brown: If you’re talking about an environment which has a single point of failure – an office – it has maybe 15 machines, a server and copies of data. With Office 365, you’ve got dual replicated data centres in real-time that cost billions of dollars. And the moment they save a file, it’s in two locations at once. On email it’s replicated 14 times – seven times on each data centre.

Microsoft vet their engineers, they’ve got internal procedures in place whereby if they’ve opened a mailbox they need to match it to a ticket logged by a customer which they have access to in a certain amount of time. After that, a second engineer has to become involved. To my knowledge they have never been hacked.

Clive Cowan: My concern would be more that malware hackers could break into the system. eBay was hacked this year with 145 million users’ data compromised. Sony PlayStation in 2011 saw 77 million users’ data compromised. There are loads of other examples.

Craig Hume: Customers put their trust in you. They come to you for their IT services, so whatever you say is scripture. If you turn that around, get to know the cloud and don’t be scared of the cloud, you’ll probably find your customers will start seeing its benefits and move over.

Jon Harrison: What happens if your internet connection drops out on Office 365?

Mark Adams: When you set the cloud up, you say to it, every time a piece of data is written to this hub, then it automatically syncs that out to any number of devices out of the box.

If you have a drop out or update something locally, it will ask you a question. It will say: “Hang on – this happened. Which one do you want me to prioritise?” Then it will apply that rule.

THE FUTURE OF THE CLOUD
Brent Combest: I would say that the cloud has outshot our expectations handsomely, growth-wise. If you look at our competitors, the salesforce.coms, the Net Suites out there, they’re realising growth rates in the mid 20s to mid 30s.

Ours is five times that for Office 365 – the reason for that is productivity is the primary workload that customers are looking for in the cloud as a starting point. We think the cloud will continue to accelerate at a very rapid pace. We’ll continue to invent and invest heavily in it.

Alexandria Ball: In the UK we’re certainly seeing a bigger increase in terms of cloud adoption.

Mike Brown: I think it’s an interesting time in IT. I think Microsoft has got it right on the cloud side of things. What’s been missing – and I’m hoping Windows 10 will fill the gap – is a virtualised desktop with an operating system sitting on top of it, a corporate version or home version, then virtualised apps sitting on top of that so it doesn’t interfere with the operating system, backed by cloud-based SCCM or Windows Intune deploying these applications and updating them.

If you’ve got the virtualised desktop and everything in the cloud – Windows Azure with active directory integration, that is the perfect infrastructure base. It doesn’t get any better than that.

Nothing can touch the operating system or the hardware, and everything is backed up in the cloud. And if the operating system blows up, you just nuke it and bring down a new one – the applications are virtualised laying on top of that.

We are so close to that now, and once we get there, IT guys will just sit back and that’s it. You don’t need VDI. It’s five times the cost and half the performance. So we’re very close to the mecca in IT I think.

THE PARTICIPANTS
Garry Stonehouse, Gbiz IT Computers
Garry runs a store in North Yorkshire. He is an authorised Google Apps reseller, which Gbiz sells predominantly to businesses.

Clive A Cowan, CCR Computer Systems
Clive is principal at CCR Computer Systems, a long- established SMB VAR set up in 1984. CCR does not offer cloud services.

Phil Hall, Multi Media Replication
Phil started out at Multi Media Replication duplicating Microsoft training materials on floppy disks, before moving to CD, DVD and USB.

Craig Hume, Utopia Computers
Craig runs a boutique system manufacturer based in Scotland, which builds high-end desktops and laptops. Utopia doesn’t offer cloud services.

Jon Harrison, Platinum Components
Jon works at Pan-European distributor Platinum which supplies hardware to the trade. He is interested in finding out more about the cloud.

Mike Barron, Synaxon
Mike has been working in the UK PC industry for more than 20 years, and is currently UK channel manager at dealer services group Synaxon, which has over 600 members.

Ben Gower, Perspicuity
Ben is MD of Perspicuity, a Microsoft Gold Partner that helps businesses move to the cloud, predominantly focusing on Office 365 and Sharepoint solutions.

Mike Brown, Paradigm Systems
Mike is MD of Paradigm Systems, which focuses on selling Office 365, Microsoft Azure and Microsoft Intune to the SMB market.

Mark Adams, Infostrata Solutions
Mark is from Infostrata and BusinessOn365. It’s a Sharepoint Gold Partner that is switching a lot of its activity to Office 365.

Brent Combest, Microsoft
Brent is Director of Sales Excellence & Strategy for Cloud in SMB and is responsible for driving Microsoft Online Services in the SMB segment.

Alexandria Ball, Microsoft
Working in Microsoft’s small and medium business teams, Alexandria specifically looks at marketing execution through resellers and distribution partners.

Paula Costa, Microsoft
Paula looks after Microsoft’s OEM vendors and also works with the company’s distribution partners.

Alex Sessoms, Microsoft
As senior marketing manager at Microsoft, Alex works with Brent and his team, looking after partner marketing in the distributor space.

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