Last year’s economic downturn did more than produce awful balance sheets for vendors and resellers.
What it also did was force IT buyers to behave differently than before, according to IDC analyst Rick Villars.
Villars, a 20-year veteran at IDC, is the analyst firm’s vice-president of storage and strategic systems. He said that the economic recovery period of 2010 will bring about new opportunities not just with the upswing, but with IT transformation.
“There have been changes in the behaviour from the slow down and you need to know how to capitalize on it. Customers are not spending the way they used to before. They’ll be buying things differently and it will lead to risk and opportunity,” Villars said.
While new behaviour buying patterns and approaches may be scary to some solution providers, the good news is that 2010 has shown clear signs of a computing recovery.
One area that is showing tremendous amounts of growth is in hardware expansion for cloud solutions.
They have nine data centres worldwide and of their 3,000 employees, more than 2,000 of them are in support roles just to service customers who are shifting IT to an off-premise environment.
Currently, Rackspace manages more than 60,000 servers for about 100,000 customers.
The company’s channel approach was developed by former Extreme Networks channel chief Chris Rajiah.
Rackspace has signed about 1,200 channel partners in North America, of which 26 are Canadian-based, but its vision is global in nature.
“When you look at our vision we want to be known as the world’s greatest services company. When you go to a Lexus dealership or Nordstroms, you get an experience. And, we want to provide that level of services in the tech space. That is our vision,” Rajiah said.
Rajiah has revamped the Rackspace channel program to be a worldwide program so the company can play in every market possible through the solution providers.
They have more than 1,700 partners worldwide but Rajiah intends to grow that base rapidly through this program.
The bet Rackspace is making is that internal departments of any size organization can not be satisfied by the IT department.
Departments such as human resources, sales, marketing and administration will have a need for cloud services and will go and outsource it.
“Today’s IT department can’t handle that sort of demand for new projects and we have partners around the world that can capture these opportunities in the enterprise with storage, ERP and CRM and the VAR community as a whole has become the trusted advisor for many customers and they will give us reach,” Rajiah said.
Rackspace has a shared public cloud as well as a hybrid cloud experience. For example, a customer can access an application for a marketing project on Rackspace’s public cloud, while using the hybrid cloud for short term promotional Web sites.
Craig Stilwell of Citrix
One common strategy for customers to gain cost and control of IT through the cloud is to virtualize systems first. Citrix Systems has made some alterations to its channel program and strategy for this and to push its XenDesktop product line which is ideal for desktop virtualization.
Citrix is now offering about 350 Canadian channel partners double the amount of Advisor Reward margin pay out in its two-tier channel program.
Craig Stilwell, Citrix vice-president of Americas channels and field operations, said this margin boost works as a deal registration program. When the solution provider registers the deal, a Citrix sales person will analyze it to make sure the registrant was adding its valued expertise over just fulfilling the order. This system would ensure that the solution provider would get paid even if the deal was sent elsewhere based on the lowest price.
“We recognized from channel partners that the next new customer is difficult to get and so there is a new component called Customer Bonus which works out to be a 50 per cent uplift. The cool thing is you can put the two together,” he said. Citrix’ strategic marketing fund for partners was also tweaked. Those who submit a marketing idea will get more co-op money.
Craig West of NetSuite
There’s a thought in the channel that cloud solutions will net zero services revenue. Craig West, NetSuite channel chief, says that’s a big mis-perception that cloud solutions or applications are not configurable or customizable.
“I would say it’s more of a money maker that its perception. Solution providers are really service providers and they sell licenses as an end to lucrative services work.
There is a fear out there that there’s no services work in the cloud and customers buy it and it works,” West said.
He added that NetSuite solutions along with other cloud-based software are very complex business management suites that still require robust configuration from changing meta data to customer code and scripting similar type services found in the on-premise world.
What does get lost in terms of revenue opportunities in the cloud comes from installing servers and software. “There’s no server hugging component. It doesn’t exist in the cloud world.”
West said that some money is wasted in IT budgets for software installation and that a solution provider could be viewed by the customer as providing higher value through a cloud approach.
Servers are also a commodity even though they need to be maintained and patched.
“Ask any solution provider and they will tell you that’s not their core competency or value-add. The cloud model is a better model for capitalizing on a solution provider’s expertise,” he said.
IT buyers will also be looking for technology choices such as leasing, virtualization and cloud computing in a SaaS model, capacity on demand or in a managed service.
“It has nothing to do with who has the best technology anymore,” Villars said.
“There’s a shift in the way IT is purchased and the opportunity for Rackspace was to invest in the partner community and the channel program and with people to enable this massive change that is taking place in the way IT is being delivered,” he said.
The difficulty is with solution providers who are still hung up on the big revenue driving solution sale. The Rackspace model is incentive-laden but on a monthly period and admittedly less than traditional one-time sales in margins, Rajiah said.
“But, over time there is profit and a viable business model,” he added.
Villars said that CIOs and business decision makers have a clear concern over the next five years. There’s a strong belief in the market that the mobile device will become the primary user device. “For most end users and consumers this will be how people will want to interact with and the question then becomes how will the infrastructure be built to support this trend?” Villars said.