This article was written by Todd Hussey, Partner and Co-Founder at CSBexcellence. Todd is a veteran in the field of technology startup sales and marketing, specializing in the Managed Service Provider business since the mid 90s, and has since become a part of the Cloud Services Broker business.
The Cloud Services Broker is becoming the next-gen channel partner for tech vendors. Why and what does this business model look like?
It wasn’t that long ago when the only version of the IT channel was the Value Added Reseller (VAR) or Systems Integrator (SI). Both models were great for the time with big guys like Cisco or HP or all the up-and-comers of the time developing all the new on-premise technologies. The vendor could focus on innovation and execute on most of the sales and marketing and the channel partner would install and maintain. Everyone made a fair (can I say very good?) buck. This is still the predominant model today. And if you read all the industry data, this model accounts for around 75% or so of the approximately 300,000 total channel partners in the world.
One problem with the VAR/SI model is that around the 2000-2004 timeframe, hardware and software prices started dropping like a rock and with that, margins dropped as well. Also, from a maintenance perspective (where the channel partner would make a lot of high margin revenue), it didn’t make economic sense for the customer to pay break/fix truck roll prices to fix a computer or server that costs a fraction of what it used to.
So along came the Managed Services Provider (MSP). With the Internet and broadband offering great reliability and availability and new Remote Monitoring and Management (RMM) platforms being introduced into the market, the MSP could offer affordable remote IT services with no costly truck rolls at nice, recurring revenue margins. How many MSPs exist? Industry pundits put the number at approx. 20,000-25,000.
So where are we now?
As we speak, the future is all about the Cloud Services Broker (CSB). Why? It’s no secret that cloud is what customers are demanding and vendors are delivering. There isn’t a vendor (that I know of) that isn’t transforming, or already has transformed, their technology and business model to cloud (and all are looking for CSBs, their new channel partner).
What is a Cloud Services Brokerage? (http://goo.gl/jtQwzn) Gartner coined the phrase and they have some lengthy and fancy definitions such as: “Cloud services brokerage (CSB) is an IT role and business model in which a company or other entity adds value to one or more (public or private) cloud services on behalf of one or more consumers of that service via three primary roles including aggregation, integration and customization brokerage. A CSB enabler provides technology to implement CSB, and a CSB provider offers combined technology, people and methodologies to implement and manage CSB-related projects.”
As for me, I like the restaurant analogy. A restaurant buys or makes their own food items, such as hamburger, hot dogs, chicken, buns, condiments, potatoes, onions, lettuce, tomatoes, spices, beer, soda (you get the picture), and combines them and adds their “special sauce” to create “tasty” meals (who would buy just the raw hamburger?) to meet their customers’ demand/appetite. Successful restaurants deliver their “value prop” to customers at a fair price and margin (you must know your margins) and if done well, they come back for more.
The CSB does the same thing except their value prop is delivering high customer-value business-outcome MRR (Monthly Recurring Revenue) cloud solutions (that they are adept at delivering) by bundling individual cloud services (SaaS, IaaS, PaaS, Hosted DNS, etc.) and adding their own “special sauce” (i.e. One-Time Revenue (OTR) Professional Services). A CSB can go to a VAR or MSP’s customers and offer better services for a fraction of the cost all while making a good recurring revenue margin.
So where do you start to become a world-class Cloud Services Broker?
You’ll need to first select 1-2 cloud services. I suggest you take a long, hard look at your competencies and what types of cloud services you can sell and deliver with excellence. I have this conversation all the time with VARs/SIs just becoming CSBs. Like a chef that spent his/her career creating great Italian dishes, all of a sudden adding Chinese food to the menu probably doesn’t make much sense. So if you have no experience with VoIP, selecting hosted VoIP to start may not make the most sense.
Also, do some research (maybe with your customers or vendors) and see what cloud services are being consumed by your type of customers. That’s just a start. There’s lots more to do to become a CSB, such as figuring out how you price and package your cloud services. We’ll cover those items in future blogs.