The Cloud Tipping Point

The Cloud Tipping Point: Five Critical Go-to-Market Actions for 2012

Tim Furey, CEO

November, 2011

MarketBridge Cloud Transformation Research Building a Database of Cloud Strategies and Economics

Q1

Q3 Q1 2010 2011

Q2

Evolution of Technology Delivery Model: SaaS in the Cloud

Empirical survey of >300 North American Partners & >300 Customer

Evolution of Technology Delivery Model: IaaS in the Cloud

Empirical survey of >300 North American Partners & >300 Customers

Customer Cloud Adoption: Drivers & Triggers by Market Segment

Empirical survey of >1,000 Mid-market and SMB customers

Channel Cloud Migration: Issues and Trends

Interviews with >100 vendor and channel execs

Partner Profitability in Hybrid Cloud Computing

Empirical survey of >300 North American Partners

Mobility in the Cloud: Partner Revenue Sources

Empirical survey of >250 North American Partners

(

With the growth of disruptive technologies such as the cloud, virtualization, mobile communications, and social media, channel executives face a growing number of new challenges. To help our customers navigate the rapidly evolving channel landscape, the MarketBridge/IPED Alliance team has conducted several key studies outlined below.

SaaS

IaaS

© 2011, MarketBridge Corp. |

Q3

Cloud Route-to-Market Migration Vendor Channel Investment Trends

Blind survey of >50 Cloud Solution Vendors

(

The Research Base Customers, Channel Partners, Vendors


Cloud Technology Buyers >1,500 IT and LOB Execs

Cloud Channel Partners >500 SPs, ISVs, SIs, VARs

Cloud Technology Vendors

>60 Global SW, HW, Network

● Technology buyer panels

● Thought and Adoption Leaders

● Cautious Followers

● Enterprise, Mid-Market, SMB

● >15,000 Partner Database (UBM Channel)

● Emerging new “born-on-the-cloud” SPs

● New, growing MSPs

● Traditional VARs, SIs, Disti’s, etc.

● Members of UBM Channel Leadership Forum

● MarketBridge, IPED Clients Blind Surveys

Focus on Go-to-Market Issues, Best Practices, Benchmarks Not Product/Technology Evaluation

The Cloud Disrupts Both Technology Delivery and Go-to-Market Business Models

Cloud as Disruptive Technology:

Infrastructure moves “off-premise” and consumed “by-the-drink” (e.g. Rackspace)

Software becomes multi-tenant and continuously upgraded (e.g. Salesforce.com)

Data moves to shared databases (e.g. Jigsaw)

Labor moves to location of best talent/cost value

Cloud as Disruptive Go-to-Market Business Model

Revenue mix and streams change dramatically

Marketing and Sales channels (e.g. routes-to-market ) shift significantly

Cost-to-sell economics must get amortized over longer periods


“Hollowing out” of the IT glass house

“Extreme Makeover” of Sales & Marketing?

Industry Current State August 2011

OPEX budgets, rather than CAPEX

Less internal support, easing the stress on already reduced IT staffs

Analysts predict spending on cloud could exceed $2B by 2012

SMB is most rapid adopter of Cloud: 1/3rd of Mid-sized businesses will deploy some cloud solutions in 2011

Data Center SPs will be focused on building Private Clouds in the Enterprise

Those SPs adopting RECURRING REVENUE PRODUCTS have embraced the model and will flourish

Nearly 1/3 of SPs say customers do not see the opportunity: Those SPs will probably fail

Traditional two-tier distribution will evolve and new vendors/providers will become more relevant Telcos: Friend or Foe?


Poll Question #1

What Percent of your Business Unit’s Revenues will include a “cloud solution” in 2012?

<15%

15-30%

>30-50%

>50%

Note: Cloud would include

Enterprise “virtualization”

Mid-market migration to 3rd party hosting

SMB move to SaaS applications


Five Critical Go-to-Market Actions for 2012

1. Rigorous Segmentation of Markets and Customers

2. Building out New Vertical Channel Ecosystems & Solutions

3. Transforming Partner Business Models & Practices

4. Shifting Sales & Marketing Resource Deployment

5. Establishing New Financial Performance & Compensation Models


1. Segmenting Markets and Customers Buying Behavior and Cloud Receptivity Differs Markedly by Customer Segment


Ente

rpri

seSM

B

New Purchase/ Upgrade Renew/Refresh

Segment size, growth,

profitability

Cust

omer

Typ

e

Buying Scenario

Examples:

● >10% growth companies 2X more likely to adapt cloud solutions

● <40 year old decision makers 55% more likely to adopt cloud solutions

● Non-IT LOB decision-makers projected to “take over” at least 25% of IT budget

● Major upgrades or new IT footprints – e.g. large $$$ spends – increasing number of vendor bids and demanding a cloud alternative

● Highly regulated verticals – health care, financial services – moving to multi-tenant solutions to keep up with regulatory requirements

The Cloud Is Changing The Way Customers Buy Technology And Disrupting The Channel Ecosystem

51%

22% 20% 8%

41%

22% 23% 15%

On-premise product resale

On-premise hosted Off-premise hosted Pure cloud

% o

f R

even

ue

2010 2013

IPED CLF Winter 2011, n=303

IT DELIVERY MODELS ALONG THE CLOUD CONTINUUM

Customers are changing the way they buy IT

Partner Types

Customer Pricing Model

Core Value Prop.

On-Premise Resale

• Distributor • VAR

• Resale Margins • Pay for Service

• Tech Refresh • Tech Update

On-Premise Managed

• Distributor • MSP

• Resale Margins • Pay for Service

• Cost Reduction • Risk Reduction

Off-Premise Managed

• Data Center • MSP / BPO

• Subscription Fees • Pay for Service

• Risk Reduction • Specialized Skills

Cloud

• Cloud Provider • Cloud MSP/ BPO

• Subscription Fees • Pay for Performance

• Business Agility • Functional Expertise

The different delivery models have different partner models


2. Building New Vertical Solution and Channel Ecosystems


On-Premise Customer Integrated

& Managed

Software

Hardware

Data

Services

Old Model: Customer Integrates Multiple Vendor

Products/Components into Customized Solution

New Model: Customer Expects Integrated but Configurable

Vertical Solution Stacks

IaaS Platform (virtualization, storage,

networking, etc.)

BoB Functional SW Platforms (Comms, ERP, CRM, HR, etc.)

Vertical SW Apps

Vertical SW Apps

Vertical SW Apps

Data Models

Data Models

Data Models

Pro Services

Pro Services

Pro Services

CloudSolv

The CloudSolv platform will enable us to quickly go to market with a comprehensive stack of hosted services from top cloud providers. Patrick Booth, executive vice president at CCB, a Racine, Wisc.-based solution provider


http://synnex.com/index.html

• Making the business transformation to recurring revenue

• Selling on-prem solutions + off-prem (across IT delivery continuum)

• May have added managed services year ago

• Responding to growing customer preferences and making investments in their business to add cloud delivery model

• Traditional VAR model, makes money by integrating & selling hardware, software & services, generally take title to product

• Make margin by selling both HW & SW into the customer data center

• Little to NO recurring revenue

(emerging business model still in infancy)

3. Transforming Traditional Channel Partner Business Models

18%

62%

20%

• Model based largely from recurring revenue generated via off-premise services. Either made the business transformation or “born-on the web”

Source: UBM Channel XChange Conference 2011

Traditional Channels

All Vendor Total: Use of Distributors, VARs, DMRs is moderately down in favor of HW OEMs & Manufacturers, Hosting SPs, ISVs, Telcos & Retailers/e-tailers

n=91 Base = All respondents For the product categories you selected, which of the following routes to market (i.e., channels) – do you currently use as part of your stated channel strategy, and which ones do you expect to use in 2012? Source: IPED/UBM Channel's CLF Study (August 2011)

96%

71% 66%

54% 52%

34% 32% 31%

14% 8%

84%

66% 60%

55% 53%

37% 40% 37%

18% 14%

VARs Distributors DMRs/LARs MSP Consultants Hardware OEMs

Hosting SP ISVs Custom System Builders

Other Hardware

Manufacturers Total 2011 Total 2012

30% 29%

16% 13% 7%

22%

40%

24% 20% 18%

11%

25%

Telecom Carriers Telecom Carrier/Broadband

Services

Retailers/e-tailers Cable Companies Financial Institutions Other

Total 2011 Total 2012

Non-Traditional Channels

MSP & Consultants experiencing the highest use beyond Disti-VAR, DMR

The only non-traditional channel not growing YOY is Telecom Broadband


MSPs having transitioned to recurring revenue drive close to 50% gross margins in managed and cloud services

MSPs even when selling on-premise, resale margins are at or above those VARs primarily selling on-premise in a resale model

26.4 25.3 20.5

40.3

28.8

21.9

31.0

18.8

34.6 34.7

25.3 27.9

20.6 18.9

47.7

22.7 26.2

15.9 17.5

54.1

VAR Consultant Systems integrator

Custom System builder

MSP

On-premise product resale On-premise hosted Off-premise hosted Cloud

MEAN %

AVG GM APPROX

25%

Channel Partner Profitability: On-premise Resale, Managed or Cloud Services

BUSINESS MODEL MARGINS

AVERAGE MARGINS BY PRIMARY BUSINESS MODELS


2. Learn

4. Buy

$$

3. Engage

1. Find

4. Shifting Sales & Marketing Resource Deployment Cloud Buyers are “Shopping” well before engagement with Sales Resources

Marketing Sales Channels

5. Renew/ Upgrade

Cu

sto

mer

B

uyi

ng

Pro

cess

Service & Support

Ve

nd

or

G

o-t

o-M

ark

et

Customer Relationship Development

0%

20%

40%

60%

80%

100%

Find Learn Engage Buy Re/Upgrade

% Buyer Time Spent On-Line

Off-Line

On-Line


2. Learn

4. Buy

$$

3. Engage

1. Find

Cloud Buyers Shop on the Cloud Marketing and Sales Enablement must shift toward greater Digital Media Engagement

Marketing Sales Channels

5. Renew/ Upgrade

Cu

sto

mer

B

uyi

ng

Pro

cess

Service & Support

Ve

nd

or

G

o-t

o-M

ark

et

Customer Relationship Development

Sales Reps


http://www.bing.com/images/search?q=rss+logo&id=E95399739F64F1BEA40D690484232A8CEBA66FF8&FORM=IGRE1

Channel Investment to Revenue Ratio is 18.2% of Revenues 59% of the Investment allocated to Headcount & Incentives, 73% including MDF.

Total Channel Investment as a Percent of Indirect/Influence Revenue:

10.2% 18.2% 25.1% Networking All Vendor Median Service Provider

Mix of Total Channel Investment

36% 23% 14% 12% 9% 5% 1%

0% 20% 40% 60% 80% 100%

All channel-related headcount

Incentives

Demand generation funds (incl. MDF/BDF)

Program or other partner marketing (excl. MDF)

Infrastructure and operations

Free/discounted product education and certification vouchers

Other

•Headcount & Incentives 59%

•Headcount , Incentives & MDF 73%

All Vendor Median Program to Headcount Dollar Ratio:

1.8 to 1

At what level are vendors investing?

At the All Vendor Median 18.2%; how is the channel investment being allocated?


Marketing & Sales Enablement Consistently Appears as the #1 Challenge for both Vendors and Channel Partners


60%

49%

43%

43%

43%

41%

36%

34%

23%

23%

20%

20%

18%

14%

9%

Developing marketing/sales enablement

Building/adapting the partner program

Recruiting new partners

Product pricing models for the channel

Transitioning partners to capture IT …

Product channel readiness

Channel conflict - partner-to-partner

Overall disruption of the partner ecosystem

Channel conflict - field sales

Business planning

Education/training of internal staff

Building the business case for change

Allocating investments

Integrating partners of acquisitions*

Executive buy-in

Total

5. Establishing New Financial Performance & Compensation Models


What does the Cloud P&L Look Like? ● Revenues: Annuity contracts vs one-time

transactions

● Gross Margins: Scale/utilization sensitive managed services vs. tradtional product mark-up

● Marketing Expense: Scalable on-line programs and digital assets, collaboration with channels vs. traditional MDF/Co-op TRX incentives

● Sales Compensation: Paying upfront for 3-5 year contract sales vs. lover contract life

● Product Development: Creating eco-system of solution developers for each vertical

Poll Question #2:

Does your organization have a well-communicated and cross organization – marketing, sales, finance, product development -- operating and financial plan for cloud-based solutions?

Yes

Somewhat

Not at all


MarketBlueprint™ -- Cloud Strategies and Solutions for Product, Sales and Marketing Executives

Establish Financial Performance Plan

5

Determine Marketing, Sales & Channel Resources

4

SalesResources

Marketing Resources

Technology Support

ChannelResources

Build Route-to-Market Playbooks by Segment

3

Customer Interaction

Find Learn Engage Buy Attach

Search

Direct Marketing

Social Media

Industry Events

Web Site(s)

Inside Sales

Understand How

Segments Prefer to Buy

2

LEARN BUYENGAGEFIND ATTACH

Marketing Channels

Sales Channels

Offering Portfolio

Segment Customers by Buying Scenarios

1

Ente

rpri

seSM

B

New Purchase/ Upgrade Renew/Refresh

Segment size, growth,

profitability

Cust

omer

Typ

e

Buying Scenario

MarketBlueprint™

Data-Driven Go-to-Market Strategy & Operational Planning


THANK YOU

Learn more: Web: www.Market-Bridge.com Blog: www.salesandmarketinganalytics.com Twitter: www.twitter.com/marketbridge

Tim Furey Founder & CEO

[email protected]

http://www.market-bridge.com/



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The Cloud Tipping Point

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