The as-a-service industry challenges distributors to majorly rethink their position in the next-generation channel.
How is XaaS changing the cloud distribution?
Everyone, who has been dealing with as-a-service software or cloud services, knows that the B2B purchasing behavior is strongly influenced by the B2C market. Customers expect nothing less than the shopping convenience they have in their personal lives to be replicated at scale for their business purchases:
- - purchasing independence without any type of moderation (seller, distributor)
- opportunities to researching and comparing solutions online.
- short time to value (no provisioning delays or/and complexity around the installation, support).
The vendors themselves accepted these new shopping patterns and are adjusting accordingly. This gives a lot of space for the biggest fear every distributor can have - that vendors can start selling directly to customers. Honestly, a not completely irrelevant concern in the time of SaaS where vendors need no integration partners or on-site support. The changes in vendors’ go-to-market strategies, like their fading or missing margins and the visible focus on direct partners, are truly reshaping the channel but (so far) not in the direction of eliminating the distribution.
The vendor-distributor relationship is changing and running an old-school distribution business will cost any distributor its customers.
Why are vendors not interested in license sales?
In XaaS, it makes no longer sense to resell vendor licenses except it is part of a service package. Vendors are trying to comply with customers’ desires for as-a-service software consumption. And as the customers’ behavior becomes more and more sales independent, vendors recruit partners that are:
- - not just taking orders like traditional distributors and
- - not just selling software licenses like transacting resellers.
Vendors’ ecosystems in the future would not be fueled by partners enabling the financial transactions of vendor licenses but would be built with partners who create post-transaction values like:
- - Managed services built on top of the vendor's commodity solutions.
- - Enabling and adoption of success services.
- - Integration and consulting.
- - etc.
Vendors are strongly supporting the transition of resellers from transacting partners into service partners and are allocating the margins there:
- - reselling license at 20% margins and often way less;
- - and selling professional/managed services at up to 70% margins.
What does this mean for cloud distributors?
Distributors have been for a long time a fulfilment component in a need-delivery model – when a customer needs software, distributors provision the order. Today’s reality is not that linear and on average 14% of all partners a distributor has, are Managed Service Providers. The MSP branch is the fastest growing SaaS segment and as they are going to bring most of the revenue in the XaaS channel, distributors have to find a way to work with them.
The ever-changing cloud business environment teaches us that the more complex it gets, the less instant value a distributor can bring. A value that is not just being cheap, fast and accurate but providing automated, scalable, and self-servicing business to non-transacting channel partners.
Who are the next-gen cloud distributors?
It is time for distributors to see the bigger picture - global distribution enterprises and next-gen Cloud Aggregators are grabbing their market shares because they can accommodate different partner types. And by finding a way to satisfy the demands for multi-tier, multi-cloud and multi-vendor distribution, are having an incredible value proposition against competitors.
Local and smaller distributors can also become next-gen providers with the right strategy and technology. Watch our on-demand webinar Cloud Distribution - Winning the zero-margin game to get an answer to the questions:
- - how can you make non-transacting resellers stick with you?
- how can you make resellers successful MSPs and monetize on them?
- how can you scale the business with profit?
During the event, we talk about strategic actions you might want to consider. We will bring in our more than five years of experience in helping vendors, large resellers and distributors succeed and show you real-life examples & action plans.