Part 3: Do NOT Let Behemoth Cloud Providers Dictate The Market

Written by Pete Manca, President & CEO, Egenera

This is the 3rd (and final) installment in a series sharing my perspectives on a very informative and insightful article by The Cranky Admin (aka Trevor Pott) that I recently came across. As CEO of a channel-only (wholesale) cloud services provider the title “Does Public Cloud Spell Doom for Channel Partners” caught my attention.

The Practical Channel

In the short term, this means great things for customers. The channel is in a frenzy trying to redefine itself and make arguments for why it should even still exist. Hardware vendors and Independent Software Vendors (ISVs) who sell solutions that don’t rely on the public cloud are also scrambling for relevance. Great deals can be had with only minor haggling.

Our choices now, however, will determine the long-term viability of the channel as a model. The channel enables a vibrant ecosystem of competing hardware and software vendors tied up with local and regional service providers that deliver everything from a hands-off retail experience to truly white glove service. Even with recent consolidations, the channel is large enough for there to be multiple disties — both big and small — on every continent, with thousands of VARs, MSPs, CSPs and colos to choose from.

If too many organizations become “cloud only” or “cloud first,” the channel won’t be able to sustain itself. It will either collapse into a small oligopoly of disties that raise prices and drive down quality, or vanish altogether. Most likely one followed by the other.

There is room for some channel partners to evolve into effectively becoming MSPs that manage your public cloud workloads. Instead of today’s MSPs that largely “handle the hardware” so that sysadmins can focus on software and management, they would effectively become outsourced IT departments that replaced internal IT teams.

Partially or fully outsourced IT of that magnitude goes in and out of fashion, but MSP plus public cloud provider offers a powerful — if ultimately expensive — combination that many organizations may find hard to resist.

Implications for IT Practitioners

If you’re an in-house IT practitioner and you want to keep on being an in-house IT practitioner, it behooves you to give some real thought to where you spend your budget. Engaging with the public cloud providers is often a quick solution to an immediate problem, but every workload put into the public cloud is a nail in the channel’s coffin. The right channel partners can probably provide you what you need for about the same price. It’s essentially the same argument as shopping at the local book stores to prevent the encroachment of Amazon, or the local anything the prevent the global dominance of Wal-Mart.

The uncertain question of the channel’s future also provides insight into what to do with our career development. Keeping a careful eye on public cloud adoption rates for various market segments can tell us who is likely to still be hiring in-house techs, and what verticals the channel will abandon first.

If you see the channel pulling out of a given segment — education, for example — because a public cloud provider like Google is coming to dominate that segment, this provides clear signals for career choices. Either get really, really good at the public cloud provider dominating that segment’s offerings, or migrate out of that vertical entirely.

In the medium term, learning how to work with public cloud offerings enough to work at the public-cloud-focused MSPs is good money. There’s 10-15 years’ worth of solid work in migrating organizations to the public cloud and then wrangling their workloads once there.

Longer term, the planetary demand for operations teams either has already or will quickly plateau. The need for infrastructure nerds is diminishing. If you still want to work in IT consider shifting careers into development or robotics.

The Pendulum Swings

The pendulum will eventually swing back to on-premises IT again. The centralized-decentralized cyclical nature of our industry makes it inevitable. The unknowns are how much of the channel will make it through the eye of the needle, and how completely on-premises teams will collapse before that happens. If you want to know more, find an old mainframe greybeard/greybraid and ask them for the tale of their career.

I interpret the last few paragraphs in Trevor’s article as spelling doom and gloom for the channel. I can see how he feels this way based on the tone of his statements:

“Our choices now, however, will determine the long-term viability of the channel as a model. The channel enables a vibrant ecosystem of competing hardware and software vendors tied up with local and regional service providers that deliver everything from a hands-off retail experience to truly white glove service. Even with recent consolidations, the channel is large enough for there to be multiple disties — both big and small — on every continent, with thousands of VARs, MSPs, CSPs and colos to choose from.

If too many organizations become “cloud only” or “cloud first,” the channel won’t be able to sustain itself. It will either collapse into a small oligopoly of disties that raise prices and drive down quality, or vanish altogether. Most likely one followed by the other.”

I couldn’t agree more with Trevor, BUT only if we choose to let the behemoth cloud providers dictate the market. Surely no one wants to see just a handful of cloud service providers (CSPs) survive because the resulting oligopoly means we all lose.

But what can an MSP do? As one of my partners told me on our first meeting … “the big CSPs are just so cheap I can’t afford not to use them.” This was not the first time I’d heard this “they’re so cheap” argument. I responded by repeating a couple of old (wise) adages; “be careful what you ask for … you might just get it” and “you get what you pay for.”

The “low cost” of the big CSPs may be tempting but you need to be a smart consumer and do your homework. I’ve been told by many of our partners that with the big CSPs what you see isn’t always what you get. By this I mean that they told me horror stories including:

  • High data transport costs – it’s cheap to move data into the big CSP clouds, but it’s expensive to move it out
  • Very high partner program costs – tiered programs where only the most expensive tiers provide quality partner program support
  • Very high technical support costs – unless you’re willing to subscribe to the highest support tier you end up with sub-par support – how will this impact your ability to provide quality support to your clients?
  • Cheap server instance costs but little or no flexibility – the big CSPs decide which configurations they’re going to make available, they make it difficult and expensive to modify their base configurations. In the long run, this inflexibility adds costs to your bill, which in turn you must explain to your clients
  • Training / certification costs – the big CSPs require you to train and certify your technicians on their platforms which is understandable, but what they don’t tell you is how costly the certification courses are and they also fail to mention the costs you incur while your staff is “out of office” in a training class
  • Risk / reward costs of partnering with a big CSP who sells their IaaS cloud services direct to end users
  • Risk / reward costs of partnering with a big CSP who is known to wrestle away account control from MSPs with their SaaS products

The point being that Trevor is spot on that MSPs (through due diligence) can and will dictate whether the channel (as we known it) survives or perishes. Trevor goes on to say:

There is room for some channel partners to evolve into effectively becoming MSPs that manage your public cloud workloads. Instead of today’s MSPs that largely “handle the hardware” so that sysadmins can focus on software and management, they would effectively become outsourced IT departments that replaced internal IT teams.

Partially or fully outsourced IT of that magnitude goes in and out of fashion, but MSP plus public cloud provider offers a powerful — if ultimately expensive — combination that many organizations may find hard to resist.

I have to re-phrase Trevor’s comments:

There is the ability for MSPS to evolve into effectively becoming a hybrid MSP/CSP (to their clients). By using a channel only CSP’s infrastructure, MSPs still manage their client’s workloads. But instead of today’s MSPs that largely “handle the hardware” so that sysadmins can focus on software and management, they would efficiently provide sysadmin services to their clients but with the “handle the hardware” heavy lifting offloaded they are able to deliver more robust (higher value, higher margin), stickier business solutions to their clients.

MSP plus (channel only) CSP offers a powerful — and efficient — combination that supports both CSPs and MSPs being successful while the end users (service consumers) receive the support (from you) that they deserve.

Mutual success and mutual commitment are what “the channel” is all about. The channel can, and will survive through MSP due diligence and prudent business decision making.

For additional information I invite you to click here to download our CSP Assessment checklist.

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