Why Some Partners Aren’t Seeing Blue Skies In the Cloud

Our vendor clients tell us they have a problem: “How do I get my partners to sell more of my cloud solutions?” Recent announcements by the big cloud providers may point to some reasons why.

Example 1: On day one of the recent re:Invent conference, Andy Jassy, CEO of Amazon Web Services (AWS) sent a warning shot to the room full of IT partners:

“The reality is we are going to direct business to our partners who are committed and who really understand the platform because our customers want partners who understand the details of our platform,” he said. “I’m not suggesting that you shouldn’t have other partners, that you should dump your other partnerships, but I am saying that I think a strategy of hedging is the wrong one for this time.”

Translation: Nice to see you, but you better get on the AWS train or risk being marginalized!

Example 2: Taking a very different approach, Microsoft continues to actively push the benefits of becoming a Cloud Solution Provider to its huge partner base, with the logic/lure of combining high-margin services with Microsoft Azure cloud products.

Microsoft provides the cloud services, but under the CSP program, partners remain in charge of the customer relationship, including billing and support. The emphasis in their messaging is for partners to create custom solutions bundling their own branded services – managed, project, IP – with MSFT, and delivering them to customers with one bill.

By directly provisioning and managing subscriptions and acting as first point of contact for customer support, partners can do what they have always wanted to: build ongoing, loyal customer relationships.

Translation: Please, please sell more MSFT Online Services to your customers – it’s good for you!

Example 3: …and back to Amazon. AWS recently launched AWS Managed Services to provide a full suite of infrastructure operations management for users of its public cloud. Automated services offered include: Change requests, monitoring, patch management, security, backup services and “full-lifecycle services to provision, run, and support” infrastructure.

Partners who are already concerned about loss of business to the public cloud option will ask: ‘Wait a minute, AWS … didn’t you just say 2 weeks ago that you wanted me to go all-in with AWS and you would reward me for committing to you? … and now you want to take away how I add profitable services, differentiate myself, and bond with my customers?

Translation: Let the disruption continue. MSP Partners, we’ll let you figure out how you play next.

More Info

We are currently working with our vendor clients, using ESG’s Cloud Readiness Assessment, to gauge how well their leading partners are transforming their business models to sell more recurring, cloud-based solutions. We talk to leaders of solution providers all the time that continue to sell lots of on-premises products and services, and are not transforming to cloud as fast as their vendors would like.

I wonder why?

Kevin Rhone is senior partnering consultant at ESG, where he helps clients strengthen their partner-centric strategies, programs, and go-to-market efforts. Read more ESG blogs here.

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    Frank Butler:

    A big part of the reason many MSPs are not flocking to Microsoft cloud solutions is because Microsoft holds the keys to your profitability. At any time they desire (usually when they are pushing their next big product), they will arbitrarily change the margin that you can make on their products. I don’t want to build a practice where I am largely unable to control my costs.

      Joe Panettieri:

      Hey Frank: Thanks for the note. Is this a Microsoft-related problem for partners, or a more generic problem involving all cloud vendor pricing plans?

        Dustin Bolander:

        Unless you’re selling colocation space (the referral margins are nuts, some here in Austin are offering 35% recurring for the life of the contract) I think its the case for most cloud services. 10% sounds great on paper but when its something like a $5/mo residual, you have to scale like hell to make any money. I have not seen anyone in the MSP/VAR space that is making serious money off the residuals or markup, all the profit is in the services surrounding it.

    Larry Walsh:

    What Frank says is true, but also not precise. The legacy channel model is vendors contribute significantly to partner profitability through “margins” (discounts) and incentives (rebates, spiffs, free resources and support). In the services model, there’s not enough gross margin to give deep discounts and account control resides with the provider. As a result, partners get a smaller piece of the deal and have less control over their take. At least that’s how it seems. Partners need to develop other revenue streams, independent of vendors, that complement cloud services.

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