The Cloud Tipping Point
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Transcript of 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. | Page 2
Q3
Cloud Route-to-Market Migration Vendor Channel Investment Trends
Blind survey of >50 Cloud Solution Vendors
(
The Research Base Customers, Channel Partners, Vendors
© 2011, MarketBridge Corp. | Page 3
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
© 2011, MarketBridge Corp. | Page 4
“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?
© 2011, MarketBridge Corp. | Page 5
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
© 2011, MarketBridge Corp. | Page 6
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
© 2011, MarketBridge Corp. | Page 7
1. Segmenting Markets and Customers Buying Behavior and Cloud Receptivity Differs Markedly by Customer Segment
© 2011, MarketBridge Corp. | Page 8
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
© 2011, MarketBridge Corp. | Page 9
2. Building New Vertical Solution and Channel Ecosystems
© 2011, MarketBridge Corp. | Page 10
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
© 2011, MarketBridge Corp. | Page 11
• 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
© 2011, MarketBridge Corp. | Page 13
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
© 2011, MarketBridge Corp. | Page 14
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
© 2011, MarketBridge Corp. | Page 15
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
© 2011, MarketBridge Corp. | Page 16
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?
© 2011, MarketBridge Corp. | Page 17
Marketing & Sales Enablement Consistently Appears as the #1 Challenge for both Vendors and Channel Partners
© 2011, MarketBridge Corp. | Page 18
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
© 2011, MarketBridge Corp. | Page 19
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
© 2011, MarketBridge Corp. | Page 20
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
© 2011, MarketBridge Corp. | Page 21
THANK YOU
Learn more: Web: www.Market-Bridge.com Blog: www.salesandmarketinganalytics.com Twitter: www.twitter.com/marketbridge
Tim Furey Founder & CEO