Partnering in the 3rd Platform: Spotlight on Cloud

Transcription

1 INDUSTRY DEVELOPMENTS AND MODELS Partnering in the 3rd Platform: Spotlight on Cloud Marilyn Carr IDC OPINION This study is the fourth in a series of documents that examine the findings of IDC's most recent Software Channels Survey, which focused on partnering in the 3rd Platform. It provides an overview of current participation in and future plans for offering cloud solutions and the reasons why partners choose to or choose not to become involved in cloud solutions. Cloud is moving into the mainstream for partners. It is not just the early adopters and "born in the cloud" solution providers that are embracing the cloud opportunity. IDC believes it's time to solidify the cloud component of partner programs. However, don't fall into the trap of siloing solution providers involved in cloud as purely "cloud partners." We have talked endlessly about the changing partner landscape and the fact that few fit into the rigid categories vendors have traditionally used to identify them. "Cloud partners" are just those that have added cloud to their portfolio. They come in all shapes, sizes, and business models. Further: Our survey indicates that 63.5% of solution providers in North America and Western Europe are earning money from cloud, with reselling cloud solutions as the most popular activity. The reality is solution providers will choose not to align with a cloud vendor unless there is proven customer demand, which of course depends on having compelling and robust technology. It is no surprise that solution providers choose to offer cloud solutions because their customers are asking for the solutions. However, it is less than encouraging that the motives of improving profitability or increasing growth are lagging behind. The most cited reason for not getting involved in cloud is that solution providers don't think it fits with their business model. IDC believes this is related to the perceived effort required to retool from an established (and presumably still profitable) 2nd Platform business. June 2015, IDC #256447

2 IN THIS STUDY This study is the fourth in a series of documents that examine the findings of IDC's most recent Software Channels Survey, which focused on partnering in the 3rd Platform. It provides an overview of current participation in and future plans for offering cloud solutions and the reasons why partners choose to or choose not to become involved in cloud solutions and essential guidance to vendors that want to encourage partners to become involved in "as a platform" services. Methodology The findings in this study are based on the results from IDC's Software Channels Survey, conducted over telephone in October and November 2014, focusing on companies that resell or influence the sale of software or that provide software solutions. Of the total of 603 respondents, 300 were from North America and 303 from Western Europe. All respondents were asked whether or not they offer 3rd Platform solutions, including cloud, mobile, big data and analytics, and social business, to get a broad overview of the level of 3rd Platform participation. Up to two 3rd Platform technologies per respondent were selected for more detailed questions about the nature of the participation to ensure an appropriate sample for analysis of individual technologies. All respondents that do not currently participate in a particular 3rd Platform technology were asked about future plans and reasons behind choosing not to participate. Note: All numbers in this document may not be exact due to rounding. Definitions IDC uses the following definitions for solution provider participation in cloud services: Cloud services encompass software as a service (SaaS), platform as a service (PaaS), and infrastructure as a service (IaaS). Subcategories of partner activity include: Cloud builder. Design and deployment of private or public cloud infrastructures Cloud consultant. Provider of cloud-oriented professional services such as cloudreadiness assessments and audits Cloud service provider. Provider of IT delivered as a service such as SaaS, IaaS, and PaaS Cloud reseller. Reseller or broker of some other provider's public cloud services SITUATION OVERVIEW The cloud is arguably one of the most significant trends ever to hit the IT industry. Total public IT cloud services (SaaS, PaaS, and IaaS) spending will reach $127 billion in 2018 at a compound annual growth rate (CAGR) of 22.8% about six times the rate of overall IT market growth. IDC believes that by 2018, public IT cloud services will drive nearly 20% of the $640 billion aggregate spending in applications, development and deployment tools, infrastructure software, storage, and servers and that they will account for 55% of spending growth. Software as a service accounting for 70% of cloud services spending in 2014 will continue to dominate public IT cloud services spending as most customer demand is, understandably, at the application level. Platform as a service and cloud storage services will be the fastest-growing categories driven by major upticks in developer cloud services adoption and big data driven solutions, respectively, from 2014 to IDC #

3 Figure 1 shows the lay of the land of partners currently offering some form of 3rd Platform solution. It indicates that 63.5% of solution providers are earning money from cloud, while 53.7% are involved in mobility solutions. Social business and big data and analytics are lagging behind at 37.0% and 36.3%, respectively. It is important to note that respondents included in each category have some revenue, not necessarily all or even a large portion of their revenue, from that category. However, it shows a healthy amount of traction for cloud. FIGURE 1 Solution Provider Participation in 3rd Platform Technologies Q. Does your company offer? n = 603 Figure 2 shows the type of cloud participation among survey respondents. Reselling cloud solutions is currently the most popular activity. This is not surprising because the majority of IT solution providers will engage in some form of reselling of software or hardware solutions or will at least influence the purchase of technology, regardless of other parts of their business IDC #

4 FIGURE 2 Cloud Solutions or Services Currently Offered Q. Which of the following mobile solutions/services does your company currently offer? n = 165 With respect to cloud, though, simple resale doesn't contribute much in the way of margin. Savvy solution providers realize it is less about the margin collected on cloud subscription billings and more about acquiring a customer relationship that can spawn a wealth of revenue streams over a (hopefully) long-term relationship. The trick is to focus on ways to leverage cloud resale to add to both the top and the bottom line, such as being a well-rounded cloud service provider or acting as a cloud consultant. Vendors are still in the land-grab phase for cloud partners. On average, solution providers have been involved with cloud for only 3.5 years, and roughly 40% of them have yet to make the move. The choice boils down to finding new partners or incenting existing partners to move to the cloud. We believe that vendors must do both to be successful. However, the reality is that solution providers will choose not to align with a vendor unless there is proven customer demand, which of course depends on having compelling and robust technology (see Figure 3). It is important to note that having a good partner program is also a factor here, and IDC believes this is especially true for cloud. Of the four pillars of the 3rd Platform cloud, mobility, big data and analytics, and social business cloud has the potential to be the most disruptive to IT solution provider business models because it changes the way solution providers get paid IDC #

5 FIGURE 3 Reasons to Choose Partnership with a Cloud Solutions Vendor n = 165 That's why most major vendors are paying particular attention to helping their partners make the recurring revenue business model transition. For example, Microsoft, Oracle, and IBM are offering or planning to offer in-person cloud transition workshops in various venues and locations. These workshops typically include planning sessions that take partners through the steps of getting started, followed by a focus on building the skills needed to be successful, including line-of-business knowledge, consultative selling, and industry vertical expertise IDC #

6 It is no surprise that solution providers decide to start offering cloud solutions because their customers are asking for the solutions (see Figure 4). However, it is less than encouraging that the motives of improving profitability or increasing growth are lagging behind. Also important to note is that solution providers will not move to cloud simply because their vendor partners have made the move, which underscores the importance of communicating both the carrots and the sticks involved in the transition. IDC believes one of the most compelling messages here is the reality of 3rd Platform growth versus 2nd Platform growth. The 3rd Platform (cloud, mobility, big data and analytics, and social business) has an annual projected growth rate of 12% from now until The 2nd Platform or traditional client/server implementations is expected to grow at exactly 0.0% over that same time period. And, IDC believes cloud growth alone will outpace overall IT growth by a factor of 5.5. FIGURE 4 Reasons for Offering Cloud Solutions n = 165 Figure 5 shows the degree of involvement in 3rd Platform technologies for respondents offering cloud solutions, showing the top 3 combinations. The most common combination is cloud and mobility, which is not surprising, given the popularity of mobile overall, but this also indicates that solution providers are catching on to the particular value of this synergy: cloud is a valuable enabler to the wider availability of mobile and multidevice solutions. That roughly the same number of respondents is involved in all four 3rd Platform technologies as those who are only offering cloud underscores the fact that many solution providers have jumped in with both feet. And perhaps those that are only involved in cloud are more late adopters than early movers IDC #

7 FIGURE 5 Cloud Partner Involvement in 3rd Platform Technologies n = 165 Figure 6 shows the age profile for solution providers involved in cloud solutions. There is no difference in company age, when cloud is a specialty on its own or is combined with one or two other 3rd Platform capabilities. So this tells us it is not just newer (or older) companies that are embracing cloud as part of their revenue stream. However, when it comes to combining all four 3rd Platform technologies, more companies fall into the category of 25+ years in business. This indicates that perhaps it is necessary to reach a certain maturity threshold to be able to take on the full 3rd Platform portfolio. It also shows that vendors should expect that virtually any of their partners, regardless of other activities, should be able to add cloud to their portfolio. This is further supported by the fact that those solution providers currently offering some form of cloud solution are not overrepresented by younger companies, which should be a welcome insight to vendors: there is lots of activity among those solution providers that were not "born in the cloud." 2015 IDC #

8 FIGURE 6 Solution Provider Age Distribution by Degree of 3rd Platform Involvement n = 165 FUTURE OUTLOOK On average, solution providers offering cloud solutions expect the amount of their revenue earned from the cloud component of their business to increase by 70% in the next two years to roughly 30% (see Figure 7). Although the revenue percentage value remains relatively small, the expected growth factor is very encouraging IDC #

9 FIGURE 7 Current and Future Cloud Revenue n = 165 The most cited reason for not getting involved in cloud is that solution providers believe cloud does not fit with their business model (see Figure 8). IDC believes this is related to the perceived effort required to retool from an established (and presumably still profitable) 2nd Platform business. Even though we know there are many apprehensions about the mechanics of moving from project and lump-sum resale revenue to a recurring revenue stream, this doesn't register very high on the list of concerns. IDC believes this is because the perception of a major business model disconnect trumps anything else, and therefore other potential hurdles only come into play once the solution providers are ready to entertain the notion of adding cloud to their portfolio IDC #

10 FIGURE 8 Reasons for Not Offering Cloud Solutions n = 138 ESSENTIAL GUIDANCE Vendors that offer cloud solutions should be aware of the percentage of their legacy partners that are involved in cloud in some way and the extent to which they are offering cloud in combination with other 3rd Platform solutions, which is a relative indicator of 3rd Platform maturity. Cloud is moving in the mainstream for partners. It is not just the early adopters and "born in the cloud" solution providers that are embracing the cloud opportunity. IDC believes it's time to solidify the cloud component of partner programs. They should be way past infancy by now, so the benefits and expectations should be jelled and reasonably stable. Vendors are in an enviable position they have not experienced in many years. Because of the change in the technology paradigm, the whole field of participants in the ecosystem is up for grabs. Of course, potential partners are first going to evaluate the technical and functional aspects of a vendor's cloud offering, but next, they are going to compare the commitments and rewards of the partner program. Don't turn your program into quicksand by constantly making changes to the cloud components. It is time to declare it done or move fast to "done enough" if you are still in development mode IDC #

11 However, don't fall into the trap of siloing solution providers involved in cloud as "cloud partners." We have talked endlessly about the changing partner landscape and the fact that few fit into the rigid categories vendors have traditionally used to identify them. The fact is that the majority are layering more and more services on top of technology products, the barriers to entry for packaging IP into "as a service" solutions are falling, and nontechnology companies are starting to enter turf previously guarded by technology specialists. So you can't just put a label on partners and expect it to stick. "Cloud partners" are just those that have added cloud to their portfolio. They come in all shapes, sizes, and business models. LEARN MORE Related Research Partnering in the 3rd Platform: Spotlight on ISVs (IDC #256118, May 2015) Partnering in the 3rd Platform: Spotlight on Mobility (IDC #255141, April 2015) Partner Participation in the 3rd Platform: The Keeners, The Establishment, and the In- Betweeners (IDC #254353, February 2015) Synopsis This IDC study is the fourth in a series of documents that examine the findings of IDC's most recent Software Channels Survey, which focused on partnering in the 3rd Platform. It provides an overview of current solution provider participation in offering cloud solutions, software incorporating 3rd Platform technologies, and the reasons why partners choose or choose not to become involved in cloud. "Cloud is moving into the mainstream for partners. It is not just the early adopters and "born in the cloud" solution providers that are embracing the cloud opportunity. That's why IDC believes it's time to solidify the cloud component of partner programs." Marilyn Carr, director, Software Channels and Ecosystems 2015 IDC #

12 About IDC International Data Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications and consumer technology markets. IDC helps IT professionals, business executives, and the investment community make factbased decisions on technology purchases and business strategy. More than 1,100 IDC analysts provide global, regional, and local expertise on technology and industry opportunities and trends in over 110 countries worldwide. For 50 years, IDC has provided strategic insights to help our clients achieve their key business objectives. IDC is a subsidiary of IDG, the world's leading technology media, research, and events company. Global Headquarters 5 Speen Street Framingham, MA USA idc-insights-community.com Copyright Notice This IDC research document was published as part of an IDC continuous intelligence service, providing written research, analyst interactions, telebriefings, and conferences. Visit to learn more about IDC subscription and consulting services. To view a list of IDC offices worldwide, visit Please contact the IDC Hotline at , ext (or ) or sales@idc.com for information on applying the price of this document toward the purchase of an IDC service or for information on additional copies or Web rights. Copyright 2015 IDC. Reproduction is forbidden unless authorized. All rights reserved.