It’s not a question of if the channel will incorporate a cloud offering into their portfolios, but when, and the clock is ticking. Failure to embrace the cloud will lead to failure for most channel companies because the cloud – private, public, and hybrid – is the future of IT.
Unlike the overall IT market, which will decline 5.5% this year to $3.5 trillion [http://www.gartner.com/newsroom/id/3084817], cloud sales are strong, and are expected to continue that way for the foreseeable future. According to IDC, the cloud IT infrastructure market grew 25.1% in the first quarter, to more than $6 billion [http://www.idc.com/getdoc.jsp?containerId=prUS25732215]. It also captured a larger share of overall IT infrastructure spending, climbing to nearly 30%, up from 26.4% year-over-year.
“Cloud IT infrastructure growth continues to outpace the growth of the overall IT infrastructure market, driven by the transition of workloads onto cloud-based platforms,” said Kuba Stolarski, Research Manager, Server, Virtualization and Workload Research at IDC. “Both private and public cloud infrastructures have been growing at a similar pace, suggesting that customers are open to a broad array of hybrid deployment scenarios as they modernize their IT for the 3rd Platform, begin to deploy next-gen software solutions, and embrace modern management processes that enable agile, flexible, and extensible cloud platforms.”
Despite the drop in overall IT sales, Gartner also sees strong growth in the cloud market. “IT activity is stronger than the growth in spending indicates. Price declines in major markets like communications and IT services, and switching to ‘as a service’ delivery, mask the increase in activity,” said John-David Lovelock, research VP at Gartner. Another recent Gartner report predicted that the market for cloud infrastructure as a service (IaaS) will reach almost $16.5 billion in 2015, an increase of 32.8% from 2014, with a compound annual growth rate (CAGR) from 2014 to 2019 forecast at 29.1% [http://www.gartner.com/newsroom/id/3055225].
Cloud-based security as a service is also outgrowing the overall IT market, with 2014 sales up 13.5% to $7.2 billion, globally [http://www.infonetics.com/pr/2015/Cloud-and-CPE-Managed-Security-Services-Market-Highlights.asp]. Last year’s managed security service revenue – cloud and premises-based – totaled $15.8 billion, up 10% YoY. By 2018, Infonetics/IHS expects cloud security services to surpass CPE-based security services.
Cloud growth is also outpacing channel sales growth. Substantially. IDC forecast that the channel market in North America will increase at a CAGR of 2.7% between 2013 and 2018, with the indirect share of spend being worth $38.1 billion, or 61.6% of total spend, by 2018 [http://searchitchannel.techtarget.com/feature/IDC-Channel-market-to-grow-for-server-storage-networking-hardware].
So adding cloud is a no-brainer for the channel. However, that’s not the case, said mega-distributor Ingram Micro at a recent event [http://www.techdata.com/events/channellink/files/preso2015/Channel%20Link%20Track%20-%20Cloud_StreamOne.pdf]. Its customers – resellers, system integrators, service providers, and consultants – are telling them that they are:
- not onboarding with converting classic on premises deals to cloud;
- only a volume play – have to sell a lot to make money; and,
- busy running current business, can’t slow down to adopt cloud.
Re-engineering your business for the cloud is not easy, but it’s also not an option. For decades, the channel mantra was where there’s mystery, there are margins. But hardware margins eventually evaporated, followed by software and even services margins. After 30 years, the mystery is largely gone. Increasingly, the channel is about sustainable, recurring revenues, and the cloud and its various “as-a-Service” components offer the greatest promise for capturing that revenue.