The changing landscape of the IT resale market in Australia

The following is the first in the series of blogs on the changing landscape of the IT resale market in Australia. The series take a deep look at how customer behaviours and changes and considers how the industry will need to evolve to continue to meet the requirements of an increasingly demanding marketplace.

Here’s something we all know: The way that corporations and governments buy IT infrastructure has changed.

Image of Changing Landscape of the IT Resale Market  | NTT ICT The likes of Amazon and Salesforce have fundamentally and forever changed the way we think about meeting our IT needs. We live in an Everything-as-a-Service world. The world of spec-ing, quoting, delivering and installing hardware and software to our customers has ended.

Faced with this reality, every player in the traditional IT infrastructure supply chain is scrambling to react. From the largest incumbent manufacturer or software provider to the smallest reseller, everyone has a cloud offering. The CEO’s of the large Silicon Valley IT firms all stand up and explain how they will deliver the very best cloud offering in the market to meet their customers’ needs. The local companies that have for so long succeeded by supporting the traditional manufacturers in the Australian market rush to find a white-label cloud provider to resell or a Data Centre where they can deploy their own cloud to service their customers.

The market is reacting — incredibly quickly — to the fundamental change with which it is faced.

Now, here’s something that you may not know: Most of these efforts — the one’s that we’ve seen and the one’s still in development — will fail to deliver what customers really want

This is surprising. Companies are pouring hundreds of millions of dollars to adapt their businesses to the new reality of the cloud. Yet, most will fail. The reasons for this are simple. There are three.

1. Manufacturer Cloud Offerings only include the manufacturer’s products, services and software

In pretty much all the cases that a large IT equipment vendor has built a cloud offering, the offering is limited to the hardware and software that they design and sell. Here’s the problem. Even the most integrated vendor that offers the largest breadth of product still likely represents less than 25% of any company’s or government department’s total IT spend.

Companies don’t want a cloud that requires them to use one type of technology. Put another way, a cloud that doesn’t actually support the technology and applications that the customer wants to use is a non-starter from the beginning. So most of these clouds from our traditional IT suppliers have a problem are doomed before they begin.

Obviously, specific applications from specific companies or agencies can, will and should migrate to these kinds of offering. If you have a specific platform that happens to use technology from one specific IT provider, then their cloud can meet your needs. If this is the case and only for that platform.

2. The Push for Cloud Services is happening independent of and not with the traditional IT supply chain partners

For all the talk about the future of the cloud offering, the traditional relationship between an IT provider and its channel remains unchanged. Every year, thousands of resellers receive their annual targets from the IT manufacturers and then they go to work to sell hardware and software so that they can earn their GP, hit these targets and collect their rebates.

Most of the IT manufacturer’s revenue comes from this resale channel and engagement with this channel is exactly as it has been for the last 30 years. There is absolutely no shift to the cloud in the way that the IT manufacturers go to market for the lionshare of their revenue.

3. It’s not easy to be a service provider

IT Equipment Manufacturers are good at designing and manufacturing quality products. Software companies are good at developing quality software. IT resellers are good at engaging vendors and customers to provide market coverage and additional customer support. The move to the cloud requires companies to become service providers.

They need to build and manage relevant 24x7 operations. They need processes and tools that allow them to effectively manage customer changes and incidents in a cost effective/ high quality manner. They need to engage their customers in a completely different way given that they are now responsible for delivering against an increasingly demanding SLA.

Doing this is hard. Traditional service providers have spent years or even decades and invested tens of millions building their operational, incentive, and decision making processes so that they could engage with their customers in an effective manner. Transforming an industry from designers and developers to service providers can’t happen at a flip of a switch.

The industry doesn’t seem to have realised this.

So, if most existing efforts to move the incumbent IT industry into the cloud will fail, what will work?

If our traditional IT players are to migrate their offerings into the cloud and meet the already changed customer requirements, they will need to fundamentally change the way that they engage with their channel. A new engagement model — one that recognises both the need for cloud offerings based on technologies from multiple vendors and that leverages the experience and knowledge of established service providers — must emerge.

Those companies that manage to make this fundamental change in how they go to market with their existing or potentially new channels will have access and advantage in the new world of IT. Those that don't will be making room for new entrants to change the entire face of the industry.

In the next segment of this series, I will share what I believe to be the blueprint for the engagement model of the future.

 

Added 3 June 2014

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