Written by Beth Hildreth on January 5, 2015
Categories: Cloud, Partners

The cloud is the future of computing, and businesses of all sizes have been making smart, aggressive investments in its flexible, cost-effective infrastructure. Despite this, some channel partners are having a hard time generating profits from cloud offerings. The answer may reside in what has come to be called the “higher cloud.”

One of the challenges facing channel vendors is that practically everyone is offering access to the same suite of common cloud computing, data storage, and data backup services. To present clients with an enhanced value proposition, vendors need to move beyond this level towards a “higher” set of service offerings.

What Is the “Higher Cloud”?

Simply put, the “higher cloud” is a blanket term which refers to a complex and highly customized suite of solutions that is tailored to the specific needs of individual clients. In other words, the more complicated a cloud solution is, the less able the client will be to implement it without outside help. That’s where the channel vendor can step in to resolve the client’s dilemma.

In essence, channel vendors need to move beyond basic service offerings and start focusing on consultation, integration, and system implementation. This will increase profit potential through higher margins and accelerated business growth.

Not many channel vendors are offering this kind of service right now, but those who do offer it are doing very well.

Revenue Trends

While channel vendors cashed in big when cloud computing first became commercially viable, the numbers coming in over the past few years indicate that the party may be coming to an end. In 2013, channel vendors experienced a 33 percent decline in the profitability of common cloud products and services. By the end of 2014, it is estimated that most channel vendors will be generating less than one-quarter of their revenue from the sale of these products and services.

However, recurrent passive revenues that channel partners receive from these sales is still an attractive and potentially profitable source of income. Channel partners don’t need to abandon these models; they simply have to diversify.

By serving as a consultant, managing the integration of cloud technologies, and ensuring that they meet the ongoing needs of clients, vendors can make themselves indispensable. This, in turn, makes their clients more likely to continually invest in them as strategic partners.

Moving to the Higher Cloud

Right now is an exciting time to be a channel vendor, because there is no pre-defined path to migrating to the “higher cloud.” However, every channel partner who has successfully made the transition has done so by selling clients on very specific suites of services. Vendors need to define these services for themselves based on their own skill sets and expertise.

The key is to create a solution that clients can’t get anywhere else. In other words, channel vendors need to become active partners in their clients’ businesses rather than independent agents who come and go when contracts come up for renewal.

Embracing this trend before it becomes standard practice helps channel partners get the jump on their competition, allowing them to establish their own unique value propositions ahead of the herd.