In “SaaS Blows Storm Clouds over the Channel”, I suggested a number of strategies that traditional IT channel players may need to adopt to deal with the growing trend towards cloud-based solutions. The latest research fromMarketBridge highlights the pain of failing to adapt to these changes - as well as the gains that can be achieved from embracing appropriate business models.

Average Deal Values Are Halved

MarketBridge’s research - drawn from benchmarks spanning hundreds of channel players, and presented in a webinar earlier this week - shows that average deal values for cloud-based solutions are half that for classic “on premise” software sales - yet average sales cycle lengths have not changed significantly. So it’s taking the same time (and effort) to generate half the revenue.

Margins are Flat

MarketBridge found little variation in average gross partner margins between “on premise” and cloud-based solutions. So it doesn’t seem that a decline in average deal sizes is going to be compensated for by increased average partner margins - but that, as we’ll learn in a moment, margins varied significantly between different partner business models.

Experienced Cloud Partners Offset With Services

Conventional VARs and System Integrators - models that represent the bulk of channel business models today - have struggled to boost cloud margins, but managed service providers have successfully managed to wrap high-value services around the core cloud-based solutions with average margins that are twice as high as traditional channels.

The Future for the Channel?

MarketBridge anticipate a series of channel transformations. Some of the key new roles include “Applications Aggregators” that integrate multiple cloud-based solutions - often with the addition of specialised vertical market expertise. They also talk about traditional local VARs facing increasing competition from about national/international “Category Champions” that dominate specific vertical markets on an increasingly global scale.

This, of course, will be associated with specialised human resources being accessed and delivered through the cloud, opening up opportunities for outsourced/rightsourced BPO vendors who can call upon a global pool of talent whilst at the same time driving down the cost of expertise.

With all these changes going on, only one thing seems certain: that channel partners who fail to evolve and adapt will face increasingly challenging times. But there's a real question as to whether current players can reinvent themselves by embracing new business models.

How Are the Changes Affecting You?

If you’re a corporate consumer of IT services, how do you see these changes affecting your buying behaviour? Are they causing you to re-evaluate your existing suppliers?