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How to Make Money Selling Cloud

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It’s a tech truism that the cloud changes everything. Channel partners can corroborate that statement. Value-added resellers (VARs) and System Integrators (SIs) have traditionally been the face to the customer, providing the communications solutions and services needed for installation, integration, testing, roll-out, adoption, and support.
 
In the days of on-premises equipment, telecom VARs had a defined role as the intermediary between customers and vendors. VARs configured and sold phone system hardware and related services and offered added support, ancillary products and services, feature upgrades, consulting services, and more.
 
VARs were generally responsible for the installation of phone systems, ongoing maintenance, service, and support, as well as moves, adds, and changes, in addition to setting the pricing and margins and doing the billing. As the primary face to the customer, the VAR owned the relationship with the customer. This, in addition to significant margins on the hardware, provided very healthy revenue streams for channel partners.
 
But something happened to change all that – cloud services.
 
New Realities and Challenges for Channel Partners
Today’s cloud communications model, based on a recurring revenue model, creates challenges for channel partners as the capital expenditure (capex) model moves to an operating expense (OpEx) model.
 
The cloud disintermediates the VAR’s relationship with the customer since customers can deal directly with the cloud provider for the unified communications as a service (UCaaS) offerings. With more and more “out of the box” solutions, there’s less need for the services VARs provide – because vendors are now offering both UCaaS solutions and support services, making it easy for businesses to simply go online and buy these products instead of going through a VAR.
 
As vendor strategies change based on cloud services, the type of channel partner required also changes. The agent model has become more predominant in the age of the cloud as traditional VARs become agents. Agents are essentially middlemen who earn a commission based on a referral. The agent makes the sale, but leaves the heavy lifting to the vendor, who is responsible for account management and owns the customer relationship. The vendor, rather than the partner, does the initial installation and provides ongoing support, upgrades, and so on. The agent receives a commission for the sale but doesn’t get any revenue from selling enhanced or value-added services. This model puts the partner at a disadvantage, as revenue opportunities are greatly reduced. Also, the channel partner no longer owns the customer relationship, which can diminish the overall value of the partner’s business .
 
With virtually no hardware to sell except perhaps a few desk phones, it’s become harder and harder for channel partners to generate significant revenue and build business value. Communication vendors increasingly compete with channel partners with their own e-commerce marketplaces while taking responsibility for installation and deployment, ongoing service, support, and maintenance.
 
The traditional model no longer works for channel partners. With shrinking revenue opportunities, channel partners need to find new options.
 
New Model, New Opportunities
Fortunately, another model provides even more opportunity for channel partners – wholesale offerings that the channel partner can brand. The partner has full control over the price, account relationship, and the services offered.
 
With the wholesale model, VARs, system integrators, and others can white-label the service and brand it as their own, leveraging their brand recognition and customer relationship. The partner purchases the wholesale services from the vendor sets the price, bundles in other ancillary products and services, does the billing, provides Level 1 support, and is the primary interface to the customer. The partner controls the pricing and margins, receives ongoing recurring revenue, and most importantly – owns the customer relationship, which drives more value into their business. This approach is especially appealing to managed service providers (MSPs) who can sell a complete communications bundle including hardware, networking, security, and more. Having a direct relationship with the client and owning the customer relationship sets the wholesale or white label model apart from the agent model.
 
While this approach can be very attractive to channel partners, not all UCaaS vendors offer this option. The leading UCaaS vendors offering a wholesale model include Intermedia, BCM One (which acquired two wholesale providers - Skyswitch and Coredial), and Gamma.
 
How the Wholesale Model Works
To get more information about how the wholesale model works, I spoke with Mark Sher, senior vice president of product marketing for Intermedia.
Intermedia’s Customer Ownership Reseller (CORE) model offering is aimed at partners who want to own the customer relationship. According to Sher, partners can white-label the Intermedia Unite business communications cloud and brand Unite as their own or co-brand with Intermedia—while Intermedia provides technical support, as well as sales, training, marketing, and onboarding support, tools to quote, order, and easily provision services, and even handle telecom taxes for its partners.
 
Intermedia notes that in addition to maintaining ownership of their customer relationships, partners can earn five times more revenue than traditional agent models.
 
In other words, Intermedia does the heavy lifting, making it easier for partners to do what they do best – focus on the customer relationship.
 
The Transition Process
Channel partners need to find new options and routes to market to succeed in today’s cloud-influenced communications world. Transitioning to selling cloud services can be challenging for most traditional VARs, with competition from the vendors and lower revenue streams. Alternatives to the traditional VAR or agent model – notably a wholesale model – can provide channel partners with increased revenue, better margins, and higher business value through ongoing customer relationships and a path to success.

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This post is written on behalf of BCStrategies, an industry resource for enterprises, vendors, system integrators, and anyone interested in the growing business communications arena. A supplier of objective information on business communications, BCStrategies is supported by an alliance of leading communication industry advisors, analysts, and consultants who have worked in the various segments of the dynamic business communications market.

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