Buying Cloud Applications: Go Direct or Go with a Cloud Service Broker?

by Denise Hazime on July 18, 2013

Crossroads

Times keep changing and changes mean confusion (and you aren’t the only one confused). Not long ago this wouldn’t be an interesting question, the answer would seem obvious. It would be taken for granted that if you were in the market for some business software, say Sage 100, you would either look up a Sage partner or go with an existing consultancy you already work with who has expertise with Sage.

You wouldn’t consider going directly to the vendor because you learned from previous software implementations that most software vendors don’t provide what you need to get up and running--data migration & implementation, project management, go live support, training, post implementation support, etc. Sage provides the product and partners provide the service. Clear cut and simple.

But nowadays a few industry developments have tweaked this arrangement and made navigating this process unclear for many buyers.

Where The Confusion Comes From

Background

Historically it’s been very difficult to be a great product company and offer comprehensive service. The two functions require very different skill sets, HR practices, pricing models, competitive strategy, among many other factors. This makes developing this sort of an operation unappealing (and untenable) for most companies.

This is where the channel model comes in. The channel model incorporates a very important economic principle (a la Adam Smith) which made it so popular and highly successful: specialization. Specialists attain greater skill and are more efficient than non-specialists. This division of labor allowed the product company to do what it does best, make great software, and allowed the service company to do what it does best, provide great service.

The Cloud

The first thing that’s changed is that businesses are now overwhelmingly choosing cloud based software instead of on-premise software (like the Sage 100 example). Since cloud software doesn’t require installation and updates, it’s easier for vendors to offer free trials or light versions of their software for free. Sometimes buyers will get started this way without involving a cloud services provider and this often leads to problems down the road because many aspects of successful software implementation were left undone.

Lack of Channel & Loosely Defined Roles

As you know, many new cloud players have come on the scene. When they start out, they start without partners that service and sell their product. It can be expensive to create a channel from scratch and most of the company’s resources must be spent on developing the product. It’s also a difficult and costly challenge to be effective consultants and solve all the various challenges that arise. This puts them in a bind because they still need to get customers up and running on their products in the early days. Vendors usually find themselves having to scrap together a service team and this can lead to confusing messaging down the road, even when they have grown a channel and are scaling back service efforts.

Unique Benefits of Cloud Service Broker

1) Local Service

Software resellers are located everywhere imaginable and it’s nearly impossible for companies (even Google size) to match the reach of a well developed channel. Frequently these resellers are also integrated into the business community and understand the local market and industries.

This allows for a different relationship and trust level. Often times business people will have long standing consulting relationships with these firms and know individuals by name. This makes transactions more personal and efficient, which is a big benefit for many businesses.

Onsite services like training and go-live support are also available due to this localization. Even in this heyday of the web based software and remote communication, in person service can be invaluable to the success of certain projects. Having a professional standing in the room can sometimes make all the difference.

2) “Hands-on” Support

Product vendors usually offer ticket based support and online FAQs. These resources are extremely helpful, but sometimes businesses need ‘full service.’ They are too busy to add that new users or delete their old contacts. Instead of having someone they don’t know give them directions on how to fix their issue themselves or point them to the correct FAQ, they would prefer to have someone they know and trust actually go into their account and fix the problem.

3) One Place for Billing & Service

The list of software businesses are using ---.Google Apps, Dropbox, CRM, VOIP, Support, Project Management --- each has a different billing system, different users, and different credit cards/paypal accounts on file. Managing all this can become a significant operational expense. To soothe this pain, many resellers are starting to develop “One Bill” offerings where they bundle your services and you only pay them.

Evolving as business always does, requires new solutions and the replacement of old ones. Having a relationship with good cloud services provider simplifies this process. They can help you select and implement the new solution you decide on.

4) Custom Integrations & Application Development

Now that you have all these cloud apps with a single bill, you still need them to work together to get most of the benefits. What use is your email marketing tool if you don’t have access to the latest contacts inputted into your CRM? How do you measure the ROI and that new marketing campaign if your invoicing data is separate from your sales activity data?

Very often to make these apps work together requires a computer program to write a small program that will allow data to be sent back and forth between the two applications. Vendors tend to shy away from this for a couple of reasons: 1) This programmer has to keep apprised of the various APIs and common databases---taking him away from working on the core product, and 2) The company has to support this custom software and keep it up to date and bug free---which requires specific contracts and often is seen as more hassle. This type of work is in the DNA of service providers. They keep on the look out for the most popular integrations and it’s part of their core competency.

Even though some product companies maintain professional service teams, the division of labor between product companies and service companies works quite well. Overall,cloud service brokers (resellers), largely fulfill business consumer needs unmet by most product companies and this is unlikely to change in the foreseeable future. Keep these dynamics in mind next time you’re in the market for a new cloud application.

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