The continued growth of cloud adoption and wider digital transformation strategies have created an increasingly complicated cloud environment that few (if any) customer IT departments are able to manage competently on their own with no support. The role of the channel, as a result, has necessarily evolved beyond traditional resell models and into an era of ecosystems that rely heavily on collaboration and co-innovation to succeed. Partners that have embraced this way of operating have reaped the rewards of their approach, with significant revenue multipliers available to them over several years. This approach will also allow them to be prepared for the economic headwinds that will blow for the rest of 2023, thanks to a diversified service offering that can adjust to necessary spending changes.
Canalys defines these various and diversified revenue opportunities as the Partner Ecosystem Multiplier. The key products and services of the PEM economy can be further segmented by the Canalys Partner Ecosystem Flywheel.
- Advise: This is the start of the journey for cloud customers and presents an opportunity for partners to control the cloud journey from beginning to end by advising a customer on their technology and digital strategy. Partners that leverage this segment of the flywheel are significantly more likely to unlock the entirety of the flywheel and leverage the highest PEM revenue that is available at any particular client.
- Design: These services are the fundamental core of any cloud PEM for partners. They include services such as migration, testing, infrastructure setup, architecture and design. These are the critical services required to create or expand any customer cloud capabilities. As the cost of cloud becomes a more important factor in any cloud build, this is the area where leading partners will develop and embrace their FinOps capabilities to control these costs from the outset.
- Procure: In an environment where margins have been under consistent pressure, the shift to the public cloud has created further pressure on partners, especially for distributors and resellers. As opposed to the healthy margins partners used to receive from infrastructure hardware and software, partners operate in a new environment where they receive resell margins of only 2% to 10% from the cloud hyperscalers. Partners looking to expand revenue in the Procure segment must look beyond traditional resell activities and look at how they can adjust to ensure they are the trusted partner that customers choose when navigating the increasingly complex cloud procurement processes.
- Build: The services within the Build segment are the broadest and most diverse within the flywheel and represent all the additional software solutions that are either custom-developed or sourced from elsewhere across the technology ecosystem. In addition, they present a significant opportunity for recurring revenue. Through these solutions, partners can take cloud environments from basic computing and storage foundations to business-focused solutions.
- Adopt: These services are those provided by partners that will allow them to unlock the full potential and efficiency of their customers’ cloud investments. By engaging in these activities, partners not only optimize their customer cloud activities but also expand both their multiplier revenue opportunities as well as their overall cloud revenue opportunities. The activities included in this segment include analytics, training, change management and integration services.
- Manage: For many partners, the Manage segment of services is the end goal of a cloud transformation journey. The most recent Canalys Partner Pulse survey revealed that 65% of partners are prioritizing investment in their managed services capabilities. Customers look to leverage the technical capabilities of their partners to manage the ever more complicated cloud environments being developed. For partners, managed services are typically the clearest opportunity for longer-term recurring revenue.
Multiple paths to success for partners
For partners in cloud ecosystems, the Canalys Partner Ecosystem Flywheel highlights the multiple paths available to them to generate increased revenue. Some partners, especially those focused on a reselling model, will be dedicated to only one or two flywheel segments. By deepening their expertise in these segments, these partners will be able to strengthen their own revenue growth and protect against lagging cloud adoption growth globally. Other, larger partners will have growing cloud practices that will enable them to realize revenue across all six flywheel segments. These partners will be the ones best positioned to earn the highest level of multiplier from their cloud customers. This expansion across six segments will not simply offer the highest overall multiplier opportunity but also provide multiple opportunities for recurring revenue beyond the revenue that stems from reselling activities.
We will be discussing the various approaches to realizing value beyond resell within the channel at the Canalys Forums 2023. These events will feature leading channel-focused vendors, their partners and the industry-leading Canalys team. Be sure to register to ensure you can be among them.