Has Cloud Computing Rained On You Yet?

Many articles abound on how Cloud Computing is the new wave of technology. In the interest of minimizing costs, companies are racing toward everything off-site, be it data center co-locating of servers or outright subscription to hosted enterprise applications like ERP and CRM.

Charles Babcock, in an online article for InformationWeek, writes that a whopping 82% of recently surveyed IT managers indicated they are “in some stage of trial, implementation, or use of public clouds.” Granted, the companies included in the survey were on the large size, with 2,500 employees or more. And, yes, the average size of a Sage business partner is much smaller, probably in the neighborhood of 50 – 500 employees. Still, this seeming head-long rush into cloud computing does have serious implications that business software VAR’s can’t afford to ignore.

Consider first that many new entry-level ERP buyers currently use QuickBooks. The vast majority of QuickBooks users still have the application installed on a desk-top or server. That said, more are using QuickBooks online and, as such, are very comfortable with a hosted solution. Because many of these online users are business owners and accounting clerks, they don’t have the same fear of data privacy that many professional accountants have historically had. That means more and more new ERP buyers will not think twice about choosing a hosted ERP or CRM solution over an on-premise one.

Another item of concern is that many companies in the market for new software may have different expectations from a hosted solution provider compared to a VAR. Whereas a typical VAR’s traditional advantage has been geographic proximity and local consulting talent, a hosted solution provider is given a free pass on proximity. Since a hosted company is, by definition, remote, then proximity is moot. Cloud solution providers can also staff call centers with low-level consultants they pay at a fraction of the cost most VAR’s pay their consultants, giving them a significant cost and pricing advantage. What’s more, hosted solution providers have a highly centralized sales team that can marshal marketing resources to make their offering more glitzy and impressive to inexperienced shoppers of ERP and CRM. An average VAR normally has a part-time sales resource at best, with the president of the company performing many of the solution presentations him or herself. The bottom-line is that competing against cloud computing is a tough undertaking for even the most seasoned VAR’s.

Cloud computing presents some pretty daunting challenges for the VAR channel in general. Some wonder if there will even be a channel in 10 years time. As traditional on-premise ERP and CRM software companies inevitably follow others into the cloud, what will happen to VAR’s? Will they sell hosted ERP and CRM solution in hopes of winning the consulting projects? And will the projects end up being much smaller, less profitable as customers no longer need as much technical hand-holding or customization (many cloud offerings are generally less customizable than on-premise ones). Even worse, will VAR’s eventually just burn off like some morning mist as resource-rich cloud companies staff up call centers with their own consultants?

The jury is still out, of course, on what the ultimate effects of cloud computing will be on the VAR community at large. It’s pretty fair to say that it’s here to stay, though. The search for greater efficiency and cost savings on the part of all businesses is like water seeking the path of least resistance. Cloud computing provides way too easy a way out of such business predicaments as capital investment, staffing and user convenience. Much the way outsourcing customer service and other services to India has become a tsunami aimed right at the lower and middle section of the career ladder in many US companies, so will cloud computing force permanent changes in the way the VAR channel currently operates. Good, bad or indifferent, cloud computing as a phenomenon is bound to bring more than a few storms over the next decade as technology effects yet another change to our economic landscape.