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What Will Cloud Computing Mean for IT VARs?

June 06, 2012

If you think about it, there is one key difference between telecom agents and information technology value added resellers: telecom has always been a service whose intelligence is supplied remotely, with endpoints being “dumb terminals.”


Historically, VARs have sold products that are intelligent endpoints, including telecom VARs who have sold business phone systems or IT VARs that have sold networking infrastructure and software.

With the coming shift of computing architecture to cloud-based mechanisms, each channel will face some key challenges. And one key issue is which channel might face bigger disruption. Some might give the edge to VARs who generally have more technology skills and interests. But the answer might not be as clear as one thinks.

In an era where cloud-supplied software is the norm, what is the role of the end user device? Since smartphones essentially are computers, dumb terminals are not so much the issue. On the other hand, what is the logical and “best” way to supply new software and applications to a smartphone? Sideloading? A CD or DVD? Tethering to a PC?

You already know the answer, over the air downloading directly to each device. So even for an enterprise application, where the older model was to load the app onto a company’s local servers, then allow user devices to get access to the local server, the new model is a direct download from the cloud to each user device.

You can see the issue: much of the work IT VARs used to engage in, and generate revenue from, was handling all the messy deals of hardware and software that supported local premises networks and servers. In the future, it might well develop that the premises network atrophies, and enterprise apps, provided as cloud apps, get used directly by individual end users and their devices, with no need to interface with local premises networks.

That could destroy much of the value and revenue IT VARs presently earn. That isn’t to say telecom VARs who are accustomed to selling telecom services, necessarily gain any advantage. But the traditional technology sophistication of the VAR community will likely be diminished as mission-critical enterprise and business IT moves to the cloud, and is supplied directly to end user devices of all types.

That is not to say each channel will not work, generally informally, to feed leads to the other channel when financial gain is possible for each party. “There is lots more collaboration between telecom agents and IT channel partners,” says Carolyn April, CompTIA (News - Alert) director of technology analysis.

The overwhelming majority of agents and VARs responding to a recent 2012 survey said they have at least one partnership, with VARs reported more exclusive relationships with agents than vice versa.

“Nearly all of the agent respondents said that they currently have at least one partnership with an IT VAR or PBX (News - Alert) dealer,” CompTIA says.

More than two- thirds of VARs report having at least one partnership with either a master agent or sub-agent in the last year.

Nearly three- in- four (73 percent) agents said they had worked with both IT VARs and PBX dealers. This compares with two- in- three (68 percent) of respondents to the 2011 survey. Fourteen percent of respondents said they worked with IT VARs only, compared with 17 percent, in 2011.

But note the typical deployment case: “the most common type of partnership involved VARs or (phone system) dealers selling carrier services through an agent”.

VARs reported earning referral fees as the number-one type of partnership arrangement with agents.

The next most popular partnership arrangement, reported by 18 percent of agents, was informally swapping leads; last year only 12 percent characterized their relationships in this way. The same percentage of VARs (18 percent) said they most often informally swap leads for respective services with no reciprocal pay or agreement.

The issue is that, over time, cloud computing will destroy much of the business IT VARs now have. The need for communications services likely will increase. Overall, you might make the argument that VARs will have the tougher challenges.

Telecom agents long have become accustomed to thinner profit margins. But the need for what they sell, at least on the capacity and access front, will grow. Cloud computing is going to replace much of the business IT VARs now have. It is not just a change from selling hardware to selling services. The actual need for IT VAR services is going to shrink, over time.

It is far from clear whether VARs will successfully find a new way to add value in a cloud computing context.


Edited by Brooke Neuman

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