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In this Industry Buzz podcast moderated by Steve Leaden, the UCStrategies Experts discuss the Cloud from a VAR and channel perspective. The podcast also includes Phil Edholm, Art Rosenberg, Russell Bennett, Don Van Doren, Kevin Kieller, and Jon Arnold.
Steve Leaden: Good afternoon everyone and welcome to another UCStrategies Expert podcast. My name is Steve Leaden and I am the host for today’s podcast and part of the UCStrategies.com team. The topic for today’s podcast is the “UC and IP Telephony Cloud and Channel Opportunities.” So for those listening to this podcast, the Cloud has become a very common, new acronym used. It’s a huge buzzword being used throughout the industry as of recent. Everyone is offering some type of level of Cloud activity. So we are going to be defining today, some of that cloud connectivity, what it means in the UC and IP telephony space and we are also going to be talking about some of the opportunities that are arising as a result of that for the channel, and how it’s going to affect the enterprise community as well.
So, to quote Gardner Group, they are predicting that Voice as a Service as a market will grow annually at annual rate of 36%, an annual rate at CAGR, to $2.2 billion by the year 2015 from the current $700 million market; it’s just three short years out.
And up until recently, the focus on the Cloud has really been the SME market. And really in our consulting practice, we are seeing a real uptick and a definite interest in the Voice over IP UC Cloud offering in the larger enterprise space.
Interesting, I was fortunate to be part of a Canadian event recently, which really talked very specifically about the Cloud. There were really two takeaways that came out of the conference. One was that the Cloud, the UC IP telephony cloud, is a real disruption to the industry, even more so than Voice over IP has been changing the enterprise and the channel revenue models literally overnight. And to quote one of the channel partners in Canada, he clearly stated in one of the sessions, “with the advent of the IP telephony and UC Cloud, I can see two thirds of my staff becoming irrelevant in the next four years. This is a topic that keeps me up at night.” So as you can see, there’s a lot of disruption going on; there are a lot of changes going on in the industry and depending upon who you are speaking to, and what particular market or what particular meeting or reading what particular article, the Cloud can be defined a couple of ways. So Phil, why don’t you talk about that, Phil Edholm – and Phil, why don’t you share with us a couple of your thoughts about what you’ve been seeing and what are some of the basic definitions in the Cloud?
Phil Edholm (2:26): Thanks, Steve. I think it’s really important here, that Cloud especially when you step away from the UC discussions, has come to mean a lot of things in our industry. Obviously, enterprises are using the term “Cloud” to refer to how their data centers are working, where data centers now disaggregate specific software from specific servers through virtualization, and now are extending those data center clouds outside to deploy either in a private deployment space off their premises, or in public spaces like an Amazon.com, where you can actually use infrastructure and rent it on demand. So that type of Cloud deployment, I think we are going to come back and talk to a bit as the opportunity it affords to the channel and to VARs to do their own deployment.
But really, that’s not what we are focused on today. What we are really focused on is a new offering of Communication Services as a Cloud subscription offer. Where it becomes an OPEX model, a subscription service, all of the model that you would see for salesforce.com where you would actually buy it on a per seat basis, pay on a monthly basis, potentially with some sort of longer-term commitment for volume discounts. And you would actually buy in the Cloud service from the Cloud.
I think one of the big differences that we need to recognize between the enterprise and the SME is how Cloud is rolling out. In the SME space, we’ve seen Cloud roll out as a primary purchase for an SME. So an SME that has eight or 10 users that need phones, will go to a Cloud offer for the entire business; it will be their entire communication system. The difference you are seeing in the enterprise is that enterprises are very interested in the Cloud but they are actually venturing into the Cloud, not as a complete solution in most cases, but rather as a partial solution. So, what they are saying is, “I need to add on 200 users; I’m building a new facility, and I’m going to use the Cloud as a way to provide that service offer, and I want to make sure that it integrates back into the solutions that support the rest of my organization.”
So I think, Steve, one of the things that as we look at this from a channel and a VAR perspective, understanding that this is not about customers going completely into the Cloud in the short-term – that will happen obviously longer term. But how does Cloud augment their existing solutions and what are the options to do that? And then how do you have continuity for them in terms of their applications and solutions?
So as we talk today, the options for providing that, I think it’s very important to understand how those transitions will occur. So I’ll throw it back to you for the next part of the discussion.
Steve Leaden (5:25): Thanks, Phil. A couple of talking points to your points. Number one is, you are absolutely right, the maturity of this particular model has been in the SME space, and up until now, with some very large deployments to two of our clients in particular, wanted either some kind of Cloud model, one was 9,000 end points and the other being 8,000 end points. And in the end, just because we were focusing on one specific vendor, what they offered to provide a fully robust solution, they had to provide a premises based model but the entire model was an OPEX model. From the circuits, to the desktop to the wide area access amongst the user sites, including all long distance, 800 services, etc., it became a quasi flat rate model. That turned out to be a premise based model.
In the other case, it actually turned out the client had an absolute requirement that it had to be in the Cloud and that one turned out to be more of a private Cloud model where depending on... we’re down to a short list at this particular point, and it can’t be a traditional Cloud provider such as a Verizon, AT&T, Level Three, etc., or it can be a premise-based kind of company, some of the major manufacturers such as your Ciscos, Avayas, your Siemens, your ShoreTels, your Interactive Intelligence amongst others, Mitels, etc., and all of those players can provide a model that it’s in a hardened data center, that’s off site, that can be rented and provided back to the client with all of the robustness that you would typically see in a premise-based model. And I think that has a lot to do with really – what is the offering going to be? And what is the opportunity for the channel partner here because again, because of the disruption, what’s going on here? So Art Rosenberg, you had a couple of thoughts here, especially with IBM’s announcement, correct?
Art Rosenberg (7:16): Yes, there’s going to be a lot of mixes and matches as previously described. And I think, one of the terms that should be used is, “is it managed?” You know, that’s part of the problem to get all this technology wherever it is and somebody will take the responsibility for managing it and then charge the using organization an appropriate monthly subscription fee, depending on what has to be done.
But more importantly, aside from where the Cloud’s capability is going to be located, it’s got to be tied into what applications need or should be put into the Cloud for future flexibility of use, and also, more importantly, from our perspective is, how do you integrate unified communications the old CEBP thing into that? So basically what’s going to happen there is we’re going to start seeing online applications moving to the Cloud with the ability to click-to-call, click-to-chat, and bring in the communications part as part of the application. So these are different views. If I gave you all the technology for free, the question is, what are you going to do with it? And that’s what the organizations have to look at first. What would they do if they had it? And start putting priorities in – how they would want to migrate and implement it, obviously an SMB is going to say “I want everything.” Whereas, obviously the larger organizations that have big investments that still work will start saying, “I want to put this piece in and that piece in.” And I think the contact center is going to be one of the key areas, because that’s going to be affected by mobility of the customers who are now saying, “I want to be able to communicate in any way I want, and vice versa. You communicate with me flexibly as well.”
Steve Leaden (9:01): Thanks Art, so that leads right into Russell Bennett’s thoughts regarding some of the positions and opportunities that Interactive Intelligence is seeing, as one manufacturer, and how they are pushing their Cloud model, their CaaS solution, out to the Cloud and to their channel communities. So Russell, do you have some thoughts on that?
Russell Bennett (9:24): Yes, just a quick one Steve, thanks. Yes, I did post an article a couple of weeks ago as an interview with Paul Weber of Interactive Intelligence who was trying to recruit more partners into the Interactive Intelligence program. And he pointed out that Interactive Intelligence has a feature of their program, which readily accommodates the reseller, selling the Interactive Intelligence Cloud solution and to be compensated on a recurring revenue basis for doing so. But I think the gross fear that the Cloud will be sold in a direct model and that the reseller will be cut out of the deal doesn’t really exist. I think that the vendors of the Cloud services do recognize the importance of the channel, and their relationship with the customer. And they are willing to recognize that in a new business model.
To the point Steve that you made earlier about staff becoming irrelevant at the channel vendors, it’s possible that staff who are dedicated to installing and configuring equipment will see less work as a result of the Cloud, but I think to the point that Art made earlier, the opportunity to manage the Cloud solution for the customer would potentially still exist. Thanks, Steve.
Steve Leaden (10:39): Thank you, Russell, and so to your talking point, it’s almost like we have to chart out in a comparison kind of matrix mentally as to what particular skill sets might be lost to the Cloud. And when you really think about it, you still have to deploy an end point on the premise. If you are a cabling VAR you still have to deploy cabling. If you have to upgrade closets you still have to upgrade closets, you still have to upgrade switches, routers; those are all components at the end point level on the property, on the premise, that still have to be addressed. And then it comes down to, OK, so what are the unified communications expertise? What are the professional services being offered by the channel partner today? Which again, we’re kind of still in that early adapter stage of market share with UC and I think that’s a perfect venue right there for the channel partners to get more involved with some of their professional services to introduce more expertise and therefore more revenue back to them. So, Don Van Doren, you had some thoughts around some of the challenges I think that the channel partners have, correct?
Don Van Doren (11:42): Yes. I think Russell made a real interesting point about this business about recurring revenue and shifting the model. And I think in general there are two big challenges that we see the channels facing. One is, what’s the relationship with their vendors and how will that work? Russell pointed out that Interactive Intelligence has a particular program so that they are not cutting out their vendors, but that’s a big concern. That’s one of the big concerns I think the channels have is, how do they shift this in general?
The second big thing, frankly, is just the overall shift in their own business model. You know, selling boxes with full revenues on delivery has been the way that industry has worked for decades, and now we’re really moving to potentially a string of much smaller revenues over time. The challenge obviously is not all their costs shift to later portions of time. And so how do you balance these things and make it work in a real life world when we are changing the whole underpinnings of the way the industry is structured? Frankly, that’s one of the reasons this, our UCStrategies UC Summit that’s coming up in La Jolla in a couple of weeks, will be addressing a lot of these kinds of issues so it will be good if people go to that and listen to some of these issues. (If you are a reseller and interested in attending the UC Summit, apply here.)
But, just in general I might say that this is in some sense a challenge we’ve had for three decades. How do we get the channels and especially – let me say the telecom-oriented ones, to understand and sell applications-based solutions and how to sell new kinds of delivery mechanisms? You know, we’ve been wrestling this for a long, long time. Some of us on this call wrestled with this in the early days of the voicemail industry, for example. It was easier for people to just sell boxes and that’s what people continued to do. And I think the challenge is now, it’s going to become critical for the channels to, and the channel management to figure out how do we change those models and get new kinds of mechanisms into place? Most interesting of course, is that obviously there’s going to be new skills needed, and new kinds of opportunities. The only thing I might add is that especially for some of the telecom-oriented channel partners, the problem may be solved for them. Voice itself is really becoming an applications offer that goes into other application software, manufacturing systems or insurance processing or customer interaction solutions. And so, as that happens, frankly that whole voice component of it at least, may just simply disappear out of the market. Problem solved. Back to you, Steve.
Steve Leaden (14:34): Thanks Don, to your point right there, voice is always the baseline I think for which everybody measures the communications elements of their enterprise but now we’re obviously through unified messaging, we’ve integrated faxing and email. With the new tools that are out there including social media, such as Facebook, Twitter and other mechanisms, those are introducing all kinds of dynamics in the call center as well as the admin for end user community itself.
So it’s very, very interesting how all of these new dynamics are coming into play. So I think at first you say, is there really an opportunity for the channel? And I think if the channel just re-focuses or takes a slightly different look from a different side of the room, and looks where the Cloud is going, and looks at all of these new entrees of all of these new tools and capabilities out there, voice being just one small component now of the feature richness that’s going to be out there, I think there’s huge opportunity. We’re all seeing for example, many of us were at Enterprise Connect and we saw the iPad now being a desktop tool that’s being available as a potential desktop replacement for many of the manufacturers. And that’s one major change right there. Another change obviously, another major force coming in is video conferencing to the desktop as well as in the room. And that’s becoming now a mainstay and center stage. So all of these things, you know these VARs who have not been part of those tools such as the Apple community and the tablet community as well as the video community, those I think are all new opportunities.
So again, I think you just have to shift the focus to your exact points there, Don. So Kevin Kieller, I think you might have a couple of thoughts there as well.
Kevin Kieller (16:14): Yes, thanks Steve. You know, I feel strongly and I wrote a recent article on UCStrategies just about whether as a reseller you are selling items or outcomes? And I think that a trap that resellers can fall into is, is really selling the Cloud as an item. And I think that the success comes when the reseller understands what the customer is looking for in the Cloud. A number of my colleagues have brought up the whole OPEX model and certainly some people are buying the Cloud because they want an OPEX model. Although I’m working with a couple of CIOs now and quite frankly, there are lots of mechanisms, whether that’s leasing or other amortization, that treats a capital expenditure for all intents and purposes like an OPEX model. So the Cloud and an OPEX model, the Cloud is more than that. And then we’ve talked about managed service model but certainly the Cloud is more than that to some people and some people are just looking for the simplification that a managed service model provides.
I think that to a lot of customers, the Cloud is a simplified sales process. So as a reseller, if you are thinking about your sales process, the process of understanding and quoting and if that’s a long and drawn out arduous process, I think one of the things your customers may be looking for is just simplification of the timelines and sales process. I really strongly believe that the Cloud is many things to different people. There’s a great book – it’s not that widely printed, it’s by Timothy Chou, it’s called, it’s was from 2010 and it’s called “Cloud, Seven Clear Business Models.” And I think in that book, even though it’s a couple years old, because it talks about business models, I think it explores some of the reasons that customers are looking for the cloud.
Something that we haven’t talked about is there are some customers who are looking for that instant-on ability to just ramp up. So if I’m with Amazon, I’m an EC2 elastic computing user, if I need 50 servers this afternoon to do something, that’s something that I look for from the Amazon Cloud; which doesn’t work in a private cloud model. I think, Don, you mentioned how do we get channel partners to sell new delivery mechanisms? My kind of step back question would be, are we just looking at selling new delivery mechanisms? Or really to be successful, does the channel need to understand why the customers are looking to the Cloud? So lots of reasons I see, there’s certainly a lot of excitement with the Cloud but I honestly believe that understanding your customer’s motivation is the true path to success. So with that Steve, back to you.
Steve Leaden (18:55): Thanks Kevin, and just a footnote to your comment. What we’ve been seeing with the clients that are in a venue or in a mode where they are looking seriously at the Cloud, there’s a couple of drivers. One is obviously they just don’t have the CAPEX in order to purchase, especially in a larger venue, you know 8,000, 10,000 end points. And you are talking about millions and millions of dollars, why can’t I scale that back and somehow manage those costs into an OPEX model. Yes, I’ll pay a little bit more because there’s an interest, an underlying interest as well as some professional services built into the model in the Cloud, but at least I have that.
And then the other big thing is, I find that communications as a technology is a real disruption to the IT industry at large. Just because it’s a different kind of model and it has a different set of rules and requirements, a lot of them being very urgent to the end user community as well as an always on, kind of five nines model. So what it really becomes is, how do I simplify that headache?
And with all of the new introductions and the influx of UC and social media and contacts entering the Cloud, how do I again simplify my life and get that headache away from me? And that, I see, is another big driver as well to your points.
Phil Edholm (20:08): Steve, this is Phil Edholm. Just very quickly I think to bring this back to the VAR, to the channel, to someone who’s a channel provider of services. Obviously if you are a service provider of Verizon, there are Cloud strategies in place but I think for a smaller reseller, this is really the time to define what your strategy is going to be.
Steve Leaden: Absolutely.
Phil Edholm: I think there is a huge danger in this industry right now of assuming that you can wait for your customers to ask you for something and then respond to what they want. I think what you need to do is you need to put in place an active strategy. And I think there’s going to be some decision points that a reseller is going to need to go through based on their size, their capabilities, their customer base and a thoughtful analysis. And the first decision really is, do you want to move to being an operator of a Cloud? Or do you want to become a reseller of Cloud services? So there’s going to be I think a clear, demarcation of two options. We see this with Microsoft with Lync and we talked about it with Interactive Intelligence. I think you will see it very rapidly from other vendors. I know 8x8, for example on the SME side, is establishing a reseller program, similar to what was talked about for Interactive Intelligence. So there will be options in the market for channel partners to engage their customers around an offer where they are not necessarily the hosting operator of that offer. The other alternative is to become a hosting operator yourself. As what you commented in the Timothy Chou’s book I think is excellent for anyone to understand this. The whole model of being able to deploy into a Cloud infrastructure like Amazon, and some of the products and technologies that are coming out and are available, really open the door to very cost effective, reasonable sized deployments for resellers to be able to have, not only their own branded offer, but one where they actually operate it.
And that is really a business analysis. If you look at the steps and thought process of a strategic analysis of your business model for the next five to 10 years, that’s the first step. The next step is to understand, as we’ve talked about, what are the critical services you are going to provide your customers in the Cloud? One of the things that Timothy Chou talks about is that the sixth model of Cloud computing which is you get to a highly repeatable standardized offer, the costs of making that offer come down.
That’s what we saw for example, with SalesForce, is they reduced the cost of CRM dramatically because you don’t get a customized offer. And that really is one of the big transitions in this Cloud industry, is that the offer you are going to get in the Cloud is going to be a lot less customizable than the current enterprise offers.
But then as a reseller, as a provider of services to the customers, how do you add advantage on top of that? So I think this really is the time for resellers to take the time, work through a real strategic plan of how your business is going to operate. What are the services you are going to offer? What’s the value you are going to deliver to your customer? And then at the very top, how are you going to deliver that core service? Are you going to resell a service? Are you going to partner with larger operators that have that and have available programs or are you going to develop yourself?
So I think one of the things that definitely at the UC Summit, we are going to be talking about is, how to begin to think about those options and how to essentially over this year, develop that strategic plan. Because if you are not developing that strategic plan, you are going to run into an incredible, I think, challenge next year where your customers are going to ask you and you are not going to be ready and know what your offer should be.
And you may end up having five or six different offers and eventually that will become uneconomic, unless you have a clear strategy in your business as to how to manage this transition. So that’s it, Steve, I’ll throw it back to you.
Steve Leaden: Thank you, Phil – anyone else?
Jon Arnold (24:31): Yes, Steve, it’s Jon here in Toronto. I just want to add a couple of new things. I think we’ve covered the ground pretty well for where the opportunities could be for, for channels in particular, especially amongst existing customers. The thing I would put out here is this idea that it’s not clear to me yet really how much of this Cloud trend is driven by the vendors and the channels as opposed to what the marketplace actually is asking for. So my sense is that a lot of this Cloud is being sold rather than bought, and sure, there are companies who have good reasons to move to the Cloud, but a lot of people out there still have a lot of questions out there that need to be convinced. So I think on that level there is definitely a new opportunity there for the channels, particularly if they are trying to find new spaces to pursue.
And I think that’s really a very good opening for these guys because the Cloud offers them to bring simpler solutions to market and enter new spaces that they couldn’t really expand into with more complicated systems. So here, there is a wide open space for channels who want to explore new opportunities. And I know Apple was mentioned earlier. And that actually raises the whole issue of new ecosystems, that will have solutions that we haven’t seen before. And I’ve been writing about this for several weeks now, about there’s really nothing stopping Apple from becoming the next UC provider. And I’ve called it the iCloud for awhile now. And they can seed the market with their tablets and it doesn’t take much. They want an “in” to the business market and by good luck or by good timing or planning, they’ve managed to find a way into the business market, unintentionally, but that’s what’s happening. And now they have an entrée, and an opportunity there.
But there is an ecosystem that is waiting to be built for an Apple-based UC solution that I think could be very effective with a Cloud-based offering. There could be tons of spaces there for channels to focus on that could be Apple based, it could be Android based, it could be all kinds of things that we haven’t seen. So if they want to take risks and re-invent themselves, I think there are new spaces to get into as opposed to what we’ve mostly talked about today, which is defending their existing customer base with updated solutions. That’s going to always be there. I think there is new opportunity here, a whole other channel for them to be looking at.
Steve Leaden (26:59): Thank you Jon, and thank you all for contributing to today’s podcast. I think the topic is very interesting. I’m sure this is not the last we are going to hear about this topic. It’s very early stage, very early adopter. The models are being formed as we speak. And I think it’s going to be a lot more mature, a lot different in 48 months than the way it is today. So for those who listen to our podcasts, continue listening, we’ll be there with more information. And to Phil’s and Don’s comments earlier, if you are considering coming to the UC Summit which will be May 6-9, just go to the UC Summit site to submit an application. It will be very, very interesting.
So again, thanks for attending everyone. Thanks for listening to the podcast and we’ll see you next week everyone. Thanks to all.
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