Cloud computing is disrupting the software industry, prompting companies with traditional on-premises applications to invest in new technologies and architectures. These investments are driven by:
Market opportunity: customers prefer value-based costing and easier deployment,
Competitive pressure: cloud-ready ISVs are delivering innovative solutions, and
Integration potential: your desire to tap into to a broader set of ISV partners.
Perhaps you’ve dabbled with cloud integration or even delivered cloud-based products. That doesn’t mean you’ve formed a Cloud Partner Strategy — that’s what this article is all about (hint: you can download this article as a PDF via the form at the bottom of this post).
Defining Cloud Computing
I was responsible for Microsoft cloud partner adoption in the US and Australia – we typically started cloud discussions by defining:
Infrastructure as a Service (IaaS): VMs provisioned and activated on demand,
Platform as a Service (PaaS): cloud middleware development platforms, and
Software as a Service (SaaS): end customer applications.
IaaS has been much more successful to date due to the ease of moving “stateful” applications online (quickly realizing cost savings from cloud infrastructure). PaaS is a strategic spot for platform ISVs because of the ongoing annuity (and stickiness) it represents.
IaaS and PaaS have high barriers to entry, limiting general purpose platform offerings to large platform vendors (Amazon, Microsoft, Google, etc.). Most ISVs will leverage IaaS or PaaS to deliver SaaS. However, to maximize your partner opportunity, you need to deliver platform capabilities as part of your SaaS offering.
The term “cloud computing” has been confused by creative vendor positioning, but in simplest terms it entails on-demand scalability and provisioning, and implies a consumption-based cost model. Hosting traditional on-premises applications isn’t technically cloud computing, but can address customer needs to reduce their hardware/software maintenance costs.
The Cloud is about growing and shrinking capacity when needed while only paying for the resources you use. There are many scenarios where this pay-as-you-go model is attractive. Examples include customers with limited capital budgets (e.g., department of large corporations, startups) and compute-intensive but infrequent computational bursts (e.g., big data analysis, financial modeling). While Cloud computing implies a consumption based cost model, I don’t recommend application providers pose a variable cost model direct to your customer (they hate it when one month is 5x the cost of the prior month…), but rather package service levels into representative workloads and pricing tiers.
Cloud Opportunities for Application Vendors
The Cloud poses the following opportunities for application ISVs:
A more efficient cost mechanism for delivering online applications: IaaS and PaaS providers will charge you based on resource consumption so your cost basis will more closely match your actual infrastructure usage. Put your spreadsheet skills to work to determine at what point this incremental cost approach will work for you, and when it is more of an advantage to your platform provider.
A platform for delivering new applications: any net new applications should be architected with cloud computing principles in mind, assessing different cloud capabilities and the economics of hosting yourself or with one of the cloud platform providers. Not having to go through IT reviews and approvals to deploy feature and patch updates is of tremendous value in and of itself.
New business model potential: customers are becoming more accustomed to paying for applications as they are consumed. This means lower upfront costs for them and a potential ongoing annuity stream for you. If your SaaS application is priced attractively relative to on-premises offerings and you continue to deliver valuable features over time, you’ll realize greater revenues by pursuing a cloud model.
Extend your on-premises application life: broaden the potential application integration of your on-premises products by exposing some application services to cloud developers. For example, you could leverage cloud services to offload and scale your on-premises application storage or apply intensive compute functions offsite so as not to impact local performance. Exposing your on-premises applications directly to a multitude of cloud developers is risky because of potential performance impact to your local application. Creating a data caching/reporting tier can also enable compelling partner scenarios (e.g., business intelligence and reporting).
The 5 Steps to Implement an Effective Cloud Partner Strategy
Development partners help you address a broader set of customer needs, resulting in greater market reach (and pull-through of your applications). Therefore, when developing cloud applications, be sure to build-in platform/integration capabilities and a supporting partner strategy.
Assess the cloud partner opportunity. Customer demand, competitive pressure, or deployment/support cost may have prompted your consideration of a cloud strategy, but is the effort of creating a partner ecosystem around your cloud offering warranted? A key step is to quantify your addressable partner market.Look to other ISVs in your segment to see if they have had success engaging development partners for cloud and non-cloud scenarios. Partner directories can be valuable sources for this research. Also consider net new vertical extensions and horizontal scenarios that could be enabled through partners. The result of your analysis of potential partner ecosystem informs how aggressively to pursue a cloud platform strategy. Develop a monetization model that incorporates assumptions for partner recruitment levels, required transaction volumes, business models (fees and transactions), and net revenue potential.
Envision your “strategic partner portfolio”. A broader base of partners results in more comprehensive solutions for customers and enables you to address competitive gaps. You can take a more strategic approach to the business by developing solution maps to resolve and convey product and partnership intentions internally. Use this insight to direct your partner recruitment efforts. Not only will a cloud platform strategy enable a broader set of complementary partners, but can also enable inorganic growth through acquisitions.
Align product strategy with product development priorities. Consider the experience of your software engineering team and your appetite for investment. Newer companies with fewer legacy products (and customers) don’t have the same struggle with crossing the chasm. ISVs with on-premises applications must assess if their product (and partner extensions) will run effectively in an Infrastructure as a Service environment or implement a hybrid approach that lets customers/partners tap into on-premises data via a cloud integration tier. In any case, it is important to understand the engineering effort required and appetite for that investment before resolving your partner strategy.
Develop cloud partner recruiting tactics that scale. Building and pricing for scale is essential to attract the partner base. This includes not only transitioning your traditional partners but also appealing to new development partners that don’t currently work with you. This requires outbound marketing resources and expertise to reach net new developer communities (see the Partner Strategy Framework E-Book).
Convert partner interest into development activity. After casting a wide net to engage development partners and educate them on the potential of leveraging you as a platform, capture their interest via an adoption nurturing program. This program should require very light profiling, so you can notify partners of your own platform advances and prompt them toward active development and delivery of in-market solutions. You’ll also want to leverage this program for identifying top reference stories (preferably along industry/sector lines), so you can demonstrate the value of partnering to other partners (and customers).
Summary
Your cloud partner strategy should be grounded in the realities of the business potential (addressable market and monetization models), engineering capability (your own ability to provide service endpoints to enable partners), and platform marketing (outbound marketing and adoption programs to nurture cloud partners). A strategy that balances these elements will enable a broader partner ecosystem, more comprehensive customer solutions, and greater revenue potential.
The 5 Steps to Cloud Partner Strategy whitepaper is available in the Resources area.