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IT Firms Make Less on Cloud

Reality ImageMany of my peers often ask if they should get into cloud computing. I generally tell them a flat “no” with an explanation that they’ll make less money, a totally different sales/marketing approach is required, and technical competencies change drastically. The next question is usually something like, “OK, Kevin, then how are you so successful at it?”.

This is the fourth year in a row Matrixforce has achieved the elite Microsoft Cloud Accelerate Partner accreditation, with over 50 new customers and 2,000 users annually. We started three years beforehand when most people thought of cloud computing as something about the weather.  Today, we offer deployment and support services for Office 365 and Google Apps, Windows Intune, CRM Online, and Quickbooks Online – not to mention current training on Azure and competing cloud platforms. The sales and marketing team provide thousands of social media updates, hundreds of web pages and blog posts, and dozens of videos and podcasts. The technical folks are now all about productivity and usage of services and only a tiny bit of specialized old-school technology infrastructure. It’s been a long-term approach to grow a practice to compliment our other services that our firm took nearly 7 years ago. For certain, providers must have at least 5,000 to 10,000 individual subscribers, before the recurring revenue is enough to be significant and still can’t stand alone as a separate business. Most providers don’t survive longer than 5-7 years, much less have the resources and bussiness savvy to make the investment to try to get to those numbers of subscribers in that period of time.

Many prospects and customers have gotten the message loud and clear from the competition, that they need to stay on-premise with their technology infrastructure. “Why cloud computing is not reliable or secure.” Or you get the picture. Then the pitch is “You should just move all those servers into our data center. It’s not any cheaper, but we take care of all the hassle for you”. Hosting or rack space is definitely not cloud computing and brings forth questions of significant risk with the facility and provider’s long-term viability. Cloud computing uses knowledgeable experts backed by multi-billion dollar facilities provided by major manufacturers like Microsoft and Google. Further, the whole value proposition is reduced cost for significant improvements in productivity, reliability, and security.

I can’t blame the competition as the motivation is self-preservation, because switching to cloud computing eliminates 70% of product revenues and 30% of maintenance services. In hard dollars, that $50,000 annually in revenue for a few servers with associated software GONE – $250,000 loss in 5 years per customer. To add insult to injury, that $20,000 annual project and $10,000 in maintenance and support evaporates too, for another $150,000 loss over 5 years. So, the traditional legacy provider takes s $400,000 hit over 5 years in a moderate customer environment of 6-10 servers. Less product revenue equates to smaller discounts with distributors, coupled with more bench time for idle system engineers. Legacy providers face a grim business disruption problem of slowly dwindling cash and relevance.

Plus, the slick smile and dial, NASCAR like logos and product of the day – or selling a body for staffing or a project don’t really apply anymore. For sure, prospects and customers don’t like it. Today, customers want to find out who you are and expect tons of information to research and have informed opinions before they even talk to you.

A few competitors are trying to change, but face a huge uphill battle with existing staff and any cloud wins are tiny infusions of cash even less than shrinkage currently experienced on legacy on-premise infrastructure. Some competitors have doubled-down and gone the niche high-end hardware route. Many have got in the way-back machine for circa 1989 and are pitching hourly rates with no means to provide availability or quality service on a regular basis. Finally, the overwhelming majority are obfuscating reality and bilking the unsuspected into moving servers to a data center at little savings in cost and no escape from the product obsolescence hamster wheel.

Meanwhile, prospects and customers love our offerings. They appreciate straight technology advice not motivated by product or selling them a body. Already knowing quite a bit before we even speak, we prove our capabilities by telling about all the stuff they need to know that is not on the web. Having prospered over 35 years while surviving virtually every war or challenge for a technology firm, customers know we are stable and practice strong business and operational skill. When you are serious about the cloud and online services, give me a call (918) 622-1167  x25.

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