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Staying profitable in the face of cloud computing, SaaS

Cloud computing and SaaS will most definitely change the marketplace VARs operate in; you can't afford to ignore the signs. Learn what strategies you can put in place now to avoid obsolescence.

Service provider takeaway: VARs should put strategies in place now to remain viable when cloud computing and Software as a Service take hold.

The sardine canneries along Cannery Row in Monterey, Calif., were going strong in the early 20th century. Emboldened by an abundance of sardines, investors poured money into the industry; at one point, there were more than 10 canneries in operation. In the second World War, Monterey became the "Sardine Capital of the World," supplying most of the sardines sent out to troops. Business was fantastic.

However, in a very short period of time -- before the 1950s, in fact -- the industry disappeared almost overnight. There simply weren't enough sardines to catch. No one thought to look ahead and plan for the eventual decline of the sardine population in the area. Cannery management just assumed that there would be an ongoing supply of sardines. After years of overfishing, the sardines were gone, and there was nothing left to fish. And so a strong industry that had helped feed our soldiers became just a memory.

Today, those of us in the reseller business may be on the precipice of another such decline. There's increasing evidence that the business model of today's value-added reseller (VAR) will change in the not-too-distant future. Here are the signs:

  • Announcements of faster wireless WAN products (High-Speed Packet Access and Evolved HSPA on AT&T's network) from wireless carriers.
  • Inexpensive and very fast broadband offered by cable companies (20+ Mbps) and Verizon FiOS (up to 50 Mbps).
  • The emergence of desktop and server virtualization, which introduce efficiencies that will reduce customers' hardware needs.
  • Voice over IP and hosted VoIP solutions such as those from M5 Networks and Packet8, which could eat into on-premise PBX sales and support.
  • The proliferation of Web 2.0 technologies such as social networks and collaboration apps.
  • The ubiquity of Java and Ajax technologies, allowing Web browsers to become launching pads for rich Web applications.
  • WiMax, which brings the potential of wireless broadband over a large area.
  • Cheap file storage.
  • Online productivity and collaboration applications like Zoho, Google Docs and Microsoft Office Live.
  • Improvements in the security of Web browsers.
  • The commercial success of hosted application providers such as, Intuit, Appriver and (Exchange hosting).

A VAR's universe today starts at the client device (desktop or laptop) and travels through systems such as switches, servers, routers, firewalls, network connectivity, and applications like Exchange, SQL Server and Microsoft Dynamics. It's more than conceivable that at some point in the future, the systems above could become obsolete, replaced simply by a client device, Internet service and a connection to a hosted product.

I'm not talking just about Software as a Service (SaaS), but also cloud computing -- the broad set of services delivered over a fast Internet connection. Although today's cloud applications are not mature enough to replace the products used by your customers, change is most definitely afoot. And while it's anyone's guess at this point to what extent things will change, you can't afford to wait and see.

VARs focusing on small customers with few employees will be affected by cloud computing, more so than large companies, because the smaller the company, the easier it is to adopt cloud computing. And while it's unlikely that change will come at a pace similar to that of the sardine factories, incremental and slight improvements to hosted applications should be on the radar of most VARs, since those improvements will signal an uptick in the pace of the change.

Pundits argue that the client/server architecture found at customer sites today will never go away, or, if it does, it won't be gone for long. And although there is no crystal ball, some things are certain -- anytime, anywhere high-speed Internet will be here soon. Web-based applications are rapidly getting more sophisticated and user-friendly. Virtualization is squeezing efficiency into client and server systems, which will effectively produce fewer machines for VARs to sell and service.

Beyond keeping a close eye on these developments, you can also take a pre-emptive strike against possible obsolescence of the products and services that underpin your business. But how? Here are some ideas:

  • Start small: Partner with existing hosted application providers such as MX Logic for essential services like email spam filtering, antivirus and Web filtering.
  • Make a game plan of possible services you could host for your customers so they won't go elsewhere, such as those for:
    • Email.
    • File servers with a VPN connection to the customer's site.
    • Fat client applications using Citrix.
    • Virtualized servers.
    • Remote backup.
    • Web app hosting.
    • Remote help desk.
    • Server and system monitoring.
    • Storage.

In 1977, Ken Olsen, the founder and former president of Digital Equipment Corp. (DEC), famously said, "There is no reason for any individual to have a computer in his home." DEC remains a fossil of the digital age. It invented many innovations, such as DLT tape drives and the StrongARM processor used in today's PDAs. But those technologies were sold off long ago. The company wasn't able to predict the wave of changes in the 1990s -- and it didn't see those changes as they were happening. DEC became the sardine factory of the technology era. So it's important to look at changes in the VAR industry and take precautions necessary to ensure your business doesn't end up as the next sardine factory or the next DEC, but instead remains viable and profitable for a long time to come.

About the author
Alex Zaltsman is a technology entrepreneur. He co-founded Exigent Technologies and over a 10-year period developed its IT consulting practice. He has worked with companies such as Johnson & Johnson, AT&T Labs, Lucent Technologies, Wal-Mart and Philip Morris, as well as many small businesses. Alex is also on the board of directors of the New Jersey chapter of Entrepreneurs' Organization, and he maintains a blog at

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