By now, most solution providers know cloud services provide a sweet opportunity for businesses. But what they may not be asking is how their piece of the action compares to the market. Are they getting their fair share? Is their slice of the cloud pie big enough? According to recent studies, chances are a lot is left on the table.
Taking a bigger piece
Among respondents to the 2018 State of the U.S. Cloud study—conducted by The 2112 Group in partnership with Ingram Micro Cloud and Microsoft—60% generated less than $2.5 million in cloud sales in 2017, and about one in three came in under $500,000. The average solution provider in that study earned $9.3 million in gross revenue from the cloud.
The numbers may not be stellar, but the fact that solution providers are increasing the proportion of their cloud revenue each year is a good sign. In 2014, the average solution provider earned less than 5% of its gross revenue from cloud services. That share rose to 7% in 2015, 9% in 2016 and 13% in 2017. And for 2018, solution providers anticipated a jump to 21% and more than $10.2 million in sales.
If this growth continues, cloud computing could become the dominant source of a solution provider’s business, garnering just under 40% of gross revenue by 2022.
Baking a larger pie
While those increases are impressive, it’s important to put them into context. The cloud market as a whole continues to grow; so, basically, solution providers will be getting a bigger piece of an ever-expanding pie.
Gartner predicts the worldwide public cloud services market will grow over 17% in 2019 to reach $214.3 billion, up from $182.4 billion in 2018. The research firm also projects that growth of the cloud services industry will outpace growth of general IT services by nearly three times through 2022.
The burning question for solution providers is just how big their cloud slice of pie should be. The magic number based on nearly a decade of 2112 industry research and analysis of the channel’s highest-performing partners is at least 25%—and probably more. Cloud should account for more than a quarter of revenue for solution providers.
If solution providers see their cloud revenue below 25%, they’re likely not doing enough to sustain a profitable cloud practice.
Carving out a larger slice
Looking ahead and projecting cloud sales is another measure of how well a cloud practice is doing in getting the share they deserve. Businesses that anticipate growth less than 10% need to take action. Even solution providers with growth falling between 10% and 20% should take notice. Ultimately, only partners anticipating cloud sales growth of more than 20% are on the right track to profitability.
The 2018 cloud study shows solution providers are continuing to improve their cloud practices. Among respondents, 74% said they expected to expand their cloud offerings in the coming year. At the same time, there’s much work to be done because 73% don’t set cloud sales goals, 46% don’t have a business plan and only 11% describe themselves as cloud experts.
If solution providers want to capitalize on the growing number of cloud opportunities, these numbers need to change. Channel partners must invest significant resources and capital into their cloud businesses. Also, they need to expand their cloud capabilities and capacity while strengthening their strategic business expertise.
Although the survey revealed solution providers are doing an incrementally better job in some key areas—such as reinvesting more of their gross revenue in developing enhanced cloud capabilities—they need to do even more.
Recipe for success
Building a cloud practice takes effort. Partners accustomed to relying heavily on their technical acumen need to enhance their sales know-how and focus more on setting strategic goals. In addition, they’ll need to get more comfortable with the ins and outs of a recurring revenue model and the idea of reinvesting in their businesses.
Those willing to make the extra effort will be richly rewarded in increased cloud revenue and a satisfied customer base that keeps coming back for more.
Evaluate your company's cloud presence
The 2112 Group Cloud Altimeter, a cloud assessment tool exclusively for Ingram Micro partners—helps you understand your cloud computing capabilities and performance relative to companies with the same profile as yours in your region.
By collecting answers to a few questions about your company and its cloud practice, the tool will generate a comprehensive report on how your company compares to others in the same class. To see how your business stacks up in the cloud, try the 2112 Group Cloud Altimeter.