With the growing array of technologies clamoring for solution providers’ attention, it’s not unusual to find yourself with decision paralysis. However, one technology continues to win converts every year.
By breaking down the statistics, we can see what’s driving the move to cloud technologies—and how partners can win in this burgeoning market.
What’s driving cloud adoption?
At the top of the list: recurring revenue.
About 86% of respondents to the 2018 U.S. State of the Cloud report—a research project conducted by The 2112 Group, Ingram Micro Cloud and Microsoft—stated that boosting recurring payments was their primary motivation for entering the cloud market. The recurring-revenue business model provides a financial backstop to reduce risk and generate a predictable stream of income.
Survey respondents’ also cited increasing overall sales (72%), warding off competitive challenges (56%) and responding to customer demands (50%) as motivating factors. Surprisingly, less than 20% chose mitigating financial risk or reducing time to market as their motivations for cloud transformation.
Another factor driving solution providers to the cloud is the anticipation of a big payoff. Currently, cloud is on track to become the leading source of solution providers’ revenue, coming in at a little under 40% of gross revenue by 2022.
Defining strategic goals
When asked to rate the strategic goals most critical to the growth of their cloud businesses on a 7-point scale, where 1 is “not at all important” and 7 is “extremely important,” solution providers scored these three the highest:
- Attracting new customers (6)
- Selling more to existing customers (5.2)
- Expanding into new service areas (4.2)
The lowest scores went to boosting service utilization rates, developing vertical specializations and selling to non-IT buyers—each earning only about 3 points.
These findings provide insight into a channel that welcomes the cloud and understands that new business, upselling and customer retention are vital to any recurring revenue initiative.
The magic number for profitability
To succeed in the cloud, solution providers need to do more than assess their motivations and goals for entering (and remaining in) the market. They also need to examine their cloud engagements, especially the number of products they bundle and the overall profitability of those deals.
According to the 2018 cloud study, the median number of cloud products sold per engagement was three. The hard truth is it's not enough.
Based on nearly 10 years of industry research and analysis of the channel’s highest-performing solution providers, The 2112 Group concluded that partners bundling five or more products stand the best chance of turning a profit in cloud. Those who bundle three or four are in a risky spot, and anything under three is subpar.
When it comes to cloud profitability, the sweet spot for margins is 25% and up, yet the average profit margin on a typical cloud engagement was only 19.5% in 2017. With margins like that—less than 20%, specifically—solution providers are putting their cloud businesses in a precarious position indeed.
If we look at the bigger picture for that same year, the average cloud revenue as a percentage of gross was just 12.7%, which is not an impressive number. But the same study showed solution providers aspire to do better—and in 2018, the average cloud revenue goal as a percentage of gross revenue increased to 21.3%.
Solution providers who play their cards wisely may find themselves joining the elite group that earns 40% of their gross revenue from cloud in just a few years. As market analysts attest, huge opportunities abound in the market, and many solution providers are looking to seize them.
The key to winning in the cloud is understanding the drivers and motivations behind running a cloud business, establishing strategic goals and doing as much as possible to boost profitability.
As a next step, find out how your business measures up: Try the 2112 Cloud Altimeter—a cloud-assessment tool exclusively for Ingram Micro partners.