How Subscriptions will impact the Channel How Subscriptions will impact the Channel
The channel is caught between a rock and a hard place: it can continue to do things the old way and face a highly... How Subscriptions will impact the Channel

Today’s channel is very different to how it was even just a few years ago. The big vendors have evolved quickly as server, storage, infrastructure, and compute power has increased, connectivity has improved and the Cloud has become far more than just an abstract concept. Out of this evolution new revenue models have emerged, bringing with them a great deal of change to the channel landscape.

The most significant of these new models is the idea that customers no longer need to run their own datacentres, own their own network or even their own business intelligence software – every IT need they have can be paid for on an as-you-use basis thanks to cloud technologies like Microsoft’s Azure and Office 365.

And arguing against going the pay-as-you-use route is a fool’s errand. Firstly, companies get to convert capex into opex – things like infrastructure and server capacity are no longer up-front costs that need to amortise over a number of years, becoming rather an operational expense that fluctuates alongside the business’s operational requirements.

Secondly, businesses get to pay relatively small amounts on a monthly basis for their IT services, which is far preferable to the vastly more significant up-front costs of deploying any given solution themselves.

An Office 365 subscription, for instance, costs R80 per employee, per month; this is a lot cheaper than buying the suite outright at R2400 a pop, per head. Multiply that by a few dozen employees, and it becomes hard to argue for a huge up-front spend when a much lower monthly cost produces the same result.

The beauty of the subscription model is that it gives businesses what they need right now, without a huge price tag. And that’s a win-win situation.

While this means huge opportunities for those geared to offer cloud-based services on a subscription basis, it’s also a significant threat to the way suppliers and resellers have been doing business for years.

That’s because as a direct result of this shift, revenue opportunities are moving away from being transactional, to being annuity-based. As scary as it sounds to say out loud, yes, the transactional revenue that businesses have counted on for years is changing and in many cases, drying up.

And while it’s not completely gone yet, analyst projections see it in steady decline while annuity-based revenue and services rise. Thus, re-tooling to provide services that generate annuity income is essential if local businesses want to survive well into the future.

The challenge is that making this change is not easy, because building up an annuity-based client list takes time and won’t deliver big money right away. But the point is that it will over time as more and more clients are signed, while transactional will continue to decline. It’s this change that requires careful management – contingencies need to be in place to keep businesses going while they transition from transactional to annuity-based revenue generation.

So the channel is caught between a rock and a hard place: it can continue to do things the old way and face a highly likely revenue decline, or make the hard decisions now and ensure it profits from the changing channel landscape in the future.

As that old ad said, use it/don’t use it. Up to you.

Jonathan Kropf is the CEO of Tarsus On Demand

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