Margins. That’s the keyword of keywords in the cloud commerce industry. When you focus on how the landscape is changing for cloud services and software as a service providers, the topic of shrinking margins is always on the tip of everyone’s tongue. And it’s not changing.
In fact, as companies continue to awaken to the possibilities the cloud offers them in terms of efficiency and access to data, they are becoming increasingly concerned about margins. According to an article by Larry Walsh of the 2112 Group, “The services-led, recurring-revenue model [of the cloud] is transforming earnings and profit streams. Capitalizing on the cloud opportunity isn’t easy for vendors or partners.”
Walsh is right. In their latest earnings statement, Microsoft said cloud margins are shrinking…even as their Azure marketplace transactions grow. Does this mean companies should start being less optimistic about their cloud investments? Hardly.
At Orbitera, we have been discussing this trend of smaller margins and have concluded that it’s just the precursor to a shakeout of cloud providers. As the company that specializes in cloud billing solutions , we feel the value of doing business in the cloud – enabled by the cloud and various marketplaces – far outweighs the chance that margins might get smaller by a fraction.
In fact, the move to the cloud has been led by vendors with superior products and services. When a company had a way for companies to be more efficient and profitable in the cloud, they forged a path for other firms. These others jumped in and proved once again that just showing up isn’t enough to make money in a new market segment. An enterprise actually must possess some skill and expertise before touting their product as a cloud solution.
Walsh’s article supports this by saying, “The cloud simply isn’t as profitable as legacy products. And it has everything to do with the persistent engagement and recurring-revenue model associated with the cloud. For vendors, cloud services require persistent engagement with customers, even when working through partners.”
Essentially, this is what makes vendors different than partners. Their investment is higher, but in the long run a vendor should see more upside from recurring revenue and better brand awareness and adoption of their products. At Orbitera, we understand the challenges faced by companies doing business in the cloud and our solutions are in demand. Regardless of which marketplace you use, we make it possible to track cloud use, simplify cloud-billing and actually enable better and more secure access to data in the cloud.
The cloud isn’t easy…unless you’re partnering with a company that knows what it’s doing. As Walsh says, channel-delivered managed services are going to be the answer moving forward. By connecting these services to the cloud, Orbitera is sharing its expertise and is showing businesses how to truly leverage the power of the cloud.