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Channel Matters Blog > April 2013 > RIP the Old World & Why Cloud Causes Inevitable Channel Change

RIP the Old World & Why Cloud Causes Inevitable Channel Change

by Ian Moyse
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The need for change and acceptance of the fact that the status quo no longer exists has never been more true. Ian Moyse of Workbooks talks about the effect of the cloud on traditional channel sales and the consequences of ignoring this emerging trend.
"We change our behaviour when the pain of staying the same becomes greater than the pain of changing. Consequences give us the pain that motivates us to change".
Dr. Henry Cloud & Dr. John Townsend

The need for change and acceptance of the fact that the status quo no longer exists has never been more true. I have been speaking on the effect of the cloud (internet based service and supply) for the past eight years, and in the past two, we are seeing the visible effects of this revolution.

Before commenting on why IT supply chains have to adapt and why now is the time to take action, I would like to draw context from other sectors and the customer experience they deliver that is causing the supply chain's well-publicised demise.

In recent months and weeks this unfortunately has become a very visible truth to all concerned. We saw the United States (USA) firm Kodak (a company I watched in a two year old episode of TV's "Apprentice USA" boasting of their size and brand strength) file for Chapter 11, devastated by the change in how we digest our photography. Many are abandoning the traditional camera, instead using their inbuilt 'always with' camera phones. Combined with online storage and photo media tools such as Flickr, Instagram, Facebook, YouTube, etc., how many of us today use film or pay for developing pictures? We store and share them electronically, email them, using digital photo frames, or print them on our own printers using very high quality photo paper, and for the retailer or E-tailor, we upload and have them post us the prints.

Also in our favour as customers are the initial print deals that abound where you 'sign up to a login and get your first batch of prints free, paying postage only'. Simply register to a new site with a different email address each time, and your prints almost always remain free. In the same arena, we have in the United Kingdom (UK) Jessops, a 176 store photographic chain that in January 2013 called in the receivers, costing 1370 jobs. Electrical store chain Comet, after 79 years in business did the same in December 2012. Two major recognised high street brands failed. Coincidence? Right!?

Well no. Soon after we saw two more high street brands with nationwide stores also failing and throwing in the towel. HMV (His Masters Voice) a retail chain founded in 1921 and Blockbuster Video, darling of the VHS video era both became further victims to the change afoot in our buying habits and the delivery mechanisms available to us all. I remember with nostalgia, going into music stores such as HMV and Tower Records, browsing the music, games or movies I did not know existed.

With the internet, those days are gone. You know products are coming months before, and can easily pre-order with one click, not waiting to buy when available. You can pre-listen to samples or watch video clips virtually from anywhere, anytime. Add to this, with no retail outlets to maintain, online pricing naturally is cheaper and delivered right to your door.

So in today's competitive world where the customer is king, and has no need to put up with less than quality service, historical brand loyalty is waning fast, and it's time that established world brands wake up and smell the coffee. Customers can afford to be more fickle, and you are being challenged fast. Brands such as Blockbuster and HMV could have been the Netflix, Love Film or iTunes of today if they had not stuck their head in the sand ten years earlier and been glued to their legacy ethos and business mantra's . I am sure in many a boardroom today, organisations are looking at new business models and brushing them aside as 'not a risk', 'we're doing okay', 'customers won't want that', 'it's too big a change' and the like phrases being happily bandied about. Think back, listen to the news and consider how many of today's casualties are now paying the price for ignoring change.

Will this be the end? No. It's predicted by retail analysts that in 2013, over 120 retail brands were on the precipice as the cloud storm continues to heat up. More mobile smart devices and tablets are being sold, bandwidth with faster download times and access are becoming increasingly available, with prices for these units coming down. It's a rare event when you are disconnected for long, even on holidays, trains, cars, or in the USA, on domestic plane flights. Younger buyers expect to have a modern fast and appropriate engagement with companies. Corporations who ignore this trend do so at their peril! Stores embracing technology, creating a seamless online bricks and mortar experience that can't be delivered online are thriving. Good examples are Apple, Hollister and Disney stores.

Multi-channels and new ways of engaging with customers are here now, and are not something to put off or worry about later. The customer is king in their choice of buying mediums and is a more educated buyer from the wealth of information available at their fingertips.

From an IT channel viewpoint you're thinking "this doesn't apply to me, right"? This is retail and you can do what you have always done. Wrong! Analysts and the channel press are already reporting losses in the IT channel, and expectations are that a lot of resellers are on the brink. We have seen 2e2, a large reseller in the UK fold in early 2012 with losses of around 1,000 jobs (this after they acquired the Morse Group, Netstore and Compel to bolster their size), Fujitsu's reduction of 5,000 employees, and HP's cut of 30,000+ staff even prior to the Autonomy $8 billion write-down being discovered! Add to this the recently reported 14% decrease in First Quarter PC shipment sales from the end of 2012 as another sign of change of end user adoption and needs.

Doing the same old same old won't deliver those old margins we enjoyed ten years ago. In our sector, this is not only about supply and demand competition from online stores for physical product, but much like comparing Netflix to Blockbuster, we are seeing many IT solutions fully moving to the cloud. The actual customer no longer procures physical goods, and no longer needs someone to come out and maintain and upgrade it. Having spent the last 36 months going around Europe evangelising to IT channels on 'why adapt to the cloud' and the risks of ignoring it, I have witnessed a mixed reception. I have found three types:
  1. Those that are already there, doing well and want it kept quiet and to themselves.
  2. Those that agree, and are trying to figure it out and its nuances (Cash flow changes, value propositions, commission schemes, etc.).
  3. Those who are ignoring or putting off doing anything about it. These folks are unfortunately in the majority.

The warnings signs are there. Nothing is sacred or safe. Everything needs review and forethought to ensure you do not become one of the 'do you remembers' of this economic and technological change. I have said before, 'ignore it at your peril'. I'm not saying everything will be cloud based, but review, appreciate, understand and make smart decisions, and do not assume the cloud will not affect you and your customers!

There will be less product sales, installation and break/fix around as customers burn IT longer, and selectively adopt new cloud based solutions to mix within your existing network. Localised hardware will need less upgrading as cloud solutions only need that browser footprint, so expect refresh rates on PC's or local devices to slow. Less server hardware will be sold as customers utilise the multi-tenancy servers at the data centre to get more affordable and reliable server power.

You will compete with a variety of new cloud based providers who are nimbler, more educated on the cloud and are built on the annuity billing model. MSP's, ISP's and telecoms providers who step wider from their previous supply chains using the cloud to deliver an increasing number of billable services to clients will prosper.

If you feel the cloud is a threat, and is going to have an impact on your business, then address it starting now. Don't ignore that feeling, or put it aside for a later day. We are seeing faster technological change than ever before and it is all too easy to fall from that ledge that you saw approaching and ignored. Now is the time to educate, adapt and resolve to make changes to ensure future success and alignment with customer needs and spend!
"History will be kind to me ... because I intend to write it". Sir Winston Churchill

If you want to read in depth the ifs, buts and ores of cloud in the Channel, I wrote a series of 4 free vendor agnostic papers on reselling cloud that were well received and reviewed in late 2011, which bears true today. You can download these here. Or contact me via www.ianmoyse.co.uk to request these.
Last modified on 6/30/2013 10:11:29 PM
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