Will Cloud Computing Kill SMB Channel Jobs?

Will Cloud Computing Kill SMB Channel Jobs?

By Andrew R Hickey, ChannelWeb, July 09, 2010, 1200 hrs

Cloud computing will single-handedly annihilate 200,000 to 250,000 jobs in the SMB channel over the next decade, according to a recent report from AMI Partners.

"The rapid growth of cloud computing is making it much easier for SMB channel partners to provide a broader range of offerings on a 24/7 basis at a lower cost and with fewer IT staff," AMI Partners said in its recent Cloud Computing Research Studies. "These offerings include services such as SaaS and managed IT services. As a result, SMB channel partners could lose more than 200,000 IT jobs over the next decade."

But while the report predicts sweeping job loss in the SMB channel, solution providers disagree and say that cloud computing will instead create a host of new opportunities.

Anil Miglani, Senior Vice President, IT infrastructure Research, AMI Partners, said in an interview that the shrinking of jobs within SMB channel partners will come despite higher revenue opportunities created by cloud computing. Cloud computing, he said, increases levels of automation, meaning SMB channel partners will require smaller staffs, despite customer retention and revenue increases.

"What the cloud is doing essentially is letting channel partners offer new services without high costs," Miglani said. "Partners who make a transition will see this as an opportunity. They will see revenues grow. Having said that, what the cloud will also do is let channel partners serve more customers on average. But the number of channel partners will have to decline. And even among those that move to the cloud, the level of automation will reduce amount of IT resources needed. Once the cloud model takes off, the need for IT staff will decline."

While Miglani said SMB channel partners will play a critical role in delivering cloud-based services to SMBs, large companies will continue to scale up cloud-based offerings and make greater use of automation, reducing the need for IT staff employed by channel partners, which had traditionally dominated SMB market spending. That shift will lead to significant attrition and consolidation.

"The great recession of the last year and a half has significantly increased SMBs' interest in adopting various cloud-based services as they look for ways to meet their IT needs while keeping costs under control," Miglani said in a statement. "In response to this interest, local channel partners have started to rapidly expand their cloud-based solutions for SMBs. “However, cloud computing cuts two ways for small SMB channel partners. It allows them to offer new kinds of services and solutions to their SMB customers without having to incur high initial capital expenditures. But automated service delivery via the cloud will also reduce the need for internal IT staff."

AMI estimates that the reduction for internal IT staff within SMB channel partners will result in the loss of 200,000 to 250,000 jobs in 10 years. That reduction will chop the total number of people employed by U.S. SMB channel partners from 1.3 million to 1.05 million to 1.1 million.



Solution providers weigh in
Cloud computing channel partners, however, said the predicted mass job loss is off base and that solution providers who turn an eye to services versus straight reselling will likely thrive as cloud computing takes hold.

"Solution providers will be fine," said Eric Berridge, Co-Founder of New York-based cloud computing solution provider Bluewolf. "The demand for implementation and support services will only grow. However, resellers that have earned their living 'pushing boxes' will suffer."

Chris Pyle, CEO and President, Champion Solutions Group, a US-based solution provider that last year launched its Champion Cloud Services practice, said cloud computing, like any technological shift, will force the channel to pivot and maybe alter course, but likely won't result in a half-million lost jobs.

"There's going to be new opportunities in the channel," he said, adding that solution providers, especially ones that serve SMBs will be tapped for consultative services to guide customers on when and how to best move to the cloud. "If the VAR channel doesn't evolve, perhaps there will be [job loss], but at the same time the smarter VARs will create new opportunities. The channel needs to be smarter with its offerings."

Mo Aminian, President, Aminian Services, a California-based cloud solution provider, agreed that the loss of 2,00,000 to 2,50,000 sounds far-fetched. He said there is "no cause for concern."

"I do not see how cloud computing will result in job losses," he said. "What I see happening instead is a shift from IT services relating to servers, LANs and related software to cloud-based software development and integration services."

Michael Fraser, director of SMB private cloud platform provider gCloud3, said some partners are concerned that cloud computing might keep them from providing the services they do now, such as Exchange maintenance on a local server as opposed to hosted Exchange in the cloud. But Fraser said the services change won't lead to a loss of jobs, but will instead lead to increased efficiency.

"A solution provider cannot be an expert in every area of I.T., but by using the cloud, solution providers can leverage the expertise of cloud companies that focus in areas such as virtualization, applications, and other areas allows the solution providers to focus more on their relationship with their clients, and find new clients," Fraser said.
But according to AMI, SMB channel partners also face stiffer competition in the SMB market as cloud services and solutions become more readily available directly from vendors and others. Miglani said the monstrous job loss will partly be the result of SMBs' ability to purchase cloud computing services directly from service providers like AT&T and Verizon; retailers like Best Buy and Staples; and large vendors like Dell and others. That will clobber the SMB channel and result in a massive loss of personnel, Miglani noted.



The competition heats up
"Compounding the diminishing job prospects for IT professionals is the fact that many new types of players are entering the market, including many with deep pockets," AMI wrote in the report. "Some of these players—telecom service providers like AT&T and Verizon, retailers like Best Buy and Staples and vendors like Dell—are likely to offer various services directly to SMBs, cutting right into SMB channel partners' business.

Aminian said AMI's claim that SMBs will go directly to service providers, retailers and larger vendors for their cloud computing needs, effectively cutting out the SMB channel, doesn't jibe with what he's seeing in the market.

"Companies like Dell could be offering cloud services, but this does not mean that the solution providers will be cut out of the equation," Aminian said. "To the contrary, this shift would increase the need for new services provided by solution providers."

gCloud3's Fraser agreed. "SMB clients will go to service providers if they do not have a solution provider, or their solution provider is not focused on maintaining their relationship with their SMB clients," he said. "Large companies like Dell and AT&T are focused on volume, build their business solely off of brand recognition, and lack the resources to be able to provide the same service and relationship a solution provider can. SMB clients understand the importance of relationships because that is how their build their own businesses. Cloud offerings allow solution providers to become more efficient and provide a much better level of support to their clients.

Champion's Pyle added that services offerings like intelligent transport, cloud monitoring services, check-ups and other offerings will keep the help the channel attack the cloud.

"We need service offerings," he said. "I'm more optimistic. We just have to be smarter."

And being smarter means solution providers have to transform and evolve their businesses.

"Solution providers that serve the SMB are realizing they have to evolve to the marketplace trend, and cloud computing is the newest trend," Fraser said. "Cloud really is the manifestation of the next stage of managed services. The current economy has really pushed low up-front cost solutions, aka cloud computing solutions, due to most SMBs having to ensure they have adequate cash flow to operate, without jeopardizing their business with large capital expenditures. Most SMB clients are already used to paying monthly for service, with managed services contracts. Cloud is the next step by now providing infrastructure and applications as monthly expenditures as well, and really helps to provide the entire gamut of IT solutions, all on a monthly basis, and increasing efficiency, which allows both the solution provider and the SMB client the ability to become even more profitable. "