Cloud computing vendors trying to woo partners

One of the early promises of software-as-a-service and cloud computing was that it would allow start-ups to directly market their Web services while skipping the expensive, lengthy process of creating an ecosystem of partners and resellers.

“Building the channel” was an antiquated strategy, they argued, a legacy of on-premises dinosaurs such as Oracle Corp. and Microsoft Corp.

Cloud providers thought, “We can directly reach these people, so we don't need to invest in other channels outside of our brand,” said Tiffani Bova, a Gartner Inc. analyst.

But since cloud computing is still more in the hype stage than the actual deployment stage, vendors have slowly begun to accept that “a single sales strategy will only get you so far,” Bova said.

That has resulted in three out of the four largest cloud computing vendors taking major steps in recent months to attract partners to help them market and sell their services.

Last month, when Microsoft announced prices for its coming Windows Azure platform-as-a-service (PaaS), the plan included a 5% discount off consumption pricing for Microsoft's 400,000 global sales partners, a half-year discount of 15% to 30% off consumption prices for those signing a minimum six-month contract, and two as yet undetailed subscription plans for partners. (Consumption pricing would, for example, involve charging a certain amount of money per megabyte stored per month.)

A month earlier, Google Inc. had announced that resellers of its Google Apps productivity suite would get a 20% discount off list prices, as well as retain the desirable middleman role with customers.

Google responded to the news about Azure pricing a few weeks later with an aggressive marketing campaign in support of Google Apps and its closely related platform-as-a-service, the Google App Engine.

The most recent move was by Salesforce.com Inc., which on Wednesday introduced a new program to attract value-added resellers (VAR). The highlight is that VARs will be able to obtain Force.com for as little as $7.50 per user per month. That's 70% off the list price of $25 per month for each end user.

Salesforce.com partners such as Adam Caplan, CEO of Model Metrics, a Chicago Web development firm, said the company's plan is very financially attractive.

“We can get real margin on recurring revenue, which is a beautiful thing,” he said. Moreover, Salesforce's VAR program encourages Model Metrics to resell Force.com to the 500 customers it shares today with Salesforce.com, he said.

Salesforce takes lead in winning developers

Force.com partners are also allowed to participate for free in the company's AppExchange, an eBay-like marketplace for cloud apps. There are 800 apps available today on AppExchange. A more impressive 120,000 apps have been built and run via Force.com.

Competition for partners is heating up as developers start to move en masse to the cloud. According to a survey published in August by Evans Data, nearly half of developers expect to deploy apps to a private cloud within a year.

Even before launching its VAR program, Salesforce.com had the biggest lead in winning developers, according to Rebecca Wettemann, an analyst at Nucleus Research, because it provided tools that made it an average of five times faster to build software on Force.com than on Java or .Net.

“Anyone can build a data center. What Salesforce.com has done is package an entire test and product environment with sales and marketing support,” she said.

“The beauty of Force.com is that development is easy,” Caplan said. “It's clicks, not code.”

It's unclear, however, how that will translate into real profits for Salesforce.com. During its second-quarter earnings report conference call last week, the company said that 25% of its business in the quarter came outside of its core CRM-on-demand business, from ventures such as Force.com.

In contrast, the company that has done the least to woo developers and resellers appears to be doing the best, financially.

Amazon Web Services LLC, according to figures released in July by Amazon.com Inc. as part of its quarterly financial report, appears to represent the biggest chunk of a category that is already a $550-million-a-year business.

That's despite the fact that Amazon doesn't offer any preferred discounts to partners or provide much technical hand-holding, Caplan said. “It takes a lot more technical skill to use AWS,” he said.

That hasn't stopped Model Metrics from reselling both AWS and Force.com. For one, AWS's prices are “dirt cheap,” Caplan said. It's also a “more developed platform” than Google App Engine, and thus complementary with Force.com.

Microsoft: The big question

The biggest wild card is Microsoft, which had long insisted that cloud services alone would not be enough to displace its on-premises dominance.

The shift by most cloud providers toward a partner-centric model pulls them closer to Microsoft's home turf, where the software maker has “the money, the size and the power,” Bova said. Ninety-five percent of Microsoft's $60 billion in annual revenue comes from its 400,000-strong partner army, she said.

The 14,000 members of Microsoft's elite Gold partner program are more partners “than Google, Amazon.com and Salesforce.com have combined,” Bova said.

But mobilizing those partners to tout Azure and Microsoft's other cloud services, such as its Business Productivity Online Suite, is no slam-dunk.

For one, Azure, due to launch in November, remains “PowerPoint-ware,” Wettemann said. Also, many of Microsoft's partners are small “mom and pop” shops that may prefer to cling to existing business models, she added.

And there's no guarantee that partners who switch to selling Microsoft's cloud wares will do anything but replace Microsoft's existing on-premises software revenue with cloud revenue.

That's not true for cloud-only players such as Salesforce.com, Google and Amazon Web Services.

Bova, meanwhile, said that Microsoft hasn't shown an ability to be as nimble as other cloud players. Google, for instance, “has made some very quick decisions that a larger organization [like Microsoft] can't,” she said.