Article On Financial Stability of IT Service Providers Dealing with the Big Techs

Despite growing concerns about monopolies and the free market, big tech companies like Microsoft, Apple, Amazon, Google and Facebook are still expanding. Although each has its own focus, they all provide platforms, products, and cloud services on a totally unprecedented scale. The advantages for customers are clear: they get access to new, innovative software 100% tailored to their needs without any upfront costs or cancellation fees. Sure, the big vendors can afford to offer flexible subscriptions or pay-as-you-use services. But for a regular IT service provider it’s a different story. Still, many service providers do good business with the big techs.

The added value of a partnership

As the cloud has matured, businesses tend to buy more services directly from vendors. But configuring, integrating, and securing different cloud services remains a tricky business. Therefore, most companies still look for an IT service provider that offers services around the portfolio of well-known vendors. As a result, SPs increasingly choose to partner with the vendor to develop these services. The big tech companies have extensive partner programmes for SPs of all kinds. By becoming a partner, you get immediate access to a broad range of services, tools, and knowledge without significant investments upfront. Sounds good, but there are also risks involved. 

Beware of a vendor lock-in

Big tech companies are constantly seeking ways to maximize their flexibility and profits. Last year some of them announced considerable price increases that put pressure on the SP business. Some SPs passed the price increases on to their customers. Others settled for lower margins on their services. Either way, they had to deal with this setback. They simply didn’t have another choice. Once you use a specific vendor or platform, it is not easy to move business elsewhere. You (and your customers) are in for the long run since switching vendors always means expensive migrations and new costs.

How to build a stable financial SP business

The main challenge is maximising both profits and flexibility. To do so, here are some best practices to follow.

• The most important is that you don’t make yourself completely dependent on one vendor. Spread your risks! If you want to specialise, don’t focus entirely on one vendor or platform but rather on a specific branch (such asbanking, retail or logistics) or technical expertise (virtualisation or security). The more you differentiate yourself in the market, the better.
• Don’t forget there is more in life than the Big Five. Many smaller vendors offer great cloud services to work with and provide good service. Smaller vendors will usually show more consideration for their customers simply because they don’t want to lose them.
• Explore the possibilities of utilising freemiums or free trials in your services. Plenty of SPs have already adopted this strategy, either by offering free cloud services from third parties or even by developing their own. Perhaps you already have some exciting software on the shelf that you can provide for free on a cloud marketplace. Such business models made platforms like Spotify, Netflix, and YouTube great, so why wouldn’t it work for you?   

Need help determining the best strategy for your SP?

At Insight, we help service providers in realizing their business ambitions in a multi-cloud world. As a multi-vendor software licensing, workload, and cloud platform specialist, we can guide you through all stages of your strategic cloud journey. No matter where you are in your journey, we help you to find new ways forward and accelerate your business. Contact one of our cloud specialists for a talk.

Further reading?

Follow our blogs on cloud adoption or read our client stories to find out what others say.