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Partners will use cloud as a loss leader

The principle of the loss leader model is to attract a customer with one widely offered & used product and then for the customer to buy other more premium priced products while they are there

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This is the first of our 2013 predictions, and comes on the back of a large number of partner conversations where we are seeing the maturing of cloud as a delivery option for technology, and also the maturation of partners in the cloud space.

The concept of a loss leader has been around for a long time, and is practised in just about every industry these days; in fact the 'Freemium' model that has developed in software & services is a close variant of the practice. 

The principle of the loss leader model is to attract a customer with one widely offered & used product (milk being the classic example in grocery stores) and then for the customer to buy other more premium priced products while they are there. 

Over the years this principle has been applied in the technology with examples such as low-margin PC's being offered as an entry point for higher margin solutions, and in the services world desktop services that have been used to leverage other services sales at higher margins.

There are an interesting combination of circumstances that make IDC believe partners will actively use some cloud offerings as a loss leader in 2013. Firstly the underlying economic circumstances which in most regions are still uncertain, and also the maturity of cloud as a concept, and it's acceptance as an option to customers. 

There is also a perception (with customers) that cloud = cheaper. And this is one of the drivers that fuels the prediction, as in our conversations with partners, we have regularly heard that cloud based offerings might be cannibalising existing offerings they had been selling to their clients.

So, IDC predicts that in 2013 we will see a dramatic growth in how Partners use cloud to 'open doors' with new clients and re-open them with existing clients. 

Cloud-based software and services generally have a faster selling and implementation cycle, so we think partners will leverage this with the combination of 'loss leader' pricing to drive more up front activity, and then look to prove themselves with these customers, and in turn, drive other services that are more profitable to their business. 

Of course there will be partners who have already changed their business to be more cloud centric who might be more averse to this strategy, but the market activity will likely drive them to participate. 

We expect an interesting and competitive year in the partner world, especially as world economies start to settle and drive more GDP & IT growth, and partners will want to get their unfair share of customer demand.

Posted by Steve White, Program Director, Strategic Alliances Leadership Council, IDC
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