IPED COVID-19 Impact Report: ‘Skyrocketing’ Interest In Consumption Models Driving Resurgence In IT Spending

The research arm of The Channel Company sees solution providers recalibrating their practices to meet shifting demand as the pandemic motivates customers to adopt cloud and managed services in lieu of hardware and software upgrades.

Solution providers are focusing their practices to meet an upsurge in demand for cloud and managed services that’s compensating for the initial hit the COVID-19 pandemic took to IT spending.

Migrations to the public cloud are once again “a hot topic,” Mark Clayman, CEO of Navisite, an Andover, Mass.-based cloud consultancy, told CRN, with renewed interest especially around projects refactoring legacy applications on new technologies as well as implementing strong security and compliance measures to support remote workforces.

Navisite is one of the solution providers benefitting from what IPED, the research arm of CRN parent The Channel Company, is calling “skyrocketing” interest in consumption-based IT and subscription services amid the pandemic.

The IPED COVID-19 analysis is the result of executive forum discussions with 20 channel partners and 20 channel chiefs conducted in August and September. Those sessions point to a rapid shift in recent months from transactional to pay-as-you-go models, said Mark Williams, a senior consultant for The Channel Company.

Sixty percent of channel partners said they expect the pandemic to have a positive or no impact to cloud and managed services thanks to heightened interest in security, collaboration, critical business transformation, and hardening of work-from-home solutions, the IPED study found.

“The momentum is shifting to consumption-based IT,” said Williams. “It has quickly become a requirement for vendors to supply solution providers with OpEx consumption-based models. Customers are demanding it. If you are trying to preserve cash, the OpEx model gives you more financial flexibility.”

Enterprise IT buyers are looking to procure cloud onboarding, data migration, on-going cloud management and cloud spend optimization services in lieu of hardware and software upgrades.

“Managed services, cloud and security are standing out as a growth engine for partners in the wake of the pandemic,” said Williams.

One sign of the times: a marked increase in Everything-as-a-Service solutions. Cisco Systems and Dell have recently announced such offerings, following the lead HPE took three years ago with its GreenLake cloud services business.

HPE said GreenLake grew faster than public cloud with a record-breaking 82 percent surge in service orders in the most recent quarter.

But public cloud vendors are also still seeing robust growth—in the most recent quarter Microsoft reported revenue expansion of 47 percent for Azure; Google Cloud reported 43 percent and AWS 29 percent.

When the novel coronavirus became a global pandemic, solution providers braced for a significant hit to their traditional resale practices as customers immediately slashed budgets and postponed buying decisions, an IPED survey conducted in May documented.

“Customers aren’t there, there’s less money, they’re delaying certain things,” Williams said.

But the latest IPED analysis shows digital transformation initiatives again accelerating as companies look beyond merely remaining operational to ensuring competitiveness in their industries when the economy widely reopens.

Navisite’s CEO told CRN that the company has closely followed the evolution of those buying trends across the various stages of the world’s response to the pandemic.

“When it started, everything just shut down,” Clayman told CRN. “Customers got the ‘deer in headlights’ kind of look. Many of them just didn’t know what to do.”

While different industries were hit disproportionally, almost all companies refocused on the near-term challenges of controlling costs and implementing initiatives to keep core businesses running, Clayman said.

“What happened during the summer, business started to get back to work and companies started to realize they could only really shut down initiatives that were key to moving the business forward for so long,” Clayman said.

Many Navisite customers again started thinking along longer time frames of six to 12 months out, the CEO said.

“They need to be in a position where they are at least jogging, if not running, back to market again,” Clayman said. That means enabling the business, opening up budgets, and moving initiatives forward.

Demand for managed subscription services is also heating up as the term of contracts is shrinking—enterprises that never thought something like a pandemic could impact their businesses now want greater freedom to flex budgets in an unpredictable moment, he said.

“I want to know if something like that arises again, I can either turn on or turn off services at a moment’s notice,” Clayman said.

Allen Falcon, CEO of Cumulus Global, a Westborough, Mass.-based cloud solutions provider, said customers have started thinking about the long-term again.

Many are assessing lift-and-shift migrations and getting on-premises services into the cloud to eliminate the headaches of VPN or remote desktops.

“They’re looking for us to manage the environment even more than they have in the past,” Falcon told CRN.

Cumulus Global’s SMB customers are also leveraging other capabilities they always had, though barely used, through those productivity suites, such as file sharing services, remote administration and collaboration platforms like Microsoft Teams.

Some businesses are correcting for what, early on, was “a little bit of panic buying,” Falcon said.

In the scramble to adjust to a new work model, a lot of companies didn’t make the best choices—many rushed to buy Zoom or Dropbox for Business without realizing they already had those videoconferencing and cloud storage capabilities through existing Google G Suite or Microsoft Office 365 accounts.

“We’ve seen a lot of businesses that are now struggling to regain governance over their data, even possession of the data and appropriate security measures,” Falcon told CRN.