Business Partner Success In the Era of the Third Platform Marilyn Carr, Channels and Alliances Research

Business Partner SuccessIn the Era of the Third Platform

Marilyn Carr, Channels and Alliances Research

© IDC Visit us at IDC.com and follow us on Twitter: @IDC 2

Agenda The Third Platform What’s The Problem Why You Have To Go To The Cloud


The Third Platform

The Third Platform

How is the third platform evolving?

Source: IDC

Changing Roles

By 2016,

LOB executives

will be directly involved in

80% of new IT investments

8

More closely aligned today than five years ago

About the same

Less aligned today than five years ago

0% 20% 40% 60% 80% 100%

LOBIT

Current State of Alignment of IT and Business

Source: IDC Canada BITAP n1 2014 Survey, February 2014 - n = 200

The Cloud Opportunity

9

the growth of the IT industry overall

5X

10

The Cloud in Canada

17%CAGR

4%CAGR

$1,134

$9,557

73% of Top Executives agree that Individual departments have a

much greater role in new technology selection

than 2 years ago

C$M

11

Perceived Business Value of Cloud / Mobile

Mobile Cloud Social Big Data0%

10%

20%

30%

40%

50%

60%

70%

80%

37%28% 25%

18%

30%

14%12%

10%

Very high business value

High business value

Source: IDC Canada BITAP n1 2014 Survey, February 2014 - n = 200

No pla

ns

No pla

ns b

ut w

ill ev

aluat

e in

18 m

onth

s

Evalua

ting

Mob

ile A

pplic

ation

Stra

tegy

Wor

king

on 1

st m

obile

app

imple

men

tatio

n

Have

launc

hed

first

mob

ile a

pplic

ation

Accele

ratin

g Pac

e of

Dev

elopm

ent w

ith 2

nd o

r 3rd

Mob

ile A

pp.

Intro

ducin

g inn

ovat

ing d

evelo

pmen

t tec

hniqu

es -5%

0%5%

10%15%20%25%30%

Source: IDC's 1H13 Western European Enterprise Mobility CIO Survey. Sample = 375

What best describes your firm's maturity regarding mobile app development and/or deployment?

+ mobile app maturity

12

We’re Just Beginning for Mobile

13

Cloud First, Mobile First

Among those who said Cloud Computing provides high or very high

business value 82% also said the same of

Mobile Technologies.

Source: IDC Canada BITAP n1 Survey, February 2013

Canadian IoT Installed Base

14Source: IDC Canada, preliminary estimates, May 2014

$5.6B

$21.1B

2013: 28M Units 2018: 114M Units

33% CAGR


So What’s The Problem?

16© IDC Visit us at IDC.com and follow us on Twitter: @IDC


The Marshmallo

w Test

Stanford 1970, Walter Mischel

Repeated around the world

Studies on Delayed Gratification with children (4-6 yrs)


The Deal: 1 Marshmallow

now Or 2 if you wait







2/3 of kids ate the Marshmallow


The Follow-up: ~18 years later Children who waited

had better life outcomes

SAT Scores Education BMI


So what does this have to do with

IT Solution Providers?


Why You Have To Go To The Cloud

24

Why Go to the Cloud

Growth

Profitability

Company Valuation

Future Viability

25

Why Go to the Cloud

Growth

Profitability

Company Valuation

Future Viability

26

Shift from Servers to Services

IDC predicts that service providers will account for over 27% of total server shipments by 2016

A brand new Hyperscale Market has emerged

© IDC Visit us at IDC.com and follow us on Twitter: @IDC

27

Shift from On-Prem to Cloud Software

About 90% of net new commercial apps will be developed specifically for Cloud in 2014

Over 92% of companies surveyed said they had plans to shift their IT budget towards Public Cloud

Source: IDC’s CloudTrack Survey, 2012

The Cloud Consumption Model Represents a Huge Shift

70% of CIOs will embrace a “cloud first” strategy in 2016

CIOs and CFOs will move to “zero capital” and transform the

IT financial model

By 2016, it is predicted that nearly 25% of all software revenue will be subscription based.

IDC Predictions:

29

Reality

“We would probably make more money if we could keep everybody on on-premise.

But that's not going to happen.”

30

Reality

“I think that if we don't partner with [our vendor]

and do this, then somebody else is going to

take our customers.”

31

Reality

For us to compete in two years, if we don’t have a few references and a few

case studies and a few like, ‘yeah, we’ve done it and

here are the scars,’ we’re going to lose those

deals.”

32

Reality

“Cloud is the Future.”

“The stats on the market are clear.”

33

Why Go to the Cloud

Growth

Profitability

Company Valuation

Future Viability


Cloud Partners OutperformRevenue Growth %

<10% Cloud 10% to <20% Cloud 20% to <50% Cloud 50% + Cloud Revenue

7%8%

16%

14%

Revenue Growth %

Source: Microsoft eBook, IDC 2014, n=670

35

Why Go to the Cloud

Growth

Profitability

Company Valuation

Future Viability

36

Cloud Partners OutperformGross Profit %

<10% Cloud 10% to <20% Cloud 20% to <50% Cloud 50% + Cloud Revenue

24% 26%

33%

42%Gross Profit %

Source: Microsoft eBook, IDC 2014, n=670


Cloud Partners Outperform

Cloud is not the only thing causing these results

IDC believes the best performing partners are adopting Cloud first, and faster

38

Cloud Profitability

Revenue

Cost of Goods Sold

Gross Profit

SG&A Expenses

Operating Profit

$

Cost of Goods Sold

Gross Profit

39

Cloud Profitability Example Cancom HQ Munich, Germany Formed in 1992 ~600M € VAR Transitioning to Recurring

Revenue


40

Cloud Profitability Example

Margin (%) * Estimated Hauck & Aufhauser

41

Why Go to the Cloud

Growth

Profitability

Company Valuation

Future Viability

42

Company Valuations are Higher for Recurring Revenue


“And the stock market values companies with

more regular cashflow more highly.

Even if the revenues were the same, the costs the same, the profits the same,

moving from a variable revenue stream such as upgrades to a more regular one as in subscriptions should boost the value

of Adobe itself.

Tim Worstall ContributorForbes

June 18, 2013

43




“There’s lots of rules of thumb. Recurring revenue companies are at a 7X multiple, an 8X multiple, 6X… Very

good multiples.

And non-recurring are 3X, 4X, 5X.

You do get a much higher multiple when you have high recurring

revenue. For sure.”

Jim Estill, Former CEO, Synnex Canada Current Venture CapitalistCanrock Ventures


Potential Valuation

Traditional Revenue Business

Recurring Revenue Business

Revenue Multiple 0.2 to 1.5 times 2 to 6 times

EBITDA Multiple 2 to 2.5 times 5 to 14 times

Source: IDC Partner Valuation Study 2014

“For the average sub $5 million a year VAR, it’s tough to get past three times EBITDA“ - Brent Twist, Encore Business Solutions


Focus on the future revenue streams that

you can build Don’t focus on the marshmallow in

front of you

And may you build a WEALTH of

Marshmallows

Thank You…

Business Partner SuccessIn the Era of the Third Platform

Marilyn Carr, Channels and Alliances Research

Documents

Business Partner Success In the Era of the Third Platform Marilyn Carr, Channels and Alliances Research