Thirty years ago the PC revolution spawned a significant number of companies that today we call “the channel”. These companies resold computers, parts and pieces, software, and expertise. Since no company could reach the entire market with an internal sales staff, the millions of people in the channel built the big technology companies like Microsoft, Intel, HP, and Cisco. These companies have experienced extraordinary change as the decades have passed.
The first wave of the channel was driven by the mark up associated with selling retail, and it ended about fifteen years ago. It was replaced by the opportunity to sell services. This second wave started with simple network administration services and grew to the full complement of services we have today. The big vendors then got into the game. Lead by IBM as it recreated itself as a services company in the ‘90s and now generates over half of its revenue from services. In the last few years, HP bought EDS for $14 billion in 2008, Dell bought Perot Systems for $4 billion in 2009, and Xerox bought ACS for $6 billion in 2010 making the services business – very big business indeed.
The service offerings of these large firms include everything imaginable and are sometimes easy to visualize: Xerox for example sells document management services instead of copy machines. And other times incredibly complex: like EMC’s high availability enterprise network attached storage in the cloud. We are watching big iron make its comeback as each of these big companies builds monstrous data centers and offers a cloud solution for everything. Wasted processor cycles and storage capacity are being wrung out of these systems and IT labor is being used more efficiently driving down the incremental cost of computing quite rapidly. Enterprise computing budget line items that used to be over $1 million now seem to cost $50,000 and those that used to cost $10,000 now start at $15 per month per user. All of this disruption will present many opportunities for add on services – which is the hallmark of the second wave – so the companies in the channel will thrive in the cloud.
If that is not enough excitement for you, the third wave is forming. At the risk of using another already overused word, let’s call this the platform wave. There may or may not be a better word, but at least we are not calling it the “Cloud Wave”. To review, in the first wave channel partners marked up hardware or software products, in the second wave channel partners charged for their time/expertise (still a big business), and in the third wave channel partners are part of a platform ecosystem. Sure, this has been part of the Microsoft strategy for 30 years. Microsoft pioneered the transition from big proprietary platform systems offered by IBM, HP, and DEC in mainframes, to their own small proprietary platform system: Windows. Along the way, Microsoft has grown its partner ecosystem to over 600,000 partner companies that have millions of employees worldwide implementing, customizing and maintaining solutions built on the Microsoft platform. So it is tempting to say that there is nothing new here. However, one dominant platform is one thing, a dozen is something different all together.
The new platform builders look different because their consumer focus can obscure the view. Is Google search or a platform, is Facebook social or a platform, is Apple a shiny device maker or a platform, is Amazon a giant online department store or a platform? They are all of the above, and even if there is a small chance search, social, devices, and shopping could coexist; there is no chance all of these platforms can. Both Facebook and Amazon made significant announcements last week with the Open Compute Project and Amazon Cloud Drive respectively. Google, with Docs and Gmail have been in this space for a while, as has Apple with Mobile me, and Microsoft with their rebranded Office Live services and Azure. Salesforce.com, Oracle, SAP, HP, and Dell are also developing cloud solutions.
As stated above, the second wave (services) is likely to get bigger as these platforms deploy because companies are going to need more help than ever to take advantage of all of the new offerings. So what exactly is the third "platform" wave?
The third wave is the new products built on top of the platforms. There have always been products built on platforms (think MS Office on Windows, or Garage Band on OS X), but this era is different because the platforms are not machine dependent (i.e. are accessed by devices ranging from smart phones to set top boxes), and there are so many products. If you still think this is the same old thing, consider Dropbox, Evernote, Zotero, or SpotCloud, or even a Wordpress server running on Amazon’s EC2. These new applications run on the platforms, and also enable other new applications – Zotero can be made more portable by storing files in Dropbox.
At present there are over 380,000 active apps in the Apple App Store and over 250,000 in the Android Market. Amazon does not publish numbers, but the growth of its EC2 and other cloud offerings is pervasive. The opportunity to carve off a small specialized piece of this new marketplace is attracting many new entrants to the channel – and converting a sizable number of existing channel partners.
In the months ahead, channel partners will be spending considerable energy evaluating the merits of the platforms offered by these and other companies and success or failure will ride where they choose to make their investments.