Hyperscaler marketplaces are having a significant impact on channel sales.
By providing customers with access to cloud-based services, hyperscaler marketplaces have become an increasingly popular way for customers to purchase IT services. This has led to a shift away from traditional channel sales, as customers are now able to purchase what they need directly from the cloud provider.
As a result, channel partners must focus on providing value-added services and support in order to remain competitive in the market.
Our guest today, Tim Lowe, is the Director of Partner Ecosystem for the South East at the world leader of enterprise open source solutions at Red Hat.
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So hyperscaler marketplaces are having a significant impact on channel sales. By providing customers access to cloud based services, hyperscale marketplaces have become an increasingly popular way for customers to purchase IT services.
This has led to a shift away from the traditional channel sales as customers are now able to purchase what they need directly from a cloud provider.
As a result, the channel now has to focus on providing different services, maybe value add, or support, in order to remain competitive in the marketplace.
So, our guest today has lived through the evolution of channel partnerships over the last 20 years.
In this time he’s witnessed the changes in the IT sector, everything from virtualization to the emergence and prevalence of hyperscalers, as he worked his way through the ranks from a channel account manager to his role today as the Director of Partner Ecosystems for the south-east, at the world leader for enterprise open source solutions and that would be Red Hat.
So he's with us today to talk about the effects of hyperscaler marketplaces on the channel and partner ecosystems.
Please welcome, Tim Lowe. Welcome to the show, Tim, it's great to have you here.
Thanks Paul, looking forward to the discussion.
Perfect, so tell us a little bit about some of the highlights of your career in the channel space so far.
Yeah, so I've been at Red Hat for 16 years now. I started off as an inside sales rep and worked my way through different AE roles, worked on the Global Channel team for a little while and then got into our North America Channel via distribution and sort of worked my way up through there.
Really, a lot of focus on distribution across all of our segments, and then focus in on mid-market, where I have a mid-market channel team for a few years we really focused on sort of those lower, enterprise style customers.
And then to my role now, for the past few years in the south-east, running all of our partner ecosystem sales.
So it's been a great one. I think that when I started at Red Hat, we all must do more in a week than we did in, in a quarter, or even six months then when I started. So it's been a wild ride from a bunch of Red Hatters on a couple of floors in an office building at NC State to the company we are today.
Absolutely, you put up some pretty big numbers, I was looking at your LinkedIn profile and those numbers are getting close to or over a billion over your time with Red Hat.
Yeah, we're a little bit over $5 billion in revenue now as a company so we've had great leadership throughout from Jim to Paul and now Mad Hicks and you know we just continue to stick to our core values and continue to have success.
So let's jump into today's discussion for people that aren't familiar, who are these hyperscalers and why do we call them that?
Sure. So hyperscalers are your public cloud providers.
What they're doing is providing infrastructure in an on demand fashion, at a massive scale.
Versus having all of your infrastructure in a data center, and having your own racks , these companies provide us to be able to go up and down as demand indicates whether it's seasonal or frankly even weekly demand.
As an example, if a website where it's legal to make some wagers on the Super Bowl, for example, I would obviously see an uptake this past week and the computing power, and et cetera, that they need.
And so, this allows customers to be able to leverage the advantage of being able to scale up, to meet that demand without having the actual hardware costs sitting there for an entire year.
Absolutely, that's interesting.
So, how do you think these hyperscalers and their marketplaces are starting to make a wave when it comes to the channel ecosystem?
Yeah, it's a great question. So, the traditional sort of route, and especially in terms of software, right? So, we've been doing this a little bit for hardware.
So, it's not everyone sort of settled in, they have some on-prem things and they've leveraged hyperscalers for things, so the hardware side is pretty well settled down.
But on the software side, versus a traditional yearly license or subscription, in our case Red Hat, customers want to be able to pay for what they're consuming and they want that to be able to fluctuate as they consume more, or consume less based on whatever their needs may be.
And so your traditional ecosystem partner has to be able to pivot from selling those sort of yearly licenses or annual subscriptions, to being able to work with customers and deliver what they need and when they need it via the hyperscalers or are they being sort of left out of that market and the customer just being able to go directly to a hyperscaler for that piece.
So, that's the disruption for an ecosystem perspective in sort of a traditional regional VAR perspective, they have to continue to find ways to add value to their customers in this new marketplace.
And what I would just say is, they've done it for the past 30 years.
I have no doubt that they're going to continue to do it.
But it certainly is a different way of thinking and they do have to adapt or they risk being forced out of, or moved down from this new world.
So if you think about that kind of change that they need to make now to stay relevant, what do you think some of the biggest opportunities are with the emergence of hyperscalers and their marketplaces?
Yes, so it's a great question, right, and one of the things that we're really focused on here is co-creation.
So what these traditional boards need to do is take all of the knowledge that they have around their customer base, around multiple technologies, that actually solve a business problem for a customer.
Work closely with the vendor to help co-create solutions.
So as an example, if you have a retail customer, and what they need to do is have a point of sale application that understands everyone, when you go to the grocery store, you either swipe your little card, or enter your phone number, right? So you can save 10 cents on a gallon of milk, right? Whatever it may be.
But if you’re taking that information and that grocery store says, ‘Hey, you know, Paul buys milk every two weeks. So we need to send Paul a coupon for an extra 10 cents off every other week to try to get him to come back in here.’
Because when he does, it looks like he bought a bunch of other stuff, he buys hamburger meat, potato chips, etc.
So all of that information has to be captured somewhere, you have to sort the data,
you have to manage it with inventory and shipping and supply chain.
And so what the partners are doing today, the smart ones are saying, ‘hey, let's help build a point of sale application that leverages different technologies across different vendors and works with it on a hyperscaler, to be able to go to a grocery store chain, and say, you don't care what's on the back end, right?’
Whether it's this vendor versus that vendor, you just need to know that I need to send Paul a coupon every other week for milk, because when he comes in to buy milk, he buys $100 worth of other stuff.
And they give them that consumable solution that they created with the vendor to be able to deploy on a hyperscaler, as opposed to having to go in and sell a customer a bunch of different piece parts.
So I think that that co-creation piece is really, really important, its gonna be what differentiates the partners of tomorrow versus maybe the partners of five years ago.
That's interesting, I've talked to a lot of people just about the kind of emergence of ecosystems and what that means as they almost make a paradigm shift.
Maybe not so much, but a lot of people consider it a paradigm shift.
And one of the kind of focal points they have is this discussion about channel
and, you call it co-creation, I've also heard people call it co-innovation.
But that's probably the best answer that I have heard anyone share with me on what co-creation, what co-innovation would be because that's a marked impact that it would have on a retail environment such as that.
So, great insight there.
What about the overall effect, if people are now shifting, right, it's simply easier to go to a hyperscaler or to get additional technology requirements as opposed to, as you were saying, basically having it sitting on the shelf so you can use it once a year for the Super Bowl.
What other kind of effects on the channel do you think we're seeing, as people now, they're no longer buying hardware and putting it on on a rack in their office, they're now going to an Azure or Google or an IBM Cloud.
Any other effects that you see on the channel with this rapid adoption of hyperscalers?
So, you know, the best partners have always been services-focused. They've always made the bulk of their money delivering services for these customers.
But this has further sort of escalated that or accelerated that, I guess I should say.
So you no longer have this big chunk of your base.
Maybe it's a little bit lower margin.
But you have a huge chunk of sort of stable revenue, you know the profit margin that's going to come from it and then you can iterate off of that.
Well that huge stable chunk of revenue was not necessarily as huge and stable as it used to be given the emergence of these hyperscalers.
So what that's doing is just accelerating a company, a partner's lead, to truly dig in more and more with your customers and find out what they are trying to accomplish.
Right, what is the business outcome that they're trying to meet?
What are they actually trying to do?
And so, it's continuing to drive the very best partners closer and closer to the customers, into the lines of business.
We've all heard it right when everyone is working with their sellers to say, ‘Hey, listen, we need to continue to build our relationships inside of the data center, but we also have to move to CMOs and CIOs.’
And I don't know the exact number so I don't wanna misrepresent it, but you'll see CMOs and CIOs controlling more and more of the budget these days than in the past, more more of the IT budget.
And so it's just, the strongest of our partners are continuing to move closer and closer to the business and the business leaders, it's just a different sales motion, Right?
And sellers are having to evolve to be able to have those different sort of conversations.
It's no longer your bills of materials and feeds and speeds and feature function versus cost.
It's, ‘hey, you're trying to accomplish this and if you don't do it, every day that you don't, it costs your business X amount of dollars because your website's down and people can't go buy it.’
I mean think of your times where you need to buy a new pair of shoes.
Right, if nike.com is down or Footlocker is down, you'll go to pick your vendor of choice, you just need to buy a pair of shoes.
And so companies can afford to not be available.
You have to speak in those terms, though, with that customer versus whatever piece of hardware you may or may not have sitting on a rack and whatever piece of software is running it, that's no longer the relevant conversation.
Yeah, that's interesting and those figures, when it comes to loss of potential revenue, are going to resonate a lot more with a CIO and a CMO, as opposed to somebody that is managing their IT department.
So, when in your kind of day-to-day interaction with your ecosystem, do you see a difference in the traditional value added reseller?
That's kind of a little bit of my background and I love the speeds and feeds conversation, I'm a geek that way.
But do you see a difference between the type of relationships you would have between that traditional VAR as opposed to now more of a managed service provider?
You know, do you differentiate the two in any way and is there a future for both of them in an era where we can work directly with the hyperscalers?
Yeah, it's very interesting.
AndI think that some of that story is yet to be written.
In terms of the future for each, I will say that absolutely we would work with a partner that is more focused on that managed service, and the ability to deliver what the customer needs anytime anywhere.
It's a different conversation versus a traditional VAR and the value that they bring.
Now, both are critical to Red Hat and vendors across the industry.
It's certainly a different conversation because you're interacting differently, right?
One of the things that we really stress at Red Hat is customer first, partner always.
So we are hyper focused on our customers, period full stop.
However, partner always means there is always an ecosystem partner involved with our customers, it just may not be your traditional VAR resell.
So what we're doing is making sure that we can shift our mindset and say, there's a ton of value in our traditional channel and we're going to continue to invest in that and continue to drive that.
However, if a customer doesn't work in that traditional channel, it doesn't mean that the ecosystem is hands off.
We still need to make sure that we're working with our partners, whether that's an SI, an ISV, a hypescaler, etc, because those customers are relying on all these different parts of the ecosystem to go accomplish the goals that they need to accomplish.
So, all of that to say, again, I think that the future will tell us where exactly every one sort of falls in these different spectrums
But you certainly have different conversations based on what that member of the ecosystem focuses on and wants to drive towards.
But they're still both critically important from our perspective and I think they will be for the foreseeable future.
But you will have to see what happens to the next 5 to 10 years, and how they evolve.
I think a lot of times those partners will evolve and sort of have a little bit of both right?
They'll serve customers in sort of a traditional way because, let's be honest, partners are not going away, traditional software licensing is not going away, and traditional services are not going away.
There are just some things that are going to stay that way, so that's totally a ton of value there.
But there's also the piece of, ‘hey, I need help to migrate certain applications to the cloud, and how to automate that? How do I containerize that?’
So I think that what you'll see is that the partners that thrive over the next 5 to 10 years are going to find the right balance between their traditional skill sets and how they serve those customers, and being able to adapt to meet some of these new modern routes.
Do you think there's going to be a new impact on the way that the ecosystem generates revenue?
We know how the hyperscale is generating that revenue, but what about the other members, the ISVs, the MSPs, the VARs, do you think that there's more of a rev share model?
Or do you think it's more of a service based revenue model?
Where do you think that next 5 to 10 years will take us, when it comes to the expectation of how they generate revenue?
So, it's absolutely going to change.
I just don't believe that we're going to see as many large, give upfront sort of opportunities.
Now, that's not to say that the amount of revenue over the course of three years is any different.
I just think that instead of getting a $3 million check today, you're gonna get and I'm not gonna do the math but whatever three million divided by 36 is, you're gonna get that amount of a check each month, right?
And so, they have to be able to adapt to those instances.
One of the things I think that's really interesting is the committed spend aspect of these hyperscalers.
So somebody go and talk to a customer and say ‘hey Paul, you're going to spend $3 million over the next three years, you know that entitles you to X amount of discount, and how you consume that is completely up to you.
So, what partners are going to have to do is find a way to work with ISVs and SIs, and then traditional vendors such as a Red Hat say, ‘Hey, we need to get customer ABC to consume this compute on top of hyperscaler ABC’.
The only way that we're going to do that is we have to put these vendors' technologies on there to help them consume this IS application, because that's going to drive the consumption, and burn down that spend.
But oh by the way, that's a really complicated process.
Like it seems pretty simple, you take your point of sale application and throw it onto the cloud.
Well it's not that way, it requires a lot of different work and governance and guidance.
And that's where you work as closely with some of the GSIs is right, to say ‘Hey listen, we need to really re-architect what they're doing because it operates a little bit differently in the cloud than it would on PRM.
And so all of those things together are absolutely a different revenue model.
It's definitely more services based and your sort of traditional hardware spend or software spend is going to be spread out.
Like the hardware spend is going to change a little bit. Partners can still participate by the way, just in consumption from the hyperscaler right?
It doesn't just have to be the sulfur piece, there's ways for partners to participate in that as well.
But to your point, It's not an upfront sort of chunk and so they're going to have to adjust their models and the way that they're going to market to be able to meet these customer demands of ‘hey, I no longer want to pay this much upfront.’
We think about it like your cable bill, right? I don't want to just pay for a year's worth of my cable subscription, or for my Internet, or my cell phone usage. I'm gonna pay as I use it. And some months if I go out of the country and I shut my phone off, maybe I'm not using it as much.
And so customers, I think that all of those things, and sort of our consumer life, that we've kind of been used to the past five years are starting to permeate their way into our business lives.
If people say ‘well, wait a minute, this is how I do it every day, I want to consume technology this way from a business standpoint as well.’
For sure, absolutely.
So at Red Hat, as you're kind of leveraging different capabilities of the hyperscaler marketplace, what impact has that had on your overall channel strategy in the 16 years that you've been with Red Hat?
I mean this is a time where so much has changed in the IT sector.
What's the evolution when it comes to your strategy and now an ecosystem play as well?
Sure, it's absolutely evolved.
We are working more closely to use your words exactly ‘do more with our entire ecosystem and not only on our value added resellers that are delivering the value that they deliver, we have to broaden our aperture and be sure that we're working with our value added reseller but ‘hey, what else are they touching?’
Their small business owners and they've survived all kinds of crazy things, right?
You know, virtualization was going to also put them all out of business and they didn’t, they're incredibly sharp individuals.
And so they aren't working closely with hyperscalers and with ISVs and others.
So it just broadens the lens and allows you to have a conversation and build a strategy with a lot of the partners that you've always worked with, but it's no longer a very narrow focus of ‘Hey, how can you go sell some more Red Hat to this customer in this annual subscription?’
It is what we're trying to solve for this customer, what other members of the ecosystem, where we're working with, and we build a broader solution for that customer.
So, it just really gets us a level deeper in terms of our strategy and how we go in and have these conversations with these partners.
Have you faced any challenges as you've kind of gone through this evolution and now with hyperscalers? Any kind of pitfalls that you've experienced, or lessons learned along the way, so to speak?
Yes certainly, there's always challenges when you're addressing a new market, a new model that's outside of your comfort zone.
And so I think that the biggest pitfall would be don't go into this only focused on the way things have been. Institutional knowledge can't be understated, and success in this industry is incredibly important. So to go to someone and say, ‘hey, forget everything that you've learned over the past 20 years’ is also a silly statement, right?
But go into it with an open mind and say, ‘Hey, how can we leverage what you've learned over the past 20 years.’ Then apply it today to today's market for today's customer buying decision and buying process.
So if you go into it with an open mind right, I've been around 16 years, openness is in my blood, right. So, but go into a collaborative approach, I think that you can overcome a lot of the challenges because it's new.
It's still new right, we're still figuring out how do you size out what you're gonna consume over the next three years, right?
How do we do that? How do we offer a commitment that everyone can be comfortable with, with the flexibility to change as needed?
We're still working through a lot of those things and there's a lot of customers that have a committed spin number with a hyperscaler, and they're trying to figure out was this not enough, or oh my gosh, this was way too much, what do I do to make sure I get to where I need to be?
So those things are still going to happen, and my opinion on that would be to go into it with an open mind.
Because if you go into it incredibly prescriptive, that's probably a little bit of a pitfall. I just don't know that we're in a prescriptive world any more for a three year period.
I mean, who knows?
But there's going to be something that you'll talk about on this podcast in three years, that we have no idea exists today.
There's gonna be a new technology, there's gonna be a new process that businesses are trying to overcome. And so, you have to be able to adapt, and so everybody has their five year plan, not really a five year plan or in my opinion, you know, you have a super skeleton out loud, but you have to be able to adapt.
So that would be one thing that I've noticed is going into it too sort of boxed into
That's where you can potentially trip up if you just don't allow yourself the ability to be a little bit flexible.
So do you help partners differentiate from competition by leveraging the hyperscalers? Is that something that you currently do?
Do you think that's something that all vendors in this space should be doing for their partners?
Yeah, well I don’t want them to do i. I'm just kidding.
Yeah, absolutely, you have to leverage all the pieces of the ecosystem, whether that's, ISVs, SIs, hyperscalers, you have to work together.
So as an example, if a customer needs to consume X amount of dollars over the next year to hit a committed Spend Target, well, why wouldn't you go and talk to that customer, find out what they're trying to do, what applications they have that could be automated or containerized, and then go work with the appropriate ISVs.
And in our case, Red Hat and our appropriate solutions that can help with that, then a partner to help them migrate that and go back to that customer and say ‘Hey Paul, you know you have this X amount of dollars committed, we're all gonna work together to help you get these workloads moved over.’
It's gonna drive those consumption pieces, it's going to be way more cost effective for you because you already have these dollars committed, and we're going to help you achieve a business need.
As opposed to going in there and selling you something, right?
So it's a completely different conversation, in my opinion, if you're doing it right as a vendor, to help customers achieve what they're trying to achieve by leveraging all different pieces of the ecosystem.
Versus knocking on their door and putting up the slide with these are the products we have, do you have any problems that these can solve? It's just a different world.
If you're doing it right, then yes, vendors are absolutely helping coach and educate customers with different members of the ecosystem.
And we're going in there together to present to that customer how can we help them achieve this.
As opposed to going in there, you know, you pass the guy on the way out, shake their hand and tell them ‘oh, this is what we just talked about, why don't you talk about this?’
So I'm gonna ask you to kinda have a crystal ball and start to look into the future of the hyperscalers. Where do you think they're going?
What do you think the evolution of these marketplaces will be?
Yeah, if I knew for sure, I would be retired in 5 years right?
But I think that they're going to continue on the trajectory that they’re on.
I don't see anyone going back to a more locked in, sort of gated way of life.
I mean, our whole lives are becoming more and more on demand.
Again, in our personal lives, you know, my kids are only 10 and 12, right?
But 20 year old kids that grew up in a technology that never knew a world without a cell phone, that was like a little mini computer, are going to be the IT leaders and business leaders of the future.
And so, they're not gonna go back to a world that they don't even know exists, where you had to pick up the phone and call somebody, and then have to order hardware, and they give you rights, and all this stuff, they only understand on demand, Google Docs, or Office 365, and the like.
That's the only world that they know.
So, that is going to cause, in my opinion, those hyperscalers to continue to grow at a really impressive rate.
And I think that they're going to continue to work on security in ways to sort of gate in defense of certain things to where customers are more comfortable putting more sensitive applications out into the cloud.
To me, that's the big question.
There are still some things that customers whether it's regulatory from the federal level or whatnot, they're like ‘Hey man, this isn't touching the outside world, this lives in our field.
But we also didn't think e-mail lived outside of our buildings 10 years ago.
So in my opinion, I think that we're going to be more and more things that get moved out into these consumption on demand style hyperscalers.
And they'll just continue to beef up what they're doing, which just goes to show that they're gonna continue to have to work with all sorts of ecosystem partners to be able to deliver what their customers want.
Because I think that the world is continuing to be more and more on demand.
The only other thing that I would say and I'm perfectly honest, I don't have a ton of experience in this, but the AI ML is probably the most interesting thing to keep an eye on, you know Chat GPT.
So my wife is a teacher, and they literally had to have a meeting at her school.
They said ‘ hey, here's how you check to see if a student wrote their paper with chat GPT.’
That's crazy to me, and the evolution of how that stuff works, and in the cloud, and this, that's going to be a really, really fascinating thing to watch over the next five years.
So, as we start to wrap up, and we look at your vision for the future of hyperscalers, I agree with you completely.
What do you think this will do, as far as the future of partnerships?
Do you think there'll be an effect on it?
Do you think it'll just be more of the same, or do you think partnerships will change as well?
Yes, so, and I'll admit that I'm coming from a biased point of view, but I truly believe that open source is the future of technology.
It's just been proven by the collaboration, the many eyes, sharing information, you know, positively correcting, offering ideas.
I firmly believe that that delivers better software.
I really, really do.
And so, I think that, yeah, the future of partners and ecosystems is going to have to be more collaborative, right?
I just feel that if you don't do that, you're gonna put yourself in such a niche that you're just not going to be able to expand and grow, right?
And you're going to have to hold on for dear life to your really narrow set of customers, or market share, because it's just not the way that, in my opinion, that the world is going, much less technology and customers.
Everything is about collaboration, about sharing meritocracy, and letting the best ideas win.
And so Hey man, Microsoft and Red Hat worked phenomenally together.
When I started at Red Hat, that was not the case.
And so I think that's going to continue to be the trend for all of us in the technology industry, from a vendor perspective.
Our job and it goes back to what I said before, customer first, partner always.
You have to be hyper focused on meeting your customer's needs, and to do that, we're going to all have to work together.
So my opinion is absolutely that partnerships are going to continue to be. There's going to be way way more co-op-petition than your traditional ‘It’s either us or them.’
Absolutely, and that is great advice and you've shared some great nuggets with us today, the co-creation, the collaboration and co-op-petition, absolutely.
Alright Tim, thank you so much for being on the show today, it's been a pleasure to have you here.
Yeah, thanks for having me. I appreciate it.