From CapEx To OpEx: Channel Strategy In The Federal Push To The Cloud

The federal government has slowly been undergoing a switch in budgeting and procurement from focusing on capital expenditures (CapEx) to operational expenditures (OpEx).

Why? In budgeting, OpEx costs are more predictable. With the current problems in the federal budget, contracting officers, program managers and CIO staffs are putting a premium on cost predictability and ease of provisioning.

As a result, there is a real dichotomy developing now between how the government wants to buy and how the manufacturer needs to sell. In particular, because of the increasing preference for cloud-based offerings within government, we’re starting to see a gradual transformation from point products to services. This is clearly evident in the federal move to cloud computing. The latest report from the Office of Management and Budget, for example, shows that 40 of 78 projects targeted for movement to the cloud already have made that shift.

[Related: Federal Agencies Poised To Move Mission-Critical Apps To Cloud]

The desire among government professionals to spend OpEx instead of CapEx dollars means that budgets will increasingly be geared to existing programs. Any new projects or programs will be harder to get off the ground.

So it’s time to rethink demand generation and channels of distribution in light of these new customer requirements. Companies selling into the government have to take a hard look at how they position their products, channel and direct sales strategies to go after operations and management dollars.

Technology vendors should redouble their efforts to show why their solutions offer the best value in the current climate while making it easier for the benefits of their products to be delivered in alternative models. These companies are increasingly looking to the channel to provide that translation from product to service.

It’s also time to take a harder look at compensation. Despite this shift in federal budgeting and procurement, manufacturers have neither changed the way sales reps get paid nor the way companies recognize revenue. There must be a new way of recognizing revenue, especially for large companies.

Technology vendors need to create a multipart strategy to figure out how they can bring their products to the market space from a business, sales and technical perspective. An important part of this strategy is having answers to some fairly specific questions:

* What sales activities are required to bring the technology to the market?

* What types of partners are necessary in this new budgeting and procurement ecosystem?

* What activities are best suited for the manufacturer to perform?

* What are the go-to-market plans that compensate the partners for performing these activities?

The upshot of this is you need to not only refocus how you’re promoting your products to the government — namely, as services that can be tied back to existing programs and objectives for mission fulfillment — but also be sure you’re fairly compensating the partner that will get you there.

Keep in mind also that there are new partners in the game. Cloud brokers, service providers, carriers, managed service providers and even leasing companies may have a play in your new strategy, because alternative financing models need to be considered in getting to these operational expense dollars.

Channel partners have an opportunity to take a new look at the space they play in and how they sell point solutions into that new space. A huge opportunity exists for the companies that can figure it out fastest. Companies that can better market and position the move to the cloud will be better set up for success.

Skip Liesegang is vice president of the government channels division of immixGroup, which helps technology companies sell to the federal government. He can be reached at Skip_Liesegang@immixgroup.com.

PUBLISHED JAN. 10, 2013

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