Shantaram Shinde , National Head-Channel Business | Netmagic Solutions (NTT) outlines the changing paradigm of cloud and data center businesses and how partners are aligning accordingly.
What would you like to highlight as the salient points of Netmagic’s channel strategy?
Netmagic NTT’s channel strategy has been there since 12+ years now and it is quite a matured policy. We compensate our partners in two ways. One is we compensate for acquisition, which is where we call it as rebates in year one and partners also get on a recurring commission going forward till you have a customer contract with you.
We also compensate partner sales and pre-sales teams in a different manner by ways of rewards, gift vouchers etc for particular deals. In fact, we compensate almost all the deals. Then we have programs which compensate for specific set of services like security services or HANA services or co-location, or a private cloud. So depending on the type of service, we compensate the partner sales people separately. This is as far as the direct compensation to partners and partner sales reps are concerned. Our compensations are at par or even much better than our competition in the market today if you add the recurring commission and the rebates that we give.
The second aspect is the co-funding of events which are there for select partners who meet their numbers or have clear strategy to drive the business along with us. That is where we use the market development funds (MDF) that we have and we compensate them for those. We also have small sessions where we do a lunch and learn session with partners’ customers. We choose 5- 10 customers of a particular partner and either bring them to a data center where they can have a look at the entire facility. We showcase them and their teams that facility, and also, take them through the entire service portfolio and our channel policy and how they can make money out of this business.
How would you profile your partner ecosystem and how are you targeting them?
We have close to 250+ partners nationwide, and the portfolio is a mix typically. The majority of the partners are the system integrator partners who the partners of OEMs, while the second set of partners are application integrator partners. These are typically the SAP integration implementation companies, which are SAP Tier 1, not Tier 2 partners.
Both these sets have tier fitments, their core competencies and our services go hand in hand and we complement what they want to offer as their services. Also, the way customer buying pattern has changed in the last 2-3 years, it helps these partners to have a single point of source of services for their own customers.
The third set of partners that we have is the government partners or the consulting companies. We do not want to directly interact or get into government business. That is where this policy or this particular type of partners help us in getting there, reaching out to those government departments and they themselves are on GeM portals and consume these services.
Apart from this, there are the cloud and managed services companies, or we call them as born-in-cloud companies. The way it helps is to complement or complete their services portfolio to be offered to their end customers.
There was a point in time when we had almost 70% SI partners. Today it has reduced to almost 30%. So 30% partners are the system integrators, another 30% are application integrators because we changed our focus and we decided that we will switch to the application integration partners. About 10% odd are consulting companies while government community is again around 20%.
Can you elaborate how these born-in-cloud partners function?
For example, if they are a partner of AWS or Azure, they can add a Netmagic co-location, data center, and private cloud services, which will be an additional offering for their end customers because public cloud does not fit everywhere and that is where we come in handy. Then the two sets of services that we have, the managed services and the managed security services, helped them a lot to give a complete bouquet to their end customers.
If you look at their profiles, they are neither system integrators nor application integrators. That is the reason they are called born-in-cloud partners. They develop their niche by purely working on the hyperscalers like an Amazon or Azure. They have not seen the hardware age at all.
The good part is their maturity level and the understanding of the technical stuff is much higher against other set of partners. We do not try to break the trend of their competencies on hyperscalers, but we try to fit in where these two players or these hyperscalers cannot provide those services.
We act as a substitute or replacement of those services because one size does not fit all. Not everybody is comfortable on hyperscaler, but at the same time, there are advantages of using hyperscale services like elasticity or pay as you use. There are so many applications and services available for consumption without investing a rupee but at the same time, something like in Oracle, it fits in only on the physical box and that is where they have to move on to the hybrid cloud. So now when you think of a hybrid strategy, they have no choice, but to collaborate with someone like us.
What are the services offered by Netmagic and what is their proportional contribution?
Actually co-location deals skew the whole mathematics. These deals come as bulk deals and even 1 or 2 deals skew the whole proportion of the way we sell. But our positioning through partners is threefold– private cloud, public cloud and managed services. Managed services include managed services and managed security services.
If you look at the profile of system integrator partner, his intention or goal will be always to sell the whole stack of services and make maybe a margin out of that. Services are not bigger deals, but they give you recurring revenues. Now to change the SI partner’s mindset from one time deal to recurring was difficult about three years back. Now, they have the teams in place, which does both.
During the pandemic, if you look at when deals were not happening or delivery was not happening, everything was idle, but at the same time, cloud and managed services were selling and in fact, their data center services and managed services or telecom services were categorized as essential services.
I think that this shift will come slowly. We were helping them to come out of that mindset but our proportion still remains almost 50% plus on co-location, about 20 to 25% on managed services and 20-25% again on cloud and private cloud services.
During the pandemic crises, what were the relief packages, incentives programs and other initiatives taken up by Netmagic?
Directly we did not do any compensation but when we changed our compensation pattern, starting this year, we categorize partners into Gold, Platinum and Diamond, with Diamond being the highest category of partners. Compensation depends on the volume of business that you do, the amount of customers you bring on board and the type of services that you sell. Now, this helps indirectly compensating them because those who have been with us for a longer time, have been consistently meeting their numbers and on-boarding customers, we have increased their compensation on the rebates.
We have two kinds of compensation. One is recurring commission, which they get year on year and there is a rebate. Now rebate they get for year one only, which is actually a compensation for acquisition of a new customer. The whole of channel function in Netmagic works purely on acquiring new doors. So our partners are compensated purely for acquiring new users. The Second is the recurring, which is for period of the contract. Typically in our industry, contracts are never short term. They are either 3 or 5 year contracts. We have increased the compensation for rebates, almost double in a few cases.
Does this include a change in pattern of MDF usage?
Not really, earlier we used to do face to face events in various cities with partners and their customers or a set of partners or with the OEM and the partners. Since they are online events now, we are still figuring out the way to do these events more often, assuming that this is going to last for at least two more quarters.
How would you be tracking the sales growth for Netmagic and its channel ecosystem?
One thing for sure is there is no consistency as such now even on growth. Before pandemic, we would be able to easily predict that so and so deals will get closed. It definitely impacted in quarter one to a good extent because the indication of it is the number of opportunities that you lock. Now they have gone up again from August and it pretty much looks like a normal number of deal registrations.
The fundamental change that I have seen during the last 6 months is partner inclination towards adapting the third party data center and the managed services portfolio. We have got more retail leads; so minimum selling unit in case of data center is a rack and we have started getting requirements for no less than a rack, which is helping partners to build their business models.
For example, if there is a managed services partner, you can buy a rack and start selling and start doing a retail business which we have been pushing to these partners for now almost 2-3 years no. Now they have realized that this is the business to be in, because what happened during this pandemic. People took time to realize that they are not able to access their setup which is on their on-premise factory or an office and then they started looking for options to move there, which in normal time they would have not given a thought. These were the opportunities which are directly coming to those partners, specifically to SI partners and it is working well for us.
Does that mean the WFH culture has pushed up cloud adoption?
There is adoption of data center services and few more key services like obviously cloud, but adoption is still on a private cloud to be very specific. We had to convince people who adopt the work from solutions which will include a remote access or a secure access kind of services, which are offered by some of our partners like Akamai. Earlier we had to convince a lot but with the situation today those services are getting adopted very easily.
The second is security services. Since the end point needs to be secure, people are getting more aware of security service, and we think in the next couple of quarters adoption as well as the requirements in that portfolio will grow. So private cloud, public cloud and security services will grow significantly.
Data center operations being categorized as essential services were not impacted to that extent and that was the advantage to our customers as our services continued. As far as back office operations is concerned, we pretty much adopted to most of the work from home solutions, including our partner events, partner trainings, or workshops, or even customer trainings and workshops. There it took a little bit of time to get adjusted but not much of an impact per se from switching from office.
What was the impact on workloads for different verticals?
I would call it consumption pattern by various customer profiles. The most impacted in this scenario is probably the manufacturing segment. Those who are already in data centers, their business was not impacted. But those people who did not have, for example, disaster recovery services, or those who had primary site in factory or in a head office location of their own and did not have DR either on a cloud or somewhere else, were definitely affected. Those who did not have DR, those requirements also came, and they started seriously thinking of that. In fact, it went off well also in those cases.
Those who were purely on-prem started thinking of data centers. Those were on-prem and off-prem both, just considering even the on-prem to be moved to data centers. So that has increased revenue and opportunities for us. For them, it was completely moving to a new site. Connectivity increased a lot because once you move to data center, you need to increase your bandwidth and the connectivity also to data centers for remote access. Then came in the managed services and managed security services when their teams were not able to access those services got offloaded.
With this something called a zero trust demand has increased. So we have Akamai as a partner,a very strong partner and they have something called a secure access for enterprise access services wherein it, it talks about zero trust, as long as you follow the policies, you get the access, otherwise you do not get that. There was a point in time in this option to remote desktop or a challenge, but now people are really accepting the RDP remote desktop services. Apart from that, security adoption is very popular. So, security services, remote desktop, and enterprise access or a secure access services are getting adopted pretty fast.
What were the financial challenges and impact on the contracts?
The contracts are typically for 3-5 years. Maybe there might be a short term impact of not being able to make payment. This can be delayed a little bit but there is no discount as such. There were requests from the customers in the initial month or two, but we were able to convince them. In fact, our cost to service to the customers had gone up, but we did not pass that on to our customers. So with this we could convince the customers
How is it balancing between retaining existing customers and acquiring new customers?
The whole focus is on retaining the existing customer base. If I were acquiring, say 10 new customers in a month, that has gone down to five or six, for sure. But does that mean that other five, which I could have acquired have gone to somebody else? No. So my funnel is intact. They have not gone with somebody else or the requirement has not died down. We are hoping that as the situation revives, we can close these businesses. Our existing customers base is pretty much an intact because our focus is to protect existing customers and grow them.
What are Netmagic’s expectations from partners?
Obviously the main aim is generating more business for both of us. But my focus for the last three years with each and every partner has been to invest in building competency. You cannot grow the business, without investing in those competencies. If you keep on doing what you are doing, you will keep on getting what you have been getting. Cloud is now a commodity but services like managed services, SAP HANA are where one need to invest.
Invest in those areas from an infrastructure standpoint, not just application. Invest in people, technologies, partnerships, marketing in changing your profile from X to Y. For example, for some partner who is in the market for 20-30 years now, his customers pretty much know him for what he does, but now to change his profile, what he does differently you have invest in marketing also. So people, marketing and training their current resources should be the areas of investment and that is the message that I have for the partners to grow together.
With commoditization of cloud, how are you helping partners manage shrinking margins using more managed services offerings?
Even we cannot do everything on our own. So we believe in an ecosystem. You build certain competency, and Netmagic utilizes that competency of the partner. So he can be rest assured that such businesses will start coming to him. It is for the sustainability of their organizations, not to depend on OEM led products, but OED led services because that is going to be returning revenued.
The margins are shrinking. There was a point in time when storage were getting sold in petabytes. Today, software defined storage has almost killed that market, and people do not want to invest in capital hardware. If you look at other way around, application as a service, you get a lot of applications to be consumed as an application, as a service where you do not need to invest in anything, only per user per month. So you can identify the trend where the whole consumption pattern is moving.
If you look at the new age companies, they do not want to do any capital investment in infrastructure and that reason, even companies like e-Commerce companies are only on hyperscalers. They have to deep dive into their own install, base customers and figure out what is happening. A lot of times those partners do not know what is happening in their setups.
What is the current infrastructure of Netmagic and what are you expansion plans there?
Currently we have a single data center in Mumbai that is DC6 which has gone live last year. DC7, which will go live this month in Mumbai, is an addition of another three and a half lakh square feet of data center space in Mumbai alone. In Bangalore, we already have two large data centers, ne in Chennai and one in Delhi. So this is almost close to 1.4 million square feet.
What we want to add is a campus center in Mumbai. Because of pandemic, it got pushed by a couple of months or three months max from a go live perspective but our plan is on. We have DC 8 in the current data center, which is in Chandivali. Another large investment is coming up in Chennai which will be a landing station and a lot of services from mid of 2022 are getting launched from there in terms of connectivity. We have already acquired national long distance international, long distance, and virtual network operator licenses. The services delivery has already started, but it is fully dependent on the current cables.
What are Netmagic’s partner expansion plans?
We do not go out to acquire new partners but those who want to get on-boarded, we welcome them. The way we want to approach the whole thing is two ways. One is the partner acquiring a lot of competencies, taking the deals on their names, what we call as a transfer price model.
The second is the managed services partner. So if we are successful in these two things, which our efforts are on right now, I think we will be able to at least have a very strong ecosystem of under 100-120 odd partners nationwide who can leverage each other from the business growth point of view because a lot of other services which are going to be launched in the next 1- 2years. Our goal is not to increase partners in numbers, but increase the quality of partners and their competencies, which will help the whole ecosystem grow the business more.
How do you see the future shift towards Software Defined Data Centers?
Instead of investing in something, you would want to use it as a consumption based service and cloud is one such example and connectivity services is another such example. But if you look at availability of infrastructure in our country, in some cases it becomes a hindrance to adopt to those services. Even the customer’s mindset is different but in next 2-3 years the growth of data center business is going to happen.
On-prem to off-prem is still the huge market, because a lot of those one location, two location, three location companies with turnovers less than Rs 500 crore still prefer to have the infrastructure on-prem but that will definitely change. The next generation leadership is going to take off and they are no more interested to have everything on their own.
You are not an IT company, then why should you want to keep the whole IT infrastructure and also have an electrical person, AC person, whereas there are enough people available in the market to get these particular requirements, starting from cloud to private cloud. The pattern is definitely going to change.