The pandemic is generally considered a boon to the cloud market as the shift to remote work has driven huge surges in demand for cloud services. Top cloud providers like Amazon, Microsoft, and Google have benefited.
But some of their top partners, whose businesses rely on selling Amazon and Microsoft software and services, told Business Insider they've faced challenges, including customers canceling sales and putting projects on hold, as well as worries about whether they'd be able to cover rent or make payroll.
Three top cloud partners who spoke with Business Insider said they've since seen uptick in some parts of their businesses because of the pandemic.
But industry data and information from experts suggest that's not the case for all of the companies in the cloud providers' respective armies of resellers, systems integrators, and consultants.
The major cloud companies rely on these smaller partners to resell their products, especially into specialty markets like retail or healthcare — meaning any turbulence here will likely float up to Amazon, Microsoft, Google Cloud, and their peer companies in the enterprise IT space.
Are you an Amazon Web Services or Microsoft employee or partner? Contact this reporter via encrypted messaging app Signal (+1-425-344-8242) or email ([email protected]
Visit Business Insider's homepage for more stories.
A small Arizona-based project- and portfolio-management consultancy called Sensei Project Solutions is a repeated finalist for a Microsoft Partner of the Year award — a title Microsoft says will give companies that sell its software and services a "competitive advantage."
But that title didn't seem to mean as much in March, when the coronavirus outbreak began to create a global public-health and economic crisis. Sensei's customers "went dark," Elizabeth Gujral, the company's business-operations manager, said.
"We had key points of contacts' emails suddenly bouncing back as people started to get laid off and furloughed, and migration to Microsoft was no longer a priority," Gujral told Business Insider. "A lot of contacts went dark on us, or said 'come back to us in Q4 or Q1 next year.'"
The company worried it might lose a big client and not be able to cover rent or payroll, she said.
Ultimately, Sensei's management decided to take out a loan through the Paycheck Protection Program (PPP), a federal program designed to help small businesses continue operating and paying employees through the pandemic. While the company didn't disclose the size of the loan, federal data showed it was between $150,000 and $350,000. The company froze hiring, but Gujral said the loan helped the company avoid layoffs.
Sensei's story, and those of the two other top cloud partners we spoke with, shows that while Microsoft, Amazon, Google, and other major enterprise IT organizations have survived and even thrived in the pandemic, their partners — the smaller third-party consulting firms, resellers, and systems integrators on whom they rely for a healthy chunk of their business — are far more sensitive to the twists and turns of the economy.
Indeed, a recent survey of members of CompTIA, an industry trade group, with about 230 respondents showed customers were increasingly canceling or postponing spending and asking to reconsider commitments.
And while the Big Tech companies may have deeper pockets than these smaller partners, that turbulence could cause waves that affect those cloud providers too. Microsoft, for example, said last year 95% of the company's commercial revenue came through its partners.
Amazon, Microsoft, and Google did not respond to requests for comment on this story.
Uncertainty in the pandemic
The Boston-area consulting firm Privo IT, which has about 60 employees, primarily works with Amazon Web Services, but cofounder Doug Heestand told a similar story. He said there was a "tremendous amount of uncertainty" for the company, and some of its customers were "severely impacted" and put many projects on hold.
And we heard the same from the Florida-based Pragmatic Works, a finalist for a 2020 Microsoft Partner of the Year award.
"We were kind of a little panicked," CEO Brian Knight told Business Insider of the early days of the pandemic. "We were having customers delay or cancel projects. Everything was flashing yellow."
Knight estimated customers canceled or delayed more than $1 million worth of Pragmatic projects early on in the pandemic, mostly from retail customers who had furloughed employees.
Both Pragmatic Works and Privo took PPP loans of their own — Privo took $350,000 to $1 million, while Pragmatic took $1 million to $2 million. Ultimately, however, things settled down for all three companies. The shift to remote work led to increased demand for cloud services, which in turn brought customers back. Privo and Pragmatic have returned the PPP money, according to their respective leaders.
These stories illustrate how the fortunes of IT partners are deeply tied to those of the industries that they serve.
Partners are vital to the technology industry but take some unique risks
In the same way that auto manufacturers like Ford and Toyota largely rely on independently owned auto dealerships and mechanics to sell their cars and provide frontline service, the major cloud providers and enterprise tech companies rely on their partners to do much of the nitty gritty of selling and supporting their products.
Sensei, for example, specializes in helping customers move to Microsoft products like Dynamics 365, Project, and the Power BI analytics service, while Pragmatic focuses more specifically on data analytics.
These partners often have expertise in serving a handful of very specific industry sectors: Some specialize in helping customize Office 365 and related apps for use by schools or healthcare systems, while there's a thriving partnership scene in and around Washington, DC, serving the public sector.
But that strategy of specialization carries its own risks. Smaller IT partners in particular are more heavily reliant on small and medium-size business (SMB) customers, CompTIA spokesperson Steven Ostrowski said, and are likely to have suffered the most during the pandemic.
CompTIA found 58% of respondents in a member poll said customers were canceling or postponing spending, compared with 43% in March. Meanwhile, 46% of respondents in June said customers are requesting to restructure commitments like contracts or payment terms, compared to 26 percent in March.
"SMBs in many markets have felt the brunt of the pandemic's economic impact," Ostrowski said. "Even the loss of a few customers is going to have a significant more damaging impact on an SMB tech firm than a larger competitor, who likely has a more diverse customer bases and a larger menu of product and service offerings."
Not all partners face the same challenges
Tim Herbert, executive vice president for research and market intelligence at CompTIA, said some Amazon, Microsoft, and Google partners are likely doing well, especially if they provide technologies for which the shift toward remote work has created increased demand such as cybersecurity and data analytics.
But not all partners face the same challenges, Herbert said, and how they fare during the pandemic depends on factors such as partners' customer base, their business line, and firm size. As Ostrowski said, the partners who serve small business customers have likely been hit hardest.
Joe Panettieri, a cloud partner ecosystem expert and cofounder of partner-focused trade blog Channele2e, says that while some partners are doing just fine, it's going to shake out those who were on uneven footing: "The pandemic has simply accelerated what has already happened in the market," Joe Panettieri, an expert on the cloud partner ecosystem, said.
Panettieri estimates that the top 25 percent of partners in the cloud market have likely maintained or accelerated business amid the pandemic. Meanwhile, about half of partners are still in the "yellow zone," and the bottom 25 percent — those Microsoft and Amazon partners who were struggling pre-pandemic — are still in "worry mode." "That 25 percent is hurting right now," he said.
More than 30 top cloud partners are listed as recipients of PPP loans, giving a window into the uncertainty
It's tough to quantify how many Amazon, Microsoft, and Google partners have faced hardships during the pandemic, or to what degree their businesses have (or haven't) stabilized. But a look at federal data on the recipients of PPP loans, designed to help small businesses keep operating through the pandemic, gives some insight.
After comparing the data with Microsoft and Google 2019 partners of the year winners and finalists (Microsoft released a list of its 2020 partners of the year on Monday), and AWS "premier tier" consulting partners, Business Insider found more than 30 of those top partners listed among loan recipients.
It's not a perfect measure of which companies faced challenges. First, the program itself is controversial, as unclear rules allowed large and well-funded companies to receive the loans. And, while some of the partners on the list confirmed to Business Insider that they received loans, the database has been found to contain errors, making it impossible to verify that all of the names on the list actually participated in the program.
Furthermore, taking out a PPP loan isn't necessarily an indication of business health. As Panettieri put it, "I think a lot of partners out there thought, 'Free money. Why not grab it for a worst-case scenario?" he said.
The largest loan amount among partners in Business Insider's analysis was listed for SADA Systems, a Google Cloud 2019 partner of the year, which in February committed to reselling $500 million in Google Cloud services over the next three years. SADA is listed as a recipient of a loan between $2 million to $5 million to retain 218 jobs, but the company declined to comment on or confirm those figures.
At stake for tech giants is the ability to renew contracts with tens of thousands of customers, and ultimately, revenue
The success or failure of these IT partners has a direct line back to the performance of tech giants like Amazon, Microsoft, and Google.
Take Microsoft's Office 365 suite of business applications, Panettieri said for example. It would be very difficult for Microsoft to deal directly with the tens of thousands of businesses who use the software directly, so it relies on partners to renew customer contracts and drive the recurring revenue that's helped make the company's cloud business so successful, he said. This means that for better or worse, their fates are linked.
"If those partners go away," Panettieri said, "Microsoft's cloud will be okay, but it just won't see that incredible strength."
Got a tip? Contact this reporter via email at [email protected]
, message her on Twitter @ashannstew, or send her a secure message through Signal at 425-344-8242.Join the conversation about this story » NOW WATCH: How waste is dealt with on the world's largest cruise ship