When it comes to selling IT solutions in the age of the cloud, the biggest change for IT service providers is the emphasis that needs to be placed on customer renewal rates for services that are sold as a subscription. Historically, IT services providers almost always focused on the initial transaction. Renewals of software licensing contracts were an afterthought because most providers were rewarded for their efforts upfront. Now most of the deals in the age of the cloud involve subscriptions where vendors and partners get compensated over the course of one- to three-year contracts.
The vendor, however, still has to invest in the core technology to deliver the service. For that reason, most providers of cloud services are underwater for the first year of a subscription contract. They generally break even on the second year and then begin to make a reasonable return on the third year. As a result, cloud service providers need to have a fanatical emphasis on customer renewal rates in order to succeed.