VARs Under Assault – Part II

October 19, 2009
By djohnson

On September 10, we noted the tensions between SaaS vendors and traditional VARs (value added resellers). Today, we discover that the SaaS vendors are still on the offensive. This is evidenced by Zach Nelson, CEO of NetSuite, predicting disaster for traditional resellers.

Why VARs will Continue to be Important

1. VAR Sources of Revenue.
Nelson predicts that most VARs are going to lose a lot of revenue because they will no longer be required to install and maintain systems. The problem with this argument is that VARs get an extremely small percentage of their revenue from managing systems. Most accounting and ERP VARs help businesses build customized workflows, migrate data from legacy systems, build interfaces to existing systems, customize reports, and customize business processes. The cost and need of these services dwarfs the cost of maintaining an operating environment.

2. Subscription Based Billing.
Nelson says that most VARs will have to switch to subscription based billing because that is how cloud-based software is sold. First, most “subscriptions” require a 1 year pre-payment that is equal to over 50% of a traditional license. Second, most businesses will not want to pay a subscription for migration, customization, configuration, and business process services.

New Partnerships

VARs will continue to be relevant in the SaaS world, just as they are in today’s hosted world. Several VARs are working with hosting providers (as well as cloud providers) to outsource server operations. They realize that datacenter operators are experts at buying, powering, and backing-up servers. Partnerships between software vendors and cloud providers have the potential to create a turn-key offering that VARs can offer clients without changing their existing business model.

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One Response to “ VARs Under Assault – Part II ”

  1. Andrew Mulvenna on November 9, 2009 at 5:17 pm

    VARs are an essential part of our growth strategy as a Could ERP provider for SMBs. Small businesses often lack the technical resource and most importantly, time, to organise their data sufficiently, therefore are willing to commit modest investments in professional services. Feedback from our re-sellers is that “Pearl Web-based software opens doors into more client organisations for us to generate revenue because the client is attracted to the cost/flexibility/efficiency benefits of SaaS”.

    The UKs leading Sage re-seller described the threat to me as coming from the Cloud VARs, not the Cloud vendors.

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