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Michael Fauscette is the group vice president of the Software Business Solutions Group at IDC The group includes research and consulting in ERP, SCM, CRM, and PLM applications (and the associated business process that the software supports), small and medium business applications, partner and alliance ecosystems, open source software, software vendor business models (software as a service, or SaaS), and software pricing and licensing Prior to joining IDC, Michael held
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senior consulting and services roles with seven software vendors, including Autodesk, Inc, PeopleSoft, Inc and MRO, Inc His software experience spans the entire enterprise lifecycle process and covers all facets of the global software business A former US naval officer, he began his technology career as a surface line engineering officer Michael is a published author and accomplished public speaker on software and software services strategies mini-ConvErsation with mikE FausCEttE: soFtwarE PartnErs in EvoLution
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As I look at partnering in the software industry, several factors have emerged over the last few years that are driving significant change The software industry itself is in the midst of a change cycle that began post-Internet bubble and has continued for the last seven years with consolidation, new business models, and new use paradigms Software partner models across all partner types are not exempt from the effect of these industry changes There are three key partner issues around these changes: the emergence of software ecosystems, the effect of SaaS on traditional software partners, and the emergence of new partner types around the SaaS model The old model of point-to-point partnerships is not serving the software industry effectively A new paradigm has emerged that is starting to create a networking effect that places the partners in a constantly evolving ecosystem of peer-to-peer networks There are many factors driving this change from vendor strategy to customer needs Software vendors are realizing that partner-topartner networks have the potential to increase wallet share of their products and increase the overall satisfaction of their partner community by increasing partner revenue Customers, who have increasingly demanded more complete and industry vertical specific solutions, are engaging more readily with these networked solutions Partner ecosystems are developing into vendor megaeconomies around a few large software vendors This has accelerated because of the continuing consolidation in the overall software industry and has partners coalescing around Oracle, SAP, Microsoft, salesforcecom, and IBM because of their dominance in the marketplace As the SaaS on-demand business model becomes more mainstream, software vendors and their partners have struggled with the need for new partner models Value-added resellers (VARs) and system integrators (SIs) are the most affected by this change but even the independent solutions vendors (ISVs) are contemplating the impact of SaaS on their businesses Software vendors with traditional VAR distribution models seem to be perplexed about how to shift their current indirect distribution models to effectively distribute SaaS offerings in a volume
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CRM at the Speed of Light: SoCiaL CRM StRategieS, tooLS, and teChniqueS foR engaging YouR CuStoMeRS
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model Since SaaS software products are of particular interest to small and midmarket customers, the need for a volume distribution channel is even more critical The problem with traditional VARs is a business model issue; on-premise software is often sold in a dealer model that is based on a one-time license revenue transaction (thus delivering margin in a single transaction) On-demand software does not have an up-front license fee, but instead is based on recurring subscription fees The VAR could be engaged by the vendor in several ways there could be an agency fee that is a percentage of the recurring subscription fee, or there could be influence fees that are paid at deal close Neither delivers the large up-front revenue to the VAR or is a significant change in the cash flow and sales compensation models for the VAR The commitment to shift the business from the old model to the new is large and can be very difficult for businesses that are often cash flow challenged anyway SIs also have to retool their businesses to meet the challenges of the SaaS business model Customers will not accept long, complex software implementations Instead SIs must offer similar value in their services that customers see in SaaS offerings: fast time to value, easy deployment, minimal hardware and infrastructure investment, and so on In addition, many of the traditional skills that SIs have employed are not necessary for SaaS deployments, since there is no on-site infrastructure and minimal (or no) customizations Instead the skills required are more oriented around business process, and the services must deliver value fast Delivering small incremental service packages is much more palatable to customers The SaaS business model is also driving the emergence of new partner types, fueled by the need for industry-specific business process expertise The new partners seem to fall into two types, business service providers and business domain specialists Business service providers are often customers turned partner and offer a combination of business services on top of the SaaS software Business domain specialists combine deep business process expertise applicable to specific micro-verticals Their job is to assist others in the industry to apply business process around new software deployments Overall partner models are in transition Today, traditional SIs often resell product like a VAR or develop add-on product like an ISV VARs add revenue through the delivery of services and by adding custom product ISVs also resell product and provide services around their solutions P2P networks are taking hold and changing the way partners go to market Vendors are working out new business models for SaaS distribution partners The end result of these changes is still not obvious and should continue to play out over the next two to three yearsq
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