NetSuite predicts disaster for traditional resellers

By Munir Kotadia on Oct 20, 2009 12:06 AM
Filed under Communications

Specialise or die.

Value added resellers who generated their main income from maintaining customer's software applications must transform their businesses or risk going under, according to Zach Nelson, CEO of Cloud-based ERP and CRM software vendor NetSuite.

During a media briefing in Sydney today, Nelson said that cloud-based software, which runs over the Internet and does not require installing or updating on individual desktops, would cause serious disruption to the traditional VAR business.

"Traditional channel providers - or VARs - that service the mid-market, most of those companies have made their money managing applications. They shock the Outlook server back to life or they upgrade the Great Plains server or they install a patch. In my world, all that revenue is gone. It is in-built into my application," said Nelson.

Nelson claimed that the NetSuite application had been updated hundreds of times last year without any support issues. And because NetSuite was supplied over the internet, there was no need for companies providing traditional software support services.

"Partners who have spent their entire business keeping applications alive, and that is most of them, unfortunately, are going to have a very hard time surviving. Software services fundamentally transformed the software landscape and I think it is going to cause more damage to the channel - it is going to transform the entire services business," he said.

According to Nelson, resellers that want to survive need to fundamentally change they way they do business in two ways. Firstly, by switching to a subscription billing model - because that is how cloud-based software is sold. And secondly, by becoming a specialist in a vertical industry.

"They do not have to become an expert in NetSuite - although that is useful - they have to become an expert in their customer's business. How do I best apply NetSuite to running a software company, a media company, a wholesale or distribution company. That is where there value is.

"I think you will see some fundamental changes in the channel - some big IT resellers are going to go out of business. This pain is coming and it is going to really shake up how channel products are delivered," Nelson added.

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NetSuite predicts disaster for traditional resellers

11 comments in this discussion

"Cloud Computing will definitely revolutionise the industry. However traditional resellers will simply switch to supporting cloud service application. This is currently happening and will no doubt ..."

By alant

Tags

netsuite, zach, nelson, erp, crm, channel, reseller, saas, cloud

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Comments: 11

em3 Oct 20, 2009 8:55 AM	Interesting article, how about another view. Keep in mind many VARs are also technology support organisations - ie: the sale of software, licenses or infrastructure kit forms part of a "solution", many of which are tailored or specialist systems that are not capable of running on cloud type technology today. There will always be client systems, some legacy, some brand new, which don't work in a cloud environment as they require specific technologies or configurations that are not available on cloud or virtualised platforms. Whilst the traditional method for "delivery" of services (applications/software/databases) might be changing, the underlying software and systems still need to be designed, deployed and maintained by technical staff. "Shocking" of the Outlook Server (known to professionals in the industry as "Microsoft Exchange Server") and other applications will remain an ongoing requirement or technical service as the underlying systems are still running the same vendor software and delivering the same outcomes - it's only the front door that has changed. There will always be a place in the industry for VAR type organisations as their role is to "Value Add", whether it be in the current form of moving software packages/licenses, infrastructure kit, consulting services or specialised technology solutions. If systems all move to a cloud environment, organisations will still require technical expertise to operate them - this expertise may change from traditional backoffice technical support to cloud/virtual/custom configuration technical support. I will go out on a limb here and say that "it's not likely a cloud hosting organisation will be able to provide deep technical specialists who have expertise in every customer's application, and therefore the role of VAR or support organisation will become more important as this is key to keeping systems running." Darren Moss General Manager em3 People and Technology
plhau98 Oct 20, 2009 10:23 AM	Whilst cloud is the latest and greatest technology, the simple factor remains that some organisations will not be in the cloud take-up. They cannot. There are issues with a fed govt dept going cloud based, they cannot expose the internal information to an outside, offshore location. We will see the creation of many cloud hosting companies locally, but there are technologies that are cloud like in their operation in the market today. One of these technologies is the Telstra NextIP Solution. It has the potential to be a huge networking tool, as the cloud isn't touched, and the connections all point back to the NextIP Network, no internet, unless you add a pipe. VARs will always be needed, as they service the clients who don't want bleeding edge, or are only just venturing into the IT world. There are many who want the benefits of IT, but don't want the hassle, VARs take their pain away... Cloud won't change this. human interaction will always be needed.
chrispro Oct 20, 2009 10:58 AM	Would have to agree with you Darren. Mr Nelson appears to assume that nearly 100% of software is going to be in the cloud - never gunna happen. Not in the next 20 years anyway. And while he seems to be talking about the mid-market and I deal mainly with the small end of town, I find that clients who have some sort of managed/hosted solution call me at least as much as those without - reason being that they want someone else to come and deal with it for them. Sure, if they had the time they could sit on the phone and talk to their 'support in the cloud' but they don't want to do that. They want someone else to come in who is a bit more familiar with things and get it working (even if that means my job is to sit on the phone and talk to the provider's tech support). As plhau98 says - generally they "don't want the hassle, VARs take their pain away". No doubt some VAR's will need to change their approach a little and familiarise themselves with some of the cloud-type technologies, but I still see plenty of business for the standard VAR.
cduston Oct 20, 2009 11:13 AM	Everyone has to stand some where and Mr Nelson has a view. I'm sure it's worth looking at. However, one company I know, in Perth, signed on for outsourced web filtering only to discover the reporting didn't have any user details in it. They couldn't tell who was doing what making the reports functionally useless. But then the provider didn't have any access to their Active Directory - so it's hard to understand where the cloud provider would get the user names from? A dispute has ensued. It is my opinion Mr Nelson is glossing over complexities and over selling the amount over service one gets for $1 per user per month.
pmc777 Oct 20, 2009 3:04 PM	We have a client who is part of a franchise that use cloud/hosted exchange services. It is far more complex to setup a new user in this system than an in house exchange server. Also have not seen any evidence of reduced ongoing support issues. I believe the cloud topology is being pushed by the industry rather than the industry responding to the needs of customers. Recently Microsoft lost customer data from some kind of cloud based smart phone application. Although the affected user base may be small it must raise questions about cloud based applications especially when critical business data is involved. The next couple of years will be interested but perhaps it will be the likes of Mr Nelson and the companies they run that will need to reinvent themselves.
sholtomacpherson Oct 20, 2009 4:22 PM	@pmc77 I'm not sure the interest in cloud is just a result of industry pushing a new platform on customers. Nelson said he was speaking today at an event in Sydney with 400 "potential customers" - a far greater turnout than NetSuite would get in the US. Maybe they are just IT managers responding to the hype. But the promise of cloud - that it will move integration and support further away from the customer - is a pretty attractive proposition. Quite a few companies have told me how much they love one cloud service or another. I'd be interested to hear from some less convinced customers.
sholtomacpherson Oct 20, 2009 4:25 PM	It's worth noting that Nelson isn't predicting the end of resellers. NetSuite is making most sales direct right now (80/20 direct/channel) but Nelson is out here to promote their channel program. He said it was necessary to have direct sales initially because most resellers have been too slow to get into SaaS, and that he was very keen to get out of the services business ASAP. We'll just have to see how fast that percentage split changes...
plhau98 Oct 20, 2009 4:58 PM	Look, Cloud is great for me, as i can access all info whilst out and about, but if the svr dies, I have no data or apps. with a fat client scenario, I can at least keep on working.
wwwalker Oct 21, 2009 10:46 AM	Many low margin businesses like modifying open source portals like Joomla! or hosted services like the cloud favour the hosting company. This means people like me, a Web developer, then develop my own private cloud for my own software and only share the service with the customer, not the software or hosting.
pmc777 Oct 21, 2009 10:47 AM	@sholtomacpherson I do like a lot about the cloud but think that business owners need to assess much before committing the future of their computing environment to the cloud. Some questions: 1. What if a SaaS providor goes bust? What Then? 2. Who actually owns the data? 3. How is support handled now and into the future? 4. What if you decide you want out? Some of the info I have read about benefits of the cloud assumes that the current model is costing extraordinary amounts to setup and maintain and that everyone has access to reliable high speed internet. These assertions often seem exagerated to say the least. When it comes to internet much of regional Australia is severely handicapped. On a more simple level cloud computing promotes the fact that you can access your apps and data anywhere, anytime but most businesses have been doing this themselves for some time now. I think the cloud has a place around the edges, filling the gaps but a businesses core data and applications are best kept under ones own control. I am sure one day someone will come to the marketplace saying 'hey, you don't want to be bothered by customers they just cost too much time and effort you just leave them too us and we will take care of them for you.'
alant Oct 24, 2009 9:38 AM	Cloud Computing will definitely revolutionise the industry. However traditional resellers will simply switch to supporting cloud service application. This is currently happening and will no doubt becomes a commonplace. Furthermore there is also an argument that human interaction will never be replace with technology. Alan IT Reseller