How the channel is cracking code

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This article appeared in the August 2014 issue of CRN magazine.

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How the channel is cracking code

Fraser Selfe pitches his Sydney-based software development business, Infinet Cloud Solutions, as the "biggest name in payroll you’ve never heard of" but it took Selfe and his brother Anton 10 years of reinventing the business to make it to the top of the NetSuite partner community.

Infinet, which NetSuite named in May as its international partner of the year, started life in 2005 consulting on software-as-a-service implementations in the rapidly growing cloud economy. It has pivoted from professional services into systems integration, became a SaaS vendor in its own right and now has come almost full circle as a NetSuite reseller.

"It took a long time to know it was the right decision," says Selfe. "But we knew in 2005, when we were on sales demos, that payroll was a gap because a customer would ask what are you doing for payroll and there’d be a lull in the conversation."

The catalyst was Australian NetSuite distributor, JCurve Solutions, which in 2009 asked Infinet to write a payroll module for its small to mid-sized business market. Infinet had made a name for itself in the close NetSuite community and soon attracted the interest of the cloud vendor itself.

"We had maybe eight to 10 JCurve customers – some still in beta – and we had our first big NetSuite deal come along that probably eclipsed all the revenue that we made from JCurve to that point and for some time.

"We thought we were going to be a company that would be riding the coat tails of JCurve but within six months of our pilot, we closed a NetSuite customer with 350 employees and very complex requirements. That was the making of our company and the product today."

The customer was TransACT, a Canberra ISP serving 140,000 users and 5,000 business customers when it was bought by iiNet in 2011 for $60 million.

Infinet’s dream run is a success story for partners contemplating spinning out a software development business. By latching on to a bigger vendor and distributor with a product that met the NetSuite’s pressing need for payroll, the Selfes cornered a market.

Selfe says he’s not afraid that NetSuite, which last October bought human resources software vendor TribeHR after engaging the sector, would cannibalise Infinet’s market. He says Australia’s complex job awards structure provides a natural defence against new payroll solutions vendors encroaching on Infinet, which serves 300 clients here and in Britain, New Zealand and Singapore. Infinet sits on industry steering groups including NetSuite’s SuiteCloud Developer Network and the Australian Taxation Office’s software developer group influencing technology, tax and accounting trends.

But partners are much more likely to have an experience like Hamish Leighton, who has struggled to get the mix and timing right to leap into software development full-time. "We’ve tried to resell our own software but it hasn’t worked," says Leighton, director of Revolution IT, a $30 million-turnover firm in Melbourne that specialises in software testing.

Leighton says the skills and infrastructure needed to support customers are very different to those required by a consultancy. Revolution IT started its software division by creating tools it needed to do the heavy lifting of optimising and testing its customers’ systems. It quickly found there was a gap in the market not met by the likes of HP’s software testing, which it had some early success filling with its in-house tool. But the burden of regular software updates and serving a small number of customers made the business unviable. The death knell came when larger vendors caught up with Revolution IT’s features, bringing significant marketing that swamped the smaller software vendor.

"It’s not to say that we’re not going to try again to build software. But in terms of building big complex commercial software, it will be more like web applications than duplicating the tools that we resell."

Rev Express, the automation tool Revolution IT developed, still gets a workout in-house: "It’s definitely deriving us commercial value," he says. "There was even talk of open sourcing the product, but there was still too much commercial intellectual property tied up in it to make it worthwhile", Leighton adds.

He says that despite early setbacks, Revolution IT will "have a crack" at developing its own software for sale.

"The idea of having a product you can resell looks very appealing. It’s something I’d encourage people to look at but realise there’s a lot more to it than just building a piece of software – that goes from market research and marketing, to product lifecycle and ongoing support and the costs involved. It’s a bigger challenge than it appears."

Gartner analyst Neil McMurchy says partners should have their own intellectual property to create a defensible position. Gartner reckons small software developers are blossoming – the opposite of what it expected five years ago.

"But we are seeing that gap growing [between small and big software vendors] so the opportunity is expanding for the channel," McMurchy says.

"We think the [software] market is much bigger than we report and almost by definition the bulk we’re not yet reporting is in-house development or small application and other software providers, namely the channel."

Big enterprise software vendors, distributors and cloud platforms especially are becoming like the Hollywood film business, providing their marketing clout and distribution as a platform on which smaller studios (nimble software developers) take the risk to eke out market opportunities.

McMurchy says customers’ growth in digital business – especially those serving customers – outstrips big software vendors such as Microsoft, Oracle and SAP: "The demand from customers is exceeding the ability of major application providers to meet that demand."

This is good news for partners says Peter Klein, co-founder of Surry Hills, Sydney-based SMB Consultants, which specialises in retail solutions.

"We see this as a key role – to give them the feedback to know what integrations are of value," Klein says. For example, linking store analytics through Swarm Mobile to the Collect Rewards and point-of-sale systems at a customer site. "There is a role [for resellers] to play – articulating to software vendors the opportunities and demand in the marketplace."

Breeze is a Melbourne-based Microsoft partner also taking a holistic view of their customers’ needs, providing managed services, development and integration across cloud, applications and mobile devices, says chief executive officer Nicki Page.

Customers’ unwillingness to pay for professional services predicated on Australia’s relatively high wages led Breeze to commercialise its own intellectual property, she says. "Customers wouldn’t pay for people.

"We had to differentiate the business and felt we could do that through the commercialisation of the [intellectual property], through integration where we are repeating ourselves and where can we productise," Page says.

Microsoft sent Page on a US tour to learn about software development and business models, such as learning about monthly revenue streams.

Page says the Coalition’s shutting down of Commercialisation Australia along with many grants, while not addressing tax burdens, hurts homegrown software developers. Breeze has a start-up culture, she says, but is too big to access many remaining programs.

However, Page is bullish for the sector and Breeze’s prospects when Microsoft launches its long-awaited local Azure presence later this year. "Azure offers a huge range of services that will be a strong differentiator. By the end of this year, there will be a tremendous shift – a lot of people are waiting for the local data centre."

The overturning of clumsy enterprise software in favour of more human-friendly apps is also leading to more opportunities for channel partners to get into software development, Page says.

"It’s all about the look and feel and ease of use. There’s such a huge shift in what people want to be able to do for the enterprise [and] remotely.

"We’ve had to bring onboard user experience designers. That’s a huge part of our strategy – how we want customers to feel when they use our products."



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