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.