When Bob Dylan sang, “The times, they are a changin’,” he probably wasn’t thinking about value-added resellers (VARs). But VARs should pay attention all the same. VARs have traditionally made money selling and servicing on-premises systems, but now cloud computing is poised to rain on their parade. VARs will need to adapt to compete in the times ahead.
Over the next five to ten years, opportunities to resell software and hardware will dwindle as more companies adopt cloud-based systems. Processes for software procurement, implementation, and training will change. VARs must change their current service offerings to be successful in this new market. Let’s examine what’s happening to VAR revenue sources.
Software resale has comprised a large portion of VAR cash flow. But cloud vendors have adopted a consumerized sales approach, emphasizing simplicity in the purchasing process and selling directly to customers. Also, without the need for hardware set-up and other ancillary services, local resellers are less important. Resale opportunities will decline, but new opportunities will arise.
Hardware resale opportunities will also decline. With cloud-based systems, servers are no longer installed on-premises – so this revenue will vanish. Desktop computer sales will be fewer and far between. Because cloud-based systems require less memory and processing power than on-premises ones, desktops will require less frequent replacement and will be sold at lower price points.
Installation services will be less relevant. Cloud-based systems require no software installation, so this opportunity will not exist in cloud computing. Some installation services, such as installing desktop systems or a new network, will still be in demand. But in general, VARs will need to move away from this type of service toward other opportunities.
Integration services will decline, but the process will be gradual. Cloud-based systems require fewer points of integration and offer better control over how customizations affect integration, so cloud-based apps will eventually be easier to integrate than on-premises systems. That’s not to say that cloud-based systems are easier to integrate today, but we believe they will be over time.
Customization and configuration services will persist, but they won’t escape the need to adapt. VARs can’t customize cloud-based systems to the extent of on-premises solutions. Today, there isn’t a huge opportunity in customizing most cloud systems. It’s just a matter of time, however, before customization tools for cloud systems mature and demand for these implementation services grows.
Training services will change. A cloud-based system’s user interface (UI) is typically easier to use, so less training is required. For on-premises systems with more complex UIs, companies have needed training services from a local advisor – the VAR. But with the ease of new cloud-based systems, this will no longer be the case. Still, VARs can offer more sophisticated training to hold on to this revenue.
Adaptation and creativity are the keys to staying relevant in a moving market. Luckily, VARs have many opportunities to re-focus their business strategies.
The VAR Survival Playbook
In this evolving market, VARs need to offer more sophisticated services and embrace the coming changes to avoid being left behind. Partnership with a successful cloud vendor is essential, but vendors are finite. That’s why there’s a land grab going on. The strategic VAR will enter the brawl now and get to these vendors before competitors can.
The ideal cloud partner for the VAR will have three key attributes:
- a bright outlook such that their product will be in demand;
- plans to develop a VAR channel in addition to selling directly; and
- partner support in the form of software development kits (SDKs), co-marketing and training.
But the territorial victory of partnership is only the beginning of the cloud transition. Next, VARs should make five bold moves to gain a sturdy foothold in the market.
1. Specialize. Narrow your focus to a vertical market or application category, rather than defining your company by its geographic territory. Cloud vendors are still building up their core applications, so the industry-specific capabilities aren’t yet up to par with those of on-premises systems like Microsoft Dynamics and Epicor. Be the first to develop vertical extensions for a major cloud-based system, and learn to speak the buyer’s language. Alternatively, gain expertise with one application category, such as business intelligence or accounting.
2. Develop competency on a leading Platform-as-a-Service (PaaS). You’ve probably learned at least one SDK for on-premises systems. Now you must do the same for new cloud products. Learn and specialize in the developer tools for a cloud-based platform like SuiteFlex (NetSuite) or Force.com (Salesforce.com). You can build your own applications and customizations, and then market them. You’ll build credibility in the eyes of both vendors and customers. The time is now to invest in cutting-edge skills for the future before it’s too late.
3. Make the cloud’s efficiency work for you. Just as the centralized nature of cloud-based software benefits customers, it can also benefit VARs. With cloud-based systems, there’s far less need to send staff to the site. Use the extra time to start an internal, centralized sales team serving a broader territory. You can become as good at inside sales – or better than – the ISV. ISVs respect sales machines. The same applies to service. Retrain your team to service customers remotely, such that they can serve multiple clients in a day.
4. Offer technology-enabled services. Because cloud-based systems are accessible anywhere, it’s easier to become a seamless extension of the customer’s organization. Offer business process outsourcing. Some core business processes – accounting, for example – are essential, but don’t offer competitive advantage. Develop internal competencies so customers can outsource these operations to you. If you’re a former accountant-turned-VAR, get closer to your roots. Apply your domain expertise to services like collections, procurement, and reporting.
5. Promote the cloud to your existing customer base. If you can’t beat ‘em, join ‘em. We’re entering a major platform transition – there will soon be an incredible shift to cloud-based systems. Get in on the action now and embrace it. Your biggest asset is your existing customer base, so help them transition to the cloud. Don’t try to sell against a secular trend. If your customers are unaware of the cloud, explain the benefits and sell cloud systems to replace on-premises ones. Keep pace with the new technology at all costs.
Thanks to Jack Boyer of Boyer & Associates for his helpful input.