Helping the channel monetize on SaaS

With its hosted, on demand software as a service (SaaS) model, NetSuite has removed one area where the channel would traditionally make its money: maintenance and support. However, at its NetSuite Revolution partner conference here last month, the company promised its partners a potentially more lucrative opportunity: the ability to easily bundle, replicate and resell customized services on top of the NetSuite platform.

Based in San Mateo, Calif., NetSuite provides an on demand CRM, ERP and e-commerce platform for the mid market, competing in different segments with companies like, SAP AG and Microsoft.

NetSuite CEO Zach Nelson told attendees SaaS is changing the way partners will be going to market, and the potential is there for the channel to make more money than with perpetual licensing models. The list of the top 10 North American VARs will look very different in 10 years, predicts Nelson.

“Someone here will become the Accenture of the mid market,” said Nelson. “There’s a chance for some companies to become very large players in the service provider segment.”

Enabling partners
NetSuite’s vision is to enable partners to turn one-off services they’ve developed for one client into reusable software bundles they can easily resell to other clients, leveraging the initial investment to drive even greater revenue and driving business in niche verticals NetSuite couldn’t otherwise reach.

NetSuite had previously released SuiteFlex, its application and development platform, and its SuiteBundler, which allows partners to bundle their customizations into repeatable service bundles. The new model isn’t monetizing on implementation and maintenance, said Nelson, but on selling solutions.

“It’s an entirely different mentality,” said Nelson. Everything you can customize in the system SuiteBundler can bundle-up and move over.”

The verticialization strategy is key, said Nelson, and that’s where NetSuite needs the help of the channel. Companies, he said, want to buy products that look like their industry, not generic one size fits all applications.

Nelson said the NetSuite approach will provide more opportunity for services revenue to partners while reducing their cost for providing those services, adding clients will be willing to pay more if they’re seeing value.

“The more value you add, the more money you make,” said Nelson. “Customers will pay for increased value, our own vertical experience shows that.”

The company sees a US$15 billion market opportunity in the mid market for the SaaS model. The bundling model is already being used by Iron Solutions, a Fenton, Mo.-based developer of products for the agricultural equipment sector. Part of Iron’s business is maintaining a database used by equipment dealers to determine the value of used equipment, essentially a Kelly’s Blue Book for the farming industry.Using SuiteFlex, Iron has developed an application on NetSuite that helps an equipment dealer make a decision on a trade-in. It pulls down information from the dealer’s inventory database on the new vehicle being sold, and then pulls in the latest pricing information from Iron’s database on the trade-in vehicle. Factors such as location, mileage and options are factored in to give the dealer an estimated value, allowing them to factor-in their costs and determine their gross profit, depending on the offer they make to their customer.

With SuiteBundler, that custom service can now be bundled and marketed by Iron to dealers across North America. And it’s a service that is very much needed said Tim Young, general manager of Young’s Equipment, a Regina, Sask.-based agricultural equipment dealer. However, it’s a tool that would be out of reach to dealers like him without a SaaS model. They can’t afford the IT departments to support a line of business application.

“We have an IT guy that wants to retire but he’s hesitant because he worries about who is going to take care of the hardware,” said Young. “That has been a barrier of entry to get into many farm dealerships because they don’t have the people to maintain it, hence the opportunity is huge.”

Richard Morochove, president of Toronto-based IT consultants Morochove & Associates, said most businesses will look for the solution that best fits their business needs, whether it’s SaaS or packaged applications. There will continue to be a strong market for both models, he said.

“Some businesses will appreciate the ease and maintenance of SaaS, while others will prefer a packaged application because they feel it gives them more control,” said Morochove.

New business model
He added the SuiteBundler announcement is certainly good news for NetSuite partners though. It hearkens back to the pre-Internet days, said Morochove, when ERP vendors would publish a catalog of partner-developed add-ons that could be purchased and tailored for specific needs.

“What NetSuite is doing is developing that for the SaaS model, saying they don’t have the resources to develop all the niche applications, so why not let the partners do it and resell it,” he said.

While a partner specializing in pre-packaged software might not be compelled to get into SaaS by the NetSuite model, Morochove said repeatable services will provide lucrative revenue streams.

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Jeff Jedras
Jeff Jedras
A veteran technology and business journalist, Jeff Jedras began his career in technology journalism in the late 1990s, covering the booming (and later busting) Ottawa technology sector for Silicon Valley North and the Ottawa Business Journal, as well as everything from municipal politics to real estate. He later covered the technology scene in Vancouver before joining IT World Canada in Toronto in 2005, covering enterprise IT for ComputerWorld Canada. He would go on to cover the channel as an assistant editor with CDN. His writing has appeared in the Vancouver Sun, the Ottawa Citizen and a wide range of industry trade publications.

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