According to Maplesoft CTO Jack Gulas, when the company focused on hardware it got a services deal 10 percent of the time and received 10 cents to the dollar on those services contracts. So if it sold a million-dollar deal, it brought in another $100,000 in services.
By moving into databases, its service attach rate went up to 50 percent. Furthermore, the amount of services to the dollar had a multiplier effect so that it earned $1 to $2 per contract. In this case, if it sold $1 million in product, it got an additional $1 million to $2 million in services half the time. As Maplesoft built up its middleware expertise, the returns got even better. It had an attach rate of 80 percent and a multiplier of $2 to $3. So eight times out of 10, a $1 million middleware deal would drag an additional $2 million to $3 million in services.
These are pretty compelling numbers. Sure, Maplesoft took a risk and had to make some investments of its own, but the bet has paid off. And if the company didn’t take the risk, it would be clawing for hardware business and little margin and shrinking in size and influence.
It’s all about the software on top of the platform. VARs today need to invest in these skills because they are the critical differentiators in a crowded market, with IT budgets shifting or decreasing. IBM made the transition and the focus on software a decade ago. Oracle is taking the hardware it acquired from Sun and integrating it with its flagship software. With this approach, VARs can go in and sell the solution because of the software, not the hardware. Clients need a robust database platform. Even HP, amid the turmoil of the past year, has been moving more aggressively into software. While it may have paid too much for Autonomy, HP understands it needs to grow its software base, which is a small percentage of business today.
Here is another fact and a reason to act quickly. If you are a hardware-only VAR, you are going to have new competitors entering your market. As vendors begin to integrate solutions up and down their stack and optimize performance based on their own platform, software VARs are going to have an easier time bringing in hardware to their solutions than hardware VARs will in gaining software expertise. I spent a week at Oracle Open World this month and met many VARs that started off selling their own vertical proprietary software, moved into services and now see the Oracle database appliance -- and some of its higher-end solutions -- as icing on the cake, and very lucrative icing at that.
The time is now to get the software and integration expertise that you need. As Maplesoft illustrates, it can be done but it takes dollars and a significant effort. But if you are willing to take the risk, the rewards may be plenty.
BACKTALK: Kelley Damore is VP, Editorial Director for Everything Channel. You can reach her via e-mail at firstname.lastname@example.org.
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