NetSuite, Partners Tangle Over Margins, Channel Program

Several NetSuite partners say that the hosted ERP vendor now mandates that partners hit at least $100,000 in net new sales annually to earn the promised 30 percent margin.

These VARs say that in the past they were able to combine renewal fees and new license revenue to reach the $100,000 per year cut off. They now say if they fall short of that figure for new sales, their margins fall to 20 percent. So a partner getting $100,000 in renewal fees and $80,000 in new sales, would not get his or her 30 percent.

None of the partners who contacted CRN would speak for attribution.

Craig West, director of channels for NetSuite, San Mateo, Calif., said NetSuite has for years based its margin rate on net-new sales only and that the complaining partners may have been "grandfathered in" under older contracts.

West also refuted another partner complaint: That NetSuite has instituted new requirements, including an annual $5,000 fee, to join its channel program and other charges for partners' internal use of its software.

He said the company has taken what was a one-time fee for the program and annualized it. For that yearly fee, he says partners get new priority support help.

But partners recollect differently. "We never had to pay that fee," said one. This partner also maintained that up until 2005, NetSuite tallied partner margin based on a combination of new and legacy revenue.

A second partner said West was right, that the program fee was a one-time-only charge and the company is now levying it yearly.

"We only paid the $5,000 the first year and that was mostly for our in-person training at NetSuite. Partners also had free demo accounts as well as internal usage of NetSuite—because the company said it would create partner glue," this VAR said.

Both sides agree that NetSuite charges partners for the use of its software, setting discounts based on their own margin level. If partners sell upwards of a million dollars into new accounts, they can earn 50 percent margins.

A third partner said there is truth on both sides of this divide. "NetSuite changed the contract a while back to base margins on net new business. If they hadn't, everyone in their channel would have the [highest] five star status when, in fact, very few partners have achieved it."

He agreed that this stricture has been waived in the past to placate irritated partners and maintained, in addition, that individual partner terms and conditions vary based on when they signed their deals.

This VAR said NetSuite is spurring partners to get more and larger customers because it hopes to launch an IPO soon and needs the numbers to do so.

"What I see is them enforcing existing rules that have been in place three or four years," this partner said. Virtually all of the partners said NetSuite has a tradition of granting exceptions to rules to keep irritated partners on board.

NetSuite hosts and deploys hosted ERP, CRM and an increasing number of vertical iterations of those applications. Even its most ardent partner critics rave about the quality of its software (or actually software-as-a-service). But its partner past has been checkered.

It angered some long-standing partners last year by signing CompUSA to sell into small businesses. Some partners who rely primarily on services and implementation help -- not the upfront sales -- cut the vendor some slack on this in the hope that CompUSA would grow the overall NetSuite user universe and would also rely on them for implementation help.

Next: How partners evolve in an SaaS Realm