Playing Both Sides Of The Software Fence

Software partners face a world of hurt.

Margin erosion and channel conflict—the age-old bugaboos—remain unabated. Indeed, those pressures are heightened as large vendor partners consolidate and seek a bigger footprint in existing accounts.

Just last week, Business Objects acquired performance management software maker Cartesis for approximately $300 million. The deal came only one week after Oracle completed its $3.3 billion acquisition of Hyperion Solutions and its line of performance management software. Besides that, SAP, Cognos, Microsoft, Cisco Systems, Hewlett-Packard and EMC's RSA unit have all made software acquisitions this year.

Even without consolidation, today's software resellers and implementers also face a wholesale re-evaluation of the software delivery model, led by Software-as-a-Service (SaaS) pioneers like Salesforce.com, NetSuite, Webex and others.

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And even as legacy vendors (Microsoft, Oracle, SAP) put more investment into SaaS options, their partners have to think about following suit, or at least try to figure out a way those vendor moves won't disintermediate them entirely.

Naysayers characterize the SaaS push as the second coming of application service providers—and we all know what happened to that particular boondoggle. But smart solution providers know that service-delivered software is now a real option and will remain one. There are several reasons. First, reliable broadband is now nearly ubiquitous. Second, there's now a selection of robust remote management tools like LogMeIn and Citrix's GoToMyPC to enable VARs to support customers that may have been beyond their reach geographically in the past.

The software partners that actually sell licenses must decide whether to enter that SaaS fray, stick with traditional sales models, or hedge their bets and do both.

This week's CRN cover guy Mick Gallagher, CEO of LST, Fallbrook, Calif., has looked carefully at the equation and is betting on both sides of the SaaS/on-premise divide. His company, once known as Life Sci Technologies, is both a longtime Oracle partner and an inaugural NetSuite partner.

A few months ago LST acquired another NetSuite power in Lohmueller Associates. Gallagher's company does managed services for clients—mostly in the life-sciences field. The addition of Lohmueller makes LST arguably NetSuite's largest partner. And NetSuite is one of the SaaS pioneers, specializing in a hosted ERP suite.

Andy Vabulas, CEO of IBIS, an Atlanta-based Microsoft Business Solutions partner, is likewise balancing both models. The percentage of his business that has gone via the managed services or hosting route has grown at 100 percent year over year for the past few years and he expects that trend to continue.

The key is partner adaptability. As more value starts going into what some might call "plumbing," solution providers have to keep building in the white space. They have to stay above that rising tide of value. Whether the application is hosted on the customer premises, in "the cloud" by the vendor, or by the partner itself could be beside the point.

Microsoft is famous for putting more features and functions into its operating systems and applications over time. Oracle and SAP are doing likewise. Solution providers must watch that like a hawk.

For example, many Oracle partners now increasingly see the database as a commodity, along with the operating system and other plumbing. That very notion would have been deemed blasphemous for this crew until a few years ago when it became clear that Oracle CEO Larry Ellison might be feeling the same way. At that point, he set out on his $20-plus-billion application buying binge. The result: Oracle, Redwood Shores, Calif., is focused on enterprise apps with its portfolio now including not only its own branded E-business Suite but PeopleSoft and Siebel. And even above those applications it has bought retail expertise with Retek and banking know-how with i-Flex.

One Midwestern Oracle partner, who requested anonymity, suspects Oracle will put all of its database business through the channel so it can focus its prodigious direct-sales forces on the more remunerative applications. An Oracle spokeswoman denied that contention.

Many software partners agree that for continued survival, let alone success, they have to get outside their comfort zone. Terry Petrzelka, CEO of Redwood City, Calif.-based Tectura, a large Microsoft Business Solutions partner, says the days of the software-only partner are numbered—he gives them three or four years. By then, these partners will have to establish themselves in some specialty, beyond license sale and implementation.

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