NetSuite is this morning announcing a new reseller program that is aimed at converting VARs currently dealing with on-premise products, and fearful of the revenue implications of a move to cloud applications, to come on board as a NetSuite reseller. As background, NetSuite currently has around 200 partner companies that are receiving margin throughout the renewal life of the end customers. NetSuite has found however that traditional resellers are struggling to decide how best to integrate cloud offerings into their existing practices – part of this struggle is caused by their real fears over revenue impacts moving from a large license fee model to a smaller recurring revenue one.
The new program will mean that, for qualified new customer transactions of at least two years, NetSuite “SP100” partners get the entire year-one software subscription revenue, they will then also get 10% margin on all renewals, to give them a recurring revenue stream. The existing benefits that resellers get will remain for VARs under the new model – they’ll still get deal support, sales engineering support etc.
The idea of this program is to help traditional resellers, who have business models built on lucrative revenue streams from on-premise deployments, to move themselves to a recurring revenue model – the 100 will be positive for revenue flows for VARs in the initial years when they feel the most impact from the move from on-premise to cloud.
The following chart gives a comparison between an on-premise reseller, one who uses the existing NetSuite modal and one who embraces the new SP100 model – note that the existing channel model gives resellers a 50% margin on license and a 30% margin on maintenance. You’ll notice that after a few years resellers are actually worse of under this model than under the SP100 model – as such it is very much a tool to aid in the transition for VARs rather an ongoing change of model.
NetSuite’s stated goal through this program is to attract new VARs as Craig West from NetSuite pointed out in my briefing, existing resellers who have already bit the bullet and moved to recurring revenue models have already suffered the pain of the shift – they’re less likely to come on board with the program than new resellers. Resellers will be able to chose which commission model they adopt with each customer deal, thereby giving the opportunity to tailor their own revenue flows.
So why now? Well NetSuite is adamant that 2010 is the year that the midmarket channel embraces the cloud – they’re dedicating much of their 2010 SuiteCloud Conference to building knowledge within the partner community.
[..] So NetSuite experimented with more direct sales model first, gradually building towards a more channel-based model, to the recently announcedSP100 programin which partner VARs get the entire first year subscription revenue. Along the way they grew functional richness as well as market penetration, to the point that they often [..]