There are two truths in the world of online business software. One, that there is more software out there than anyone could hope to sell, with new applications appearing weekly. And two, the number of resellers that can hope to sell software-as-a-service profitably is a tiny fraction of the existing reseller market.
The transition of software from on-premise to the cloud is nothing short of a revolution. There is a conundrum facing vendors and the channel: how easy is it for resellers to ride the wave rather than get flattened by it? Are they storming the barricades or merely lining up for the guillotine?
Resellers face difficulties in the essential task of moving their businesses to a recurring revenue model. This takes time, money and fortitude. But once a company obtains a strong line of customers tied to one cloud application, other software vendors come knocking. In a market packed with wannabees, cloud vendors are backing those they believe will be winners.
Following the pioneers
In February 2011, Artis Group managing director Chris Greatrex found a proposition too good to refuse. The Sydney-based IT solutions provider had built a business on managed services, telco, on-premise and hosted installations, when another Sydney reseller, the Missing Link Network Integration, offered to buy the infrastructure arm.
“There was really a lot of good luck finding a buyer for an infrastructure business. You couldn’t do it today,” says Greatrex.
The deal made sense. The Missing Link had a reasonable mid-market customer base while Artis had a string of enterprise clients. Since the sale, Artis went on to structure itself as a cloud business.
While bidding farewell to the hardware business meant giving up the chunky revenues, Artis Group has continued to expand. The company made its first appearance in the CRN Fast50 last year, when it reached 34th place by growing 27 percent to hit an impressive $10 million turnover.
Greatrex recalls it was difficult to kiss goodbye to the big sales in infrastructure. But how fast times have changed. “I’m glad we’re not in that position now. That’s a tough place to be. We were very lucky being able to sell that business in one fell swoop.”
As many vendors, channel players and analysts have said before, the hardest part with this shift from huge capex sales towards recurring revenues is weaning the sales team from high commissions to the long view of annuities.
Greatrex took a band-aid approach. “We just ripped it off.
We weren’t heavily reliant on product sales – there was already a large services component.”
Artis Group has a sales incentive for the first 12 months of a subscription although this is secondary. “We have a fairly high performance-based component across all salaries and commissions. As the guys build up their client bases, they are unlikely to leave in a hurry because of the recurring revenue in the business to recoup the effort,” Greatrex says.
This has a positive impact of making it easier to hang onto sales staff. If they stick around, they will still be collecting for sales they made five or six years ago.
Artis Group’s second stroke of luck was backing SAP’s nascent cloud application Business ByDesign. Artis is now the biggest partner for SAP’s cloud baby in Australia and New Zealand. Australia has done exceedingly well, with the platform’s biggest client: 8,500 seats under the NSW government.
Greatrex pauses when asked for advice for resellers hoping to follow in Artis’ footsteps. “What advice would I give them? God, good question. It’s very difficult because everyone has to find their own path to some extent. I’d like to say we were strategic but the fact the opportunity came up was incredibly fortunate. You just have to take the money you are earning and start investing it into [services that provide a] cloud-based recurring revenue.”
Sometimes this will come at a cost of existing revenue streams. While some companies reselling on-prem versions of SAP or Microsoft Dynamics AX “don’t get out of bed for less than $1 million”, the cloud versions will cannibalise those sales, Greatrex says.
For Artis, the average SAP Business ByDesign deal is worth about $200,000 to $400,000. Although the numbers are smaller, the deals are easier to come by. There’s no need to talk about system requirements, or how security is going to work, or backup processes. “It’s all packaged and ready to go. We don’t have massive overheads,” Greatrex says.
Next: What vendors want
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