There is a thought in the channel that cloud solutions will net zero services revenue. Craig West, NetSuite channel chief, says that’s a big mis-perception that cloud solutions or applications are not configurable or customizable.
“I would say it’s more of a money maker that its perception. Solution providers are really service providers and they sell licenses as an end to lucrative services work. There is a fear out there that there’s no services work in the cloud and customers buy it and it works,” West said.
He added that NetSuite solutions along with other cloud-based software are very complex business management suites that still require robust configuration from changing meta data to customer code and scripting. These are similar services provided in the on-premise world.
What does get lost in terms of revenue opportunities in the cloud comes from installing servers and software. “There is no server hugging component. It does not exist in the cloud world.”
West said that some money is wasted in IT budgets for software installation and that a solution provider could be viewed by the customer as providing higher value through a cloud approach.
“Servers are also a commodity even though they need to be maintained and patched. Ask any solution provider and they will tell you that’s not their core competency or value add. The cloud model is a better model for capitalizing on a solution provider’s expertise,” he said.
According to NetSuite CEO Zach Nelson, 2010 is the year for the channel to really starting selling cloud solutions. West has seen more activity in the channel in terms of larger partners asking for more information and showing general interest.
NetSuite’s channel partner program has been built to differentiate itself on the bottom line. Margins are competitive with other mid-market management program vendors at 30 per cent to 50 per cent on license sales. Compared to on-premise products West believes there is a clear dollar advantage with Netsuite. If, for example, one seat equals $1,000 both on-premise and Netsuite will pay the solution provider $500. But, it’s in renewals where the solution provider will make money. On a three-year deal, the solution provider will net $300 each year for a total of $1,100 of margin over that time period. On premise will be half of that.
According to West, on-premise will have 18 per cent maintenance margin of which just a fraction of that will go to the partner.
“We’ve built a model that really lets the partner capitalize on,” he said.
Currently NetSuite channel business is at 20 per cent of overall revenue. West’s goal is to increase that number as much as possible. The company is in recruitment mode, but is not necessarily looking for cloud experts.
“I think cloud competencies are the least important. Business management applications competencies are more important. Can a partner understand how to convert from one business management system to another? When they have that competency then NetSuite’s enablement program can get them over on the cloud methodology,” he said.
