ERPs now in the cloud. What is the impact on traditional channels?
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A Bit of History
Back in the day, software companies naturally knew what their forte was (or should have been)—technology. In order to grow they needed a few things: a marketing team to tell the world about their product and a sales staff to develop opportunities. And if they were even modestly successful, they needed to rapidly expand their code base to keep up with customer demand—writing core modules, custom code, add-ons, and integrations to other software. (All functions that partners could do for them.)
These companies often had the view that if you won a few of those big Fortune 50/500 accounts, that would provide the needed credibility and references to go win lots more business. So they generally kept their tier-one opportunities for themselves and sought out partners to expand their presence in the rest of the market. This formula was so successful that it was adopted by virtually every major software firm. (See Figure 1 for traditional partner roles.)
Some of what follows may be rudimentary, but as you read on you will see that there are important changes (new trends and opportunities) in the relationships between software providers and channel partners.1
Enter the Cloud
Around 1998, along came firms such as NetSuite and Plex Systems with their multi-tenant cloud solutions. Initially, these types of players did not attract a lot of consulting/integrator partnerships. The matter was simple: what was in it for the partners if they couldn’t plan, install, implement custom code and write lots of integrations? There was some of that work, but not nearly as much as in the traditional on premise model, or so it was thought.
While the cloud concept was a small movement at first, it has now become the first choice platform for many (see Figure 2). At the same time, that old code base developed by the early players was, well, aging. As middle age set in, ERP companies began major refreshes of their code bases. And to what? Cloud.
With Cloud, the Partner-Model Game Has Changed
So where does this dramatic change leave the channel? By examining a few situations, we can understand how things have shifted and what some of the possible roles are for channel partners.
Firstly, as companies age or their market flattens, they have to seek out new sources of revenue. As revenue growth slows or shrinks, gobbling up more of the customer’s wallet share is critical to maintain growth. Thus many ERP providers not only develop implementation methods, but try to gobble up the implementations, too.2
Secondly, the migration to new platforms may also widen their market. Of course ERPs have many other reasons for this migration. (Read ERP’s challenge: Moving Off and Moving Up.)
As traditional ERP providers respond to the challenges (like introducing cloud), it appears to have leveled the playing field between ERPs.3However, strategies differ between these companies and thus the playing field has actually changed—it may not be equal. (See Figure 3 for a summation of some ERPs and the role partners can play in the new models.)
Multi-tenant is a single code base that is simply managed by the ERP firm. Some ERPs are hybrids and offer on premise, hosted, and multi-tenant. In that case, partners may still be able to play a traditional role if the customer wants on premise. Some partners may also win hosting business. SAP, for example, has relationships with certified partners who can host clients’ unique instances. Epicor is similar in the sense that customers can choose the delivery platform.
In Epicor if the customer chooses cloud, the role of the channel may shrink since multi-tenant generally reduces integration, and rapid time-to-value may be covered by the ERP itself.
Infor represents the most dramatic change. They, like others, have made massive investments in the cloud and code upgrades. But they are betting more of the farm, if you will, on the multi-tenant option.4 As well, they have been evaluating many customer custom ideas and adopting them, putting them in the core ERP, thus reducing the need for custom code and integration. Infor clearly understands that if they can migrate their install base to the cloud, their cost of operations is significantly reduced. Hence, they achieve a profit and gain a return on the product investments they have made. There is, of course, a benefit to customers: a major Total Cost of Ownership reduction.
But here is the real issue for channel partners: To purse these benefits, Infor has initiated an upgrade/implementation program called UpgradeX to incentivize customers to upgrade. Infor’s service team does these projects as a fixed-time/fixed-price. Of course the user can use their own implementers if they choose. This change makes it tougher for channel partners to play a role greater than that of a reseller. In talking to Infor about this issue, there was no denial that change was occurring. They felt that rather than gaining implementation business, channels would be resellers and be moved to sell.5
And what about NetSuite? In this new age of the cloud, they might have an intriguing opportunity for channels. NetSuite, since the early days, has been a development platform (like Salesforce). Thus ‘suite’ here is not just internally developed code; partners often flourish and can sell the add-ons they develop on the NetSuite platform to the Infor customer base. Often resellers or integration partners, especially those mid-size firms who are the bread and butter of the ERP market, have only a local presence. Being a NetSuite developer on the NetSuite platform can provide a broader market opportunity for that developer/partner. As NetSuite told us, a broader, worldwide market can open up to them.
Plus, my observation is that NetSuite is really a company of techies. All that business process work is available to the partners. So partners can make upfront cash reselling (30%) plus business process modeling and platform add-ons. That could be fairly lucrative.
We are not pushing NetSuite here. Rather, knowing how critically important the channel is to future business, why all vendors are not mounting more aggressive channel efforts to attach and maintain these partners to their ecosystem is a mystery!?!
New Opportunities for Channels
Channels also have to think anew in this cloud world. Right now there is a tremendous amount of exploration, discovery, and innovation; and a need for end-users to figure out the new world of cloud, IoT, mobile, big data, and most importantly, how they can improve their business processes by taking advantage of these technologies. One would think the partners would be all over this. Of course, they need to understand it, too, and that might be part of the problem.
For example, if you made your living being an integration expert for Oracle or SAP, you might not have done too much thinking about the future. And your people would have built ‘their chops’ being experts on implementation—coding extensions and customization. To become a partner that is knowledgeable in the new areas requires some investment in people. It also requires building different types of relationships with existing ERPs and presenting yourself in a different light.
In fact, many software firms have been claiming some of the mantle of thought leadership. And they are speaking with passion, since they poured most of their capital into products to take customers into that new, transformative world.6 The junior rank and file may not have those qualities, but surely more senior people and executives can articulate where the world is going.7
As a channel partner in the cloud world, if you only know how to write integration code, you may find that when the bus to the future left, you were left sitting on the bench.
Customers need help with outsourcing, new commerce models, supply chain, Omni-channel expertise, mobile, and data analytics. And software firms do too; they don’t have the time, really, to dwell in the business process modeling world. However, leadership in these advanced areas is required to ensure the end-users’ success. The lack of business/industry and process expertise means that partners may not be able to provide the guidance that companies need. Being an expert in, say, marketing, sales process, supply chain, or technology applications such as the use of analytics and so on8 is generally required to make many of choices when setting up configurable software.9
No doubt, software developers are trying to make software easier to adopt, whether through on demand, simpler UIs, or other methods. But the enterprise market, ERP, is not—nor will it ever be—a Dropbox or Google search. Enterprise is complex and thus the software to support it will always need technical and business expertise to make it all work. And the work and strategies will change in ways we can’t fathom today. Thus the partners (both the ERPs and channels) will need to be agile, opportunistic, and provide leadership to continue to thrive in healthy working relationships.
1 We include resellers, integrators and consultants who
implement the technology. -- Return to article text above 2 They may seek to grow through acquiring other companies, and try to introduce new product lines through development. This is the state of ERP for traditional players (Oracle, SAP, Epicor, Aptean and Infor). -- Return to article text above 3 Of course, those who offer all three delivery platforms—on premise, hosted and multi-tenant—may not reap the operational savings that a pure model may derive (i.e., on premise customers pay support; multi-tenant developers only have to support one code base). -- Return to article text above 4 At Infor, new clouds are multi-tenant and hosted on Amazon’s Cloud Services; thus, there is no need for third-party hosting. -- Return to article text above 5 My gut is that over the long term this does not allow the channel partners to sustain the long-term relationships that local consulting/integrators may have with customers, since they really only play the sales role, not the long-term technology advisor role they may play today. -- Return to article text above 6 In wandering the exhibit halls and meeting partners at the ERP conferences I am surprised by the integrators’ lack of industry application and process specialization. -- Return to article text above 7 Epicor and Infor industry vertical groups are very deep into the industries they support and many employees have the business knowledge to hold their own with end-users. -- Return to article text above 8 When an integrator tells me they ‘do it all,’ to me that means they don’t really have the expertise; exceptions are the firms that specifically have practices in Manufacturing, Retail, Marketing, Supply Chain and so on. These can be large or small firms with industry-specific practices along with the specific package expertise as opposed to those with general purpose skill sets who may not provide sound advice on the best path forward. -- Return to article text above 9 I do hear from some software firms that the users know what they want and can tell the implementer. However, when I talk to the users, they say that “it would have helped if they understood the data”; or “they could have helped us more if they had some business expertise.” Users say it is left to them to determine how to maximize the value of the software they have installed. -- Return to article text above
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