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Phil Wainewright

Cloud ERP and the Value Added Reseller

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Listen to my conversation with Ezequiel Steiner, CEO of Acumatica, which provides cloud-based ERP software.

In this podcast, find out how traditional solution providers are adapting to working with ERP delivered as-a-service and learn about the different contract options being offered to customers.

Listen to or download the 7:38 minute podcast below:



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---Transcript---

PW: Just to start off, Ezequiel, you offer your ERP software in the cloud. What are the pros and cons of that?

ES: Well, I think that given the market potential for cloud ERP today — I mean the forecast for growth — a vendor or a value-added reseller that does not offer a cloud ERP is passing on a huge opportunity. I think specifically for value-added resellers they just can't. I mean, this is the growth area for the ERP market in the future. Also, they're being asked by their customers about it. They know they need to add a cloud option to their portfolio — and they are. All of them will add it eventually.

Okay. So you're offering your software through a partner channel of traditional value-added resellers, solution providers. These guys are not that experienced with SaaS. It's a new business model for them. Do they have to do a lot — do you need to do a lot of re-education — to bring them up to speed?

That's a great question. Actually, the most important assets we see in a value-added reseller are, its experience implementing ERP solutions, its knowledge of a particular vertical, and its knowledge of a local market. We actually thought about training a lot, and actually have a lot of material for training value-added resellers on the SaaS model. Actually, we don't use it really that much. These are very smart guys and it comes very easy to them how to sell SaaS instead of traditional license.

Well, of course, one of the big shifts that they've had to make is to shift from a model where they basically get all their money upfront and there's a lot of money that can be made from the technology implementation. That all goes away in the SaaS model. So does that — and, obviously, SaaS is very much a pay-as-you-go environment compared to the upfront payment — is that a big shift? Because it's a big change, I guess, in business model and cash flow for them.

It is. It is really a significant change that they have adapted very well to. In general, it's very important, when you're talking about contracts and agreements with the customer, to have always the customer in mind and what really the customer is afraid of. And when the customer is moving into a SaaS solution, the customer is delegating to a third party activities that were done in-house — and where the customer had a set of carrots and sticks in order to make sure that those activities were achieving the company's goals.

Now, when you move them to a third party, you need to address this loss-of-control feeling by the customer — by providing SLAs, set penalties for the vendor or the VAR in the contracts for failure of achieving those SLAs, and so on and so forth. And so that said, that's a big change in the contract. Also, from the business model of the value-added reseller specifically, the move from license to pay-as-you-go model requires these value-added resellers to somehow find very creative ways to afford the sales of course that — the sales cost that is paid by them upfront — but they have. I mean they find financial ways or even by asking the customer to pay the full first year's subscription upfront.

So typically, people are still paying upfront, rather than this concept that people have got — that people when they buy a SaaS solution are paying one month at a time, is a bit of a false impression. People are prepared to actually pay a longer period upfront are they?

I think the contract needs to serve the customer best and be flexible to offer what the customer needs, and the vendor and its partners need to find ways to achieve that. Multi-year contracts or even one year subscriptions are definitely something that one customer might want. And monthly contracts are other options. I think we should offer — us as an industry — I think we should offer all of them. I mean it's the opportunity of this industry to actually try to cater to our customers' needs. And I think we as an industry need to create and offer them these opportunities. If a customer wants monthly, the customer should have the opportunity to acquire monthly. If a customer wants yearly subscription, then that's fine, and [there] should be incentives for it.

In particular, about the ERP market, the time of implementation of an ERP and the cost of implementation of an ERP are sufficiently high so that a one-year subscription is not that long for a customer. The customer is not going to change ERPs every four or five months.

Right. So the other thing, of course, is that there's much more opportunity for ongoing consulting and other services throughout the life of the contract. So that, although the sales costs are still concentrated, an upfront one-year license helps to cover that. The VAR can then look forward to more revenue over the course of the contract, can't they?

Yes, yes, yes, definitely. The traditional ERP value-added reseller, it's definitely not a box-mover. It's a solution provider that makes most of its money from the services — from the professional services offered to a customer throughout a long relationship. And so, the traditional license revenue, as you say, is to pay for the sales cost — and now both the ERP vendor would help for value-added resellers — and the value-added reseller needs to adapt to this.

When resellers are going out and selling a cloud solution, is it important that they also have an on-premise option, or are they actually selling cloud as a permanent choice that the customer is now making?

Acumatica offers both SaaS and on-premise on the same code base. And when you tell customers that they can move back and forth between on-premise and SaaS, you can hear the sighs of relief in their voice. And I think that's very important. I mean when — at a time when customers are still moving to the cloud, and they're still a little bit reluctant about putting their data on the cloud and so on and so forth, I think it's important to offer them this flexibility to adapt to their business needs and business changes.

Okay. This ability to move back on-site is something that customers are interested in, but do you see many customers actually doing that?

Well, we haven't found any customer that has moved from a SaaS to on-premise, even though they can transparently with Acumatica. We have seen the other way around though — customers that developed first on-premise, and once they felt ready they moved to the cloud.

Okay. So it's a sort of — having the on-premise option is sort of an insurance for them then?

Yes, that's a good way to put it.

Phil Wainewright blogs about how businesses are using the Web to get better plugged into today's fast-moving, digital economy.

Phil Wainewright

Phil Wainewright specializes in on-demand services View more

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