Category Archives: Revenue and Margin

SaaS Channel Margin: All Over the Map

Novell’s announcement of a beta program for Novell Vibe Cloud and Vibe OnPrem (November 9) marked its foray into enterprise social networking.  Along with this beta, Novell introduced an incentive program for resellers labeled as “discounts” and “rebates”.  For both cloud-based and on-premise versions, partners receive a small discount (single digit) at the time of customer purchase, and a larger rebate (double digit) for Year 1 billings.  For Year 2 and 3, partners would also enjoy the same rebate percentage as Year 1.  It is not clear whether partners will automatically be given the rebate, or will have to earn it in Years 2 and 3 through additional value add to customers.  Being a new kid on the social networking block, coupled with its pending acquisition by Attachmate Corporation, only time will tell how well this program tracts with partners.

By contrast Jive Software, the granddaddy of enterprise social networking, negotiates individual deals with each partner for reselling its on-premise and SaaS versions of software.  Partners receive a discount, allowing them to make whatever margin is feasible.  As for Year 2 and 3, partners need to stay engaged to earn additional revenue.  No free lunch here.

Major vendors such as IBM and Microsoft have programmatic guidelines for reselling SaaS offerings such as Lotus Live and Microsoft Business Productivity Office Suite (BPOS).  Up and coming players including Socialtext and Yammer have minimal to zero channel play in their go-to-market mix.  Others such as Workday have a more OEM-like relationship with partners such as OneSource VHR, an HR business process outsourcer.  See Tis’ the Season for Revenue-Sharing in this blog for more on OEM arrangements.

One of the more innovative approaches was NetSuite’s  SP 100 program targeted at ramping up reseller recruitment.  In March NetSuite embarked on a time-limited offer (through April) for partners to receive 100% margin of Year 1 subscription revenue, plus a 10% margin of annual renewals.  (Its standard program offers channel partners a 50% margin of Year 1 subscriptions, and 30% of subsequent renewals).  NetSuite acknowledged that SP 100 was a proactive measure to  significantly grow channel sales beyond 20% of its revenue.  In a recent interview with CRN in November, NetSuite CEO Zach Nelson indicated that this program has resulted in some “well-qualified partners” including VARs, systems integrators and accounting consultants.  CRN also reported that NetSuite is now “turning more service opportunities to solution providers”.   It is unknown as to whether NetSuite achieved its goal of increasing net new resellers or channel sales.  The outcome however suggests that SP 100 may have helped NetSuite to better determine who and how it needs to partner.


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Tis’ the Season of Revenue-Sharing

Revenue Share While companies continue to stumble through on how to partner in the world of SaaS, revenue-sharing is emerging as a popular model in monetizing strategic partnerships. Revenue-sharing for on-demand services ranges from a co-marketing and co-selling arrangement to an OEM-like relationship. RemedyForce a cloud-based ITSM solution developed on force.com, is an example of the former. Recently announced by salesforce.com and BMC, “RemedyForce is the next phase of a strategic alliance between the two companies to develop, market, and sell cloud-based IT management .” [1]  Branded as a joint offering, BMC and salesforce.com intend to provide joint sales, marketing, product certification and implementation. Besides being sold direct, RemedyForce would also be sold by partners. Except in the realm of strategic alliances, this level of multi-functional commitment is rare.

In the OEM-like model, a SaaS provider makes its software available as a ‘capability’ (or suite of capabilities) to another SaaS provider.   By integrating Birst on-demand business intelligence, with RightNow on-demand CRM, their customers benefit from advanced analysis of customer and operations data. Unlike traditional OEM licensing, where the licensee is responsible for all customer interface including first (and even second) line of support, SaaS OEM partners are interlocked at every step. As both companies’ offerings are tightly integrated as one solution that must execute flawlessly in unison, ‘licensor’ and ‘licensee’ each has an equally crucial role in ensuring uptime, performance and business continuity.

Data points to observe.  OEMs may garner revenue as a percentage, from low single digits to mid-teens, of a SaaS subscription.   Another approach is for the OEM to offer a discount off list price, very similar to the traditional licensing model. Rules for such OEM models, if any, are vague and still evolving.

Marketing Share Other SaaS providers leverage partnerships to create awareness and generate leads. Through its “Powered by GoodData” program, GoodData provides pre-built dashboards and advanced analytics to a diversity of solution providers. Zendesk, Market Metrix, Get Satisfaction and others benefit by augmenting their offerings with enhanced capabilities such as analytics for support, customer satisfaction and community health by leveraging GoodData. While this arrangement does not directly generate revenue for GoodData, it can be a powerful way of providing customer visibility, which can ultimately lead to revenue generation.

[1] salesforce.com press release, Dec. 8, 2010