When Dancing With the Gorilla, Better Wear Steel-Toed Boots

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My industry, business software, is undergoing a dramatic shift in delivery model as more and more on-premise providers add Software as a Service (SaaS) solutions to their mix or replace their on-premise solutions entirely. In addition, SaaS provides a window of opportunity for small start-up companies to challenge the established leadership of companies like Microsoft, Oracle and SAP.

I have no doubt that all three of these well established players will do just fine. However, the ones who could get stepped on in the battles ahead are the channel partners of these big players – especially SAP and Microsoft who work with thousands of small (by comparison) VARs and Independent Software Vendors (ISVs).


This is nothing new. While Microsoft and SAP have strong partner programs and a commitment to the channel, there is always room for day-to-day skirmishes over individual opportunities. In addition, if you are an ISV or VAR who develops your own intellectual property (a.k.a. add-on software applications) you never know when your “partner” will suddenly decide to enter that space and become your competitor.

In the SaaS battle the channel partners with the most to fear are those who make their money off the license revenues or off recurring revenues. There is an opportunity for annuity revenue that is attractive, assuming your partner doesn’t limit this by lowering your percentages, but you are foregoing sales revenue up-front for the promise of future revenues. If you are a publicly held company, good luck selling that one to investors.

For those who do implementations, there is some question over whether your livelihood is in danger. Service providers have always had to fight for turf with the big guys. Now they have to fight against the expectations being set in the minds of the prospects. Just because you can implement a solution remotely does not mean that it will be implemented correctly. For example, there is still a logic behind the way a manufacturing operation is set up that is hard to pin down without spending time with the customers operations.

Certainly there will be opportunities created by this change. Channel partners with the IT knowledge and bandwidth to support applications in a cloud could see their business take off. But, that’s not the business that many of the entrepreneurs focusing on traditional apps such as ERP and CRM signed up for.

If you are one of these traditional partners you are going to have to do some fancy dancing in the days ahead. The gorillas are leading this dance, but it will help if you can anticipate their moves and make sure you are in the right position. It may not be pretty for awhile, but least you can avoid getting knocked off your feet.

I’ve helped both Microsoft and SAP channel partners with their channel strategies for many years. My LinkedIn profile will give you some idea of where I am coming from. I have to say that I don’t know what “the answer” is yet, but I am certain of one thing. This change will come, and probably sooner than many of you expect.