A month or so ago, Michael Bertini, president of Open Systems, espoused a non-standard view about accounting software resellers. Bertini suggested that during the economic downturn, big VARs struggled while smaller VARs, particularly those who sell source code products, did well.
Bertini has a vested interest. Open Systems VARs are smaller and those who handle the traditional Open Systems Accounting Software sell source code. However, the usual view is that source-code VARs have trouble growing. They are technically oriented, and have trouble marketing. They tend to sell customizations, and spend their time tinkering, then sell more when a project is finished. They end up with a boom/bust cycle.
But the struggles of some larger VARs suggests Bertini’s view has some validity, although the reasons for the problems probably have nothing to do with source code.
Just look at national reseller ePartners. EPartners, which claimed $97 million in revenue for 2000, confirms it had $86.3 million in sales last year, and has been trimming staff. Regional dynamos like the Taylor Group and Select Systems had layoffs in 2001. Friends are betting there are more layoffs to come at other firms.
My theory is that the big VAR problems had less to do with code, than they did with client bases. The big VARs were trying to grow by adding new customers. Yet VAR after VAR has said that what kept them going last year was selling into their installed bases because new sales dried up.
Best Software’s numbers for 2001 bear this out. The company’s parent, U.K.-based Sage Ltd., reported for its year ended September that new license revenue in the United States was down 12 percent. But overall revenue in this country was up 7 percent because of upgrades. (Since ePartners was the largest seller of Great Plains Solomon software and was Global Partner of the Year last year for Great Plains you have to figure Great Plains sales followed a similar profile.)
Firms trying to go national or become multi-regional were hiring people in expectations of rising new license income and it didn’t happen. This doesn’t mean that big VARs are inherently more able to survive than small ones. Small VARs simply had developed the installed bases that were easier to serve. The growing VARs caught the wrong part of the wave and have to wait for the tide to come in again with more new sales.
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