NetSuite embarks on richer reseller program

NetSuite has announced an extension to its SP100 program that sees it endeavour to woo more resellers. In doing so, it is recognising the need to move on as it works towards its next revenue goal. From the press release:

• The option to realize 100 percent of a new customer's first-year revenue, with a 10 percent share of renewals in future years. New partners may also choose NetSuite's conventional revenue-sharing agreements while enjoying the other benefits of the SP100 program;
• The NetSuite SuiteStart Service, designed to give partners immediate mastery of the cloud, and a shorter horizon to initial customer wins;
• Waivers of first-year program enrollment fees for new channel partners (an immediate $5,000 value);
• Free first-year training in the NetSuite sales training and methodology courses for up to three sales reps;
• Comprehensive go-to-market support, including marketing templates, start-up leads, and access to ongoing leads for top-performing partners;
• A free NetSuite license for partners, in good standing, to use to operate their own business.

Some of these features remind me of what SAP is offering its Business ByDesign partners and when I challenged Craig West, NetSuite's channel chief, he stopped short of acknowledging the plan as 'me too' but ruefully said: "We've been working on this some time but yeah, I wish we had been first on some of these."

More importantly, I see this as a sign that NetSuite is realising that it needs to mature as a company. In a recent discussion with colleagues, we noted that Zach Nelson, NetSuite's CEO has been relatively quiet of late. While we don't doubt he'll take a poke at one or both of Microsoft and SAP at the next earnings call, the fact is NetSuite is at one of those defining inflection points for a software vendor.

Having reached around $200 million in annual revenue, the next goal must be $500 million. NetSuite knows it cannot get there alone and so has to offer substantive incentives to attract VARs. The option to take 100% first year revenue is clearly an attraction and a significant sacrifice on NetSuite's part.

I would be more impressed if NetSuite was to loosen control of access to ongoing leads. Unless a VAR has a burgeoning set of prospects within its existing client base ready to move to the cloud then NetSuite needs to provide more open access in order to help fill the channel's appetite for deals. It would demonstrate the demand which observers like myself see but which is not necessarily apparent to VARs. The company claims it has plenty of leads so that should not be a problem.

My sense from participating in extensive threads on this topic is that the VAR channel remains wary of SaaS/cloud solution selling. It requires a fundamentally different mindset to selling on-premise solutions where the raft of available add on services is extensive. Craig agreed with my assessment that the vast majority don't 'get it' or remain reluctant to give up their ancillary service support deals: "I think what's more interesting is this burgeoning whole cloud consultancy thing where they are building whole portfolios that are not just ERP or CRM but collaboration, email, security and telephony. It's almost like a menu thing."

Moving on, I asked Craig how well he thinks NetSuite is doing at controlling its channel partners. It is one thing to build a thriving channel, it is another to build one that results in high levels of customer satisfaction. In asking the question, I was thinking about the steady flow of emails I receive from less than happy customers. Craig's answer was intriguing.

He acknowledged that in the past, some resellers had viewed cloud as a way to milk a few customers with little effort. Other VARs I've spoken with said much the same thing, complaining that the good work they put in was sometimes marred by poor implementations elsewhere. Craig now says that an attractive program is only a part of the story. "We talk about partners in good standing for a reason. Yes, we want them to do more than a handful of deals a year but they need to be good implementations. That's why we're putting more emphasis on training."

You can readily argue that if NetSuite is prepared to hold out the carrot of 100% first year revenue then it has a strong incentive to delight those customers. If customers are not happy in month nine then the chances of a difficult negotiation over year two fees is bound to ensue. Far better to have the customer up and running with happy users by month nine. It will not be do-able in all cases but should be possible in the majority.

I suspect some incentives, like the waiver of fees and free training for a few reps will become a permanent feature. When you run the numbers, $5,000 even for 1,000 new channel partners is barely a rounding error on NetSuite revenue. "I can see that [first year fee waiver] happening. We see partners bog down fiscally over fees. We all know it's some couple of hundred thousand dollar investment to build a practice but there is some degree where it's if I've got to pay you a few thousand dollars in fees it makes me feel bad."

More broadly, I see this program as a recognition that selling cloud based ERP is no longer the NetSuite slam dunk it once was. The company has had the luxury of pretty much having the market to itself and benefiting accordingly. Some of its more recent wins have been impressive.

Weighing its 6,000+ customers against SAP's 270 may seem like overwhelming odds in NetSuite's favour. But NetSuite is not standing on its laurels or assuming that SAP does not represent credible opposition: "We are starting to see them in deals," Craig said. That combined with SAP's ability to throw many millions at marketing, almost without noticing, means NetSuite has to up its game. This is the first in what I expect will be many steps along that path and for that NetSuite should be congratulated.