NetSuite parts ways with largest reseller

Customers of NetSuite's largest reseller - more than a hundred in number - will have to deal direct with the vendor from the end of this month, when the two companies terminate their relationship.

Skyytek, three-times winner of NetSuite's partner of the year award and the SaaS business systems vendor's largest reseller by revenue, will cease to be a NetSuite Solution Provider from the end of this month, customers have been told. In an official statement (quoted in full below), Skyytek said that it will "continue to develop and support ... NetSuite implementation services and vertical product initiatives" but that customers' "product subscription transactions, such as adding users and modules" will be processed directly by NetSuite in future.

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Although Skyytek's current customer numbers are not public, several hundred active NetSuite customers may be affected by the move. Skyytek's website claims more than 600 NetSuite implementations in total, but it is not known how many of these are current, active accounts. Both Skyytek and NetSuite declined to comment further when contacted yesterday.

According to a "joint public statement" issued to customers by NetSuite, the move is "the outcome of a decision by NetSuite and Skyytek to take our respective businesses in different directions." Skyytek was one of NetSuite's earliest reseller partners but, according to Mick Gallagher, CEO of LST, another longstanding NetSuite reseller, the problem was Skyytek's model of appointing third-party consultants and local solution providers as sub-partners.

"The Skyytek model works well for small companies who are building a channel from infancy, [who] lack market locations and are trying to gain name recognition," Gallagher told me yesterday by email. "However, when the channel matures, it is confusing for the partner community as well as the end users."

It's not clear how long tensions have existed in the relationship between NetSuite and Skyytech, but last week's launch of the vendor's own SuiteSuccess professional services offering may have played a big part in crystallizing the separation. NetSuite now operates its own, 150-strong, in-house consulting practice, and has developed a methodology that aims to drive down the cost and timescales of implementation. It has also introduced a new training program and a set of support offerings delivered from a large-scale support center based in Manila, the Philippines capital.

On the one hand, the advent of in-house professional services at NetSuite is a sign of the vendor moving its emphasis more firmly towards the midmarket spectrum of companies with 50 to 500 employees. This is NetSuite raising its game to reflect its growing stature. "With the advent of being a publicly trade company it makes perfect business sense to make changes to its partnering model," LST's Gallagher told me. NetSuite says it is still committed to working with partners, and is encouraging them to develop vertical expertise and customizations to implement on top of the NetSuite application platform.

But on the other hand, the newly launched professional services offerings are bound to tread on the toes of a partner like Skyytek that has focused on developing its own repeatable methodology to roll out via its sub-partners. As one blogging NetSuite customer commented yesterday, Skyytek may have decided that "the money made from reselling the NetSuite App was nowhere near enough to justify putting effort into it, and likely, was insignificant relative [to] the larger universe of implementation work available for other products." That rings especially true now that NetSuite is undercutting bread-and-butter implementation revenues with its own fast-track methodology.

There may also have been a feeling that neither company wanted to repeat the experience of being involved in cases such as that described on the blog of former NetSuite customer D-Tools, a small ISV based in Concord, CA, which switched to another provider early in 2007 after what appears to have been an appallingly-handled mix-up over payment collections. Stories of disgruntled NetSuite customers are not unique to Skyytech, as my ZDNet and Enterprise Irregulars blogging colleague Dennis Howlett has documented. Early on in NetSuite's history there were instances of the sales channel overselling the suitability of the product for very small enterprises or of customers underestimating the implementation effort needed to get going. Skyytech's willingness to take on customers who, like D-Tools, had signed up back in 2002 when NetSuite was marketing itself as OracleSmallBusiness.com may have left it too closely identified with a phase in NetSuite's development the vendor now wants to put behind it.

The separation from Skyytek is likely to accelerate NetSuite's move away from very small businesses among its customer base to focus on somewhat larger prospects. NetSuite has already signaled its customer numbers may see a short-term dip in absolute terms as smaller customers continue to drop out, to be replaced by higher-value contracts with larger businesses. Seen in the context of last week's professional services announcements, this parallel move is a further sign that NetSuite is sharpening its focus and its service quality to do a better job of serving its core target customers among small-to-mid-size businesses. If the strategy works, there will be a positive long-term impact on NetSuite's customer numbers and overall revenue growth. In the short term, though, NetSuite will have its work cut out to reassure its continuing resellers of its commitment to working with partners.

What NetSuite is saying to Skyytek customers:

"Effective September 30, 2008, Skyytek will no longer be a NetSuite Solution Provider. This development is the outcome of a decision by NetSuite and Skyytek to take our respective businesses in different directions. This means Skyytek will no longer manage NetSuite product subscription transactions, such as adding users and modules, or renewing subscriptions.

"This decision to move in a new direction is a natural occurence that often takes place as companies grow; similar transitions play out in many industries each year. We wish Skyytek well in all their future endeavors."

Skyytek's official statement:

"Effective September 30, 2008, Skyytek and NetSuite have terminated their NetSuite Solution Provider Agreement. This means Skyytek will, most certainly, continue to develop and support their NetSuite implementation services and vertical product initiatives for NetSuite, and introduce other SaaS ERP/CRM offerings, but will no longer be processing existing Skyytek NetSuite product subscription transactions, such as adding users and modules; it is intended that such transactions will be processed by NetSuite on Skyytek's behalf.

"Having performed over 700 Software as a Service (SaaS) based ERP/CRM implementations, Skyytek's intended focus will be on SaaS ERP/CRM Management Consulting, SaaS ERP/CRM Business Process Engineering and SaaS ERP/CRM implementations, customization, integration, support and training. This will encompass many product lines and enable Skyytek to remain product neutral, allowing focus on Management Consulting and Business Process Engineering for small to medium sized businesses looking at various SaaS ERP/CRM solutions.

"We wish NetSuite well in all their future endeavors."