How will software resellers affect mid-market ERP success?

27th February 2006

The software dealership or VAR (value added reseller) has been a part of the software landscape in the mid-market for around two decades. Early microcomputer and LAN based packages such as Omicron, Peachtree, Pegasus, Sage and SunSystems built their success on the 'channel model', selling through relatively small dealerships. In the main, the packages were simple, the number of concurrent users rarely exceeded a handful and the technology was basic.

On the other hand, the upper mid-market was served by dealerships associated with hardware brands such as IBM, DEC, Burroughs, NEC and Honeywell. It delivered more complex and heavily tailored larger scale systems based on departmental mini-computers. Very often, the hardware vendor was the prime contractor for both the hardware and the software which it recommended to work on its hardware. The software was 'badged' with the manufacturer's logo and appeared in its recommended software catalogues. Only the very largest corporations using mainframe based systems could deal directly with the software vendor or hardware manufacturer.

Since those early days, the lower end of the market, the SME sector, has remained largely unchanged and is still well served by robust and highly configurable shrink wrapped solutions. But the mid-market has changed out of all recognition. Afterall, the pressures of globalisation, increased competition, overseas manufacture, compliance and accounting regulation are just as relevant to this sector. In turn, mid-market ERP packages have grown in complexity and reach. Virtually any application that used to be available on a departmental mini-computer is now available to mid-range businesses supported by the widespread availability of highly scalable and affordable hardware, database software and communications capability.

Implementing modern financials systems is not a trivial task. The packages are brimming with highly configurable functionality and the underlying database and server technology is challenging to set up. E-commerce, security, web portals, intranets and business intelligence applications are now commonplace. Many of these demands are outside of the 'comfort zone' of the traditional mid-market resellers whom, by and large, made their living by implementing a limited set of accounting applications. Perhaps this is why so many small UK dealerships are throwing in the towel and selling out to the consolidators in the market place such as, TSG, Waterdale Group and Mentec.

Damian Traynor, global marketing director of Systems Union Group agrees, "The market has definitely moved away from the sale of ledgers, and into, for example, performance management, reporting and business intelligence, and resellers will have to follow this trend if they are to remain competitive. Clearly some are being stretched by current demands placed on them and this could be one of the reasons they are selling to the consolidators. But it could simply be a part of the evolution of the market as it becomes more competitive, or for lifestyle reasons."

Alistair O'Reilly, a veteran of the UK mid-market and managing director of Access Technology Group Ltd, (the group which owns the highly successful Access Accounts products) has also noticed a drift towards more complex and demanding requirements. He told FSN, "The customers we are now seeing are often on their third or fourth implementation of a financials system and are generally very experienced users of a broad set of integrated applications such as sales order processing, inventory and supply chain. This means that they want to do a lot more with their systems and have very specific requirements in mind. Increasingly, this is around integration to other systems, sophisticated analysis and reporting."

Satisfying challenging needs such as these requires a much more consultative approach. The modern dealership needs to display considerable business understanding and experience in order to handle such diverse needs. "We seek out dealers with a strong consulting background who are able to understand the business issues during the pre-sales phase. This is quite a different emphasis from the old school approach which was often limited to an understanding of the products being sold," says O'Reilly.

Ultimately the success of the software authors themselves relies on the competence of the reseller network. So it is not surprising that all of the big players are investing very substantial sums of money in training their resellers. But nobody is labouring under the illusion that this is going to be easy.

Thomas Gudman Rasmussen, strategy lead for Microsoft Business Solutions in Europe concedes that not every one of their thousands of dealers is going to be up to the task. He told FSN, "We are investing heavily in training and methodology designed to help software dealers implement our packages more swiftly and competently." For example the Microsoft Dynamics AX "Rapid Configuration Tool" can lower significantly the implementation costs of a typical AX implementation. Donovan Dean, Director of Information Technology with Haldex, a global supplier of products for commercial products, says, "It has allowed us to cut our implementation budget by 25%."

But how can end users and customers be sure that they are getting a quality implementation from appropriately skilled resources? O'Reilly's answer is a process of continuous assessment and accreditation for dealers. "We provide 46 man-days training per individual, supported accreditation, annual refreshers and re-accreditation. We are loved and hated for this policy," says O'Reilly. "Nobody likes the idea of assessment but we need to ensure that dealers have the skills that they require to succeed," he told FSN.

Also, the fact that Access Accounting resellers tend not to sell other products in the same space ensures that they remain focussed. "They don't get time to do anything else," says O'Reilly, "and this ensures that they build up sufficient skills and experience."

Andrew Watkinson of CPiO, a major player in Sage software in the UK confirms that there is little room for the old style reseller of accounting packages. "Software houses are raising the bar and resellers are finding it more difficult to pass the accreditations. So they either have to invest in the relevant application and technical skills or jump. This is one of the reasons we are able to acquire them," he told FSN.

Quality control is also at the heart of Microsoft's approach to Dynamics AX (formerly Axapta) and in particular when dealers wish to add vertical market functionality to the core product. Under the "Industry Builders" programme accredited suppliers with the appropriate skills are able to develop complementary functionality, which, if it passes quality assurance by Microsoft, is added to the Microsoft software catalogue and fully supported by them. Despite the fact that the software is purchased through the channel, customers get the added assurance that the additions are fully supported by Microsoft although for the time being, the programme is limited to Dynamics AX.

In practical terms, the reseller model is probably the only cost effective way that software houses can provide adequate coverage to the sprawling European mid-market. It also means that if and when things go wrong and dealers fail to deliver, there is no automatic recourse to the software author. System Unions Group's Traynor told FSN, "The contract is with the dealership and we would expect the customer and dealer to sort things out on normal commercial terms though we would of course provide technical support as necessary."

With thousands of resellers to its name, Microsoft is in a slightly different position. It is hurriedly building a vast catalogue of resellers round the world together with their specific expertise and vertical market applications. If a customer were dissatisfied with the service they receive from one dealer Microsoft could help them to identify an alternative. But if things go horribly wrong, James Utzschneider, GM Microsoft Dynamics Marketing told FSN that Microsoft would probably step in.

So you may think that you are buying into a global brand when purchasing software from one of the leading software houses but the reality on the ground is that first and foremost you are buying into a dealership. Functionally rich software is worthless unless it is supplemented by vertical market expertise, software development skills, business acumen and implementation competencies.

There is also another looming problem. In the rush to acquire and retain a reseller network there is a risk that the customer is being forgotten. As Nigel Montgomery, of AMR Research puts it, "I worry that at the customer level there is too much fluff and not enough tangible help." Regardless of how clever the 'go to market strategy' or the strength of the global brand, the major vendors will be judged by the last deal and the capability of the dealer network.

So the moral of the story is; do not be seduced only by the apparent strength of the global brand. In many case the 'brand equity' vests in reputations built on past successes, for example, SAP for ERP implementations in global 2000 companies, Oracle for database technology and ERP systems in large corporates and finally Microsoft for personal and enterprise computing platforms. Therefore all of the global software giants have something to prove and time will tell if they have the mettle to succeed in mi-market accounting and ERP. In the meantime the jury is out and as Montgomery puts it, "In the next two years, anything could happen."

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