Reseller Issues in Open Systems
New Wrinkles in Software Distribution
With careful planning and implementation, value-added resellers
can benefit from electronic software distribution and services.
By Matthew Peterson
I believe there are only two reasons why a VAR should embrace a new
operation and its associated technologies; both reasons are grounded in
sound business practice. The first is that the operation can improve the
profitability of an existing product or service. This is the basic business
concept of applying technology to improve the productivity of existing operations.
The second reason is that the operation can profitably leverage a VAR into
new products, services or markets. This is the basic business concept of
applying technology to grow a business.
These rationales underlie most transactions between customers and their
VARs, and they are equally valid for the VARs themselves. If a VAR cannot
quantify the benefits that will accrue to the business under one of these
two criteria, it's not worth the effort. VAR margins are too slim to allow
for technological money pits.
However, do not take the above caution as an absolute argument against taking
calculated risks on new technology. VARs thrive on technology that has not
yet become a commodity. Not embracing the right technologies at the right
times is a sure way for a VAR to become less valuable to its customers and
lower the barriers to entry for its competitors. The point is that VARs
need a careful methodology to accomplish the required business planning
and technology evaluation.
One of these emerging opportunities comes in the area of software distribution.
Let's consider some of the ways it can help you leverage your strengths.
(For a look at electronic forms of software distribution from the user's
point of view, see Electronic
Software Distribution: A Long Shot)
Steps to Success
How can VARs ensure that software distribution, particularly electronic
software distribution (ESD), meets these criteria? The first step is to
assess the amount of time and money currently being consumed by software
distribution. All VARs are involved in software distribution in one form
or another. It can be as simple as reselling a manufacturer's update for
direct shipment to the customer site; or as complex as upgrading dozens
of applications and systems software modules in a large network for which
the VAR has a management contract. The trick is for the VAR to examine its
operation and attach specific costs to this activity. Which costs could
be reduced or eliminated with ESD?
A related task is to determine what the VAR's software suppliers are doing
about software distribution. Do they have plans of their own to distribute
software to their VARs and/or directly to their customers? What support
are they planning for ESD and configuration control activities on the part
of VARs and users? Are there financial incentives, based on supplier cost
savings, for converting to ESD?
The second step is to determine the market acceptance of the service and
its underlying technologies. Can the VAR sell this to existing customers
as a value-added service or will it have to justify the investment through
productivity improvements? Is this a critical tool to win over new customers,
launch a new business initiative or enter a new market?
Finally, the third step is to assess the incremental costs associated with
software distribution services. A VAR with robust networking links to its
customers and an intimate knowledge of MIS software update procedures will
have much lower startup costs than a VAR in the habit of only occasionally
dropping off a master tape of new software.
Once a VAR has assembled the necessary data, it can to do a simple profit-and-loss
statement for the new service. I always start with a one-line calculation
over some time period (e.g., one to three years) to see if an idea is in
cost savings + new revenue - new costs
If this yields a significant positive result, it's time to continue with
the planning process. If not, put the idea on the shelf or revisit your
three sets of assumptions.
Network Management Services
The issue of new revenue bears some more thought because software distribution
ties into one of today's hottest VAR business opportunities: network management.
Most VARs working with open systems technology are now involved in networking.
Network design and network configuration have been the two most common VAR
services in this area, while network management was largely done in-house.
Now MIS departments are outsourcing some or all aspects of network administration.
This creates an opportunity for VARs to provide ongoing management services
for the networks that they originally designed and installed.
Network management services that VARs provide include network administration,
remote monitoring and diagnostics, asset inventories, backup to a remote
site and, of course, software distribution.
Checking Out Tools
Software manufacturers are responding to the need for integrated network
management by developing suites of tools that VARs can use to implement
their services. VARs evaluating these software suites should look carefully
at each package to ensure that they support all facets of software distribution.
Here are some questions to ask.
- Are both media-based and electronic software distribution supported?
- Do the suite's software distribution functions integrate with the configuration
control and asset inventory functions? Accurate configuration and inventory
data are critical for the successful execution of software distribution.
By the same token, the results of software distribution must be reflected
correctly in those other databases to ensure future accuracy.
- What about license compliance? Does the network management software
handle all the various forms of software licensing, ensure adequate protection
and maintain clear records? I have discussed in previous columns the problems
that can occur when freeware attitudes are applied to commercial software.
MIS departments expect reasonably prudent procedures, controls and documentation
to be in place during software distribution; these measures limit the exposure
of the VAR and its customers to legal and financial penalties.
Software distribution services, like most VAR business opportunities, are
neither simple nor obvious. Yet with careful planning and good tools, they
have the potential to strengthen the ongoing relationship between VAR and
Matthew Peterson is president of Scenic Wonders in Madison,
WI, which provides visual products and services for information highways.
He can be reached at firstname.lastname@example.org.