SAN ANTONIO, TEX. – Avnet Technology Solutions’ reseller partners largely support the recommendation of the of global technology distributor for them to re-align their businesses towards selling more software and services, but they want the company to provide them with a viable payment scheme attuned to the software-as-a-service (SaaS) model.
A number of the value-added resellers that attended Avnet’s IBM Compass 2013 conference said it would not be “unsustainable” for them if customers paid them on a subscription basis, which has surfaced in recent years with the introduction of the “as-a-service” model of selling technology solutions, while VARs continue to pay upfront for products they purchase from distributors.
Such a concern was echoed by Adam Heeter, CEO of Oxford Counseling Group, a software reseller based in Columbus, Oh.
“It was a very compelling message to hear from Avnet when executives urged us to re-focus our business towards selling more software and services,” he said. “That’s precisely where we’re seeing the market headed and it great to know that they see it too.”
Earlier these week Avnet executives took turns encouraging partners to market “higher value” services and products to their customers.
Heeter, however, said that customers seeking SaaS solutions are also looking for the flexibility and predictability of a pay-as-you-go payment model and that would put pressure on VARs if they paid distributors upfront for the technology they resold.
“It would be a capital expense on our part that we don’t get to recoup until our customers, paying us on a subscription model, have gone through the contract for a certain length of time,” he said. “We won’t be able to sustain it.”
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Lisa Friesenhahn, vice-president of financial programs for solutions marketing and development at Avnet, said the distributor actually has a program for partners that take this into account.
She said that since 2011, Avnet has implemented CapacityNow, which provides customers dedicated on-site storage and blade servers and enables them to pay for these resources through a service arrangement based solely on how much capacity they use.
The program has three key components:
A baseline price that customers pay
A variable buffer for growth so that extra capacity is always available to customers when they need it
Metering and monitoring service provided by Avnet to determine how much customers have to pay storage or compute capacity on a subscription basis, depending on their usage
CapacityNow was rolled out in 2011 to cover Hewlett-Packard products, but by April this year it involved all of Avnet’s hardware and software product lines, said Friesenhahn.
Essentially, when partners sign up a customer under the CapacityNow program, Avnet pays the partner upfront but collects from the customer what amounts to a subscription fee for the duration of the contract.
“Partners like it because they get paid after the implementation and customers like it because the pay-as-you-go model allows them to grow according to their needs and without disruption,” said Michael Fitch, marketing specialist for Avnet.
Tony Madden, senior-vice president for global supplier business at Avnet, said IBM and Avnet also recently began a pilot program in Australia which involves a SaaS payment model.
He said it was too early to release data on the project because not enough information was available on the program, which has been up for less than 50 days.
CapacityNow is an excellent program but it doesn’t go far enough, according to Mark Rowan, CEO of Stream, a Toronto-based software provider that specializes in IBM products and delivering business analytics and information management solutions to large enterprise and medium-sized businesses.
“The program covers low to mid-level software but not the high-end software such as InfoSphere, Cognos and Aptim, which vendors like me primarily deal with,” he said. ”Avnet needs to provide a similar program for customers of high-end software because they’re telling us they essentially want to rent, not buy software.”
As well, Rowan wants to see a model where partners get paid upfront even as their customers sign on to a subscription payment model. Shortly before Compass 2013 ended, Rowan said he was in discussion with Avnet and IBM representatives regarding the topic.
“Partners have been asking for help them leave the perpetual lease system,” he said. “I was just in a meeting with IBM and Avnet where they were trying to figure out how to develop a viable pay-as-you-go model.”
To move to such a model would be a big shift for a large company such as IBM, which for decades has been locked to a “perpetual lease system,” said Rowan.
“It could take some time for them to get to it, but we need to move quickly, because if they don’t the competition could move in to fill the gap,” he said.