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Cloud ERPs' impact on Partner business models

Having carried out some recent work with the cloud based version of Microsoft's Dynamics AX ERP offering (now called Dynamics 365 for Operations), it strikes me that the business model being followed by the application developers for their cloud hosted solution is going to have a disruptive effect on the businesses of their partners. 

The traditional model was typified by the Application Developers (SAP, Oracle, Microsoft etc.) selling, implementing and supporting their products through a network of independent partner companies. These partners typically cover a region or a country. In this relationship the Application Developer gets a local salesforce and local implementation resources to help their customers get the software working.  The Partner gets a cut of the license fee income as well as implementation consulting income and then ongoing support income.

Generally, the relationship is not exclusive, on either side, but the Application Developer requires some semblance of assurance that the Partner is capable of selling and implementing their product in return for which the Partner gets formal accreditation that they can parade to potential customers, investors and employees.

The Cloud introduces a new commercial model for software sales.  The customer no longer lays out a large slug of cash in return for which they get the software installed on their hardware.  Instead they pay a (usually) monthly subscription, based on number and type of users, for which they get access to the application and their data in the cloud.  There is no longer any need for the users of ERP systems to have their own servers as that is all managed by the Application Developers cloud hosting service.

What this means for Partners is that the original large slug of income they got from their cut of the licence fee is no longer there.  In fact, it seems Application Developers see the Cloud as a way of taking over more of management of the customer relationship and reducing the rewards to Partners to match.

Therefore, Partners will need to focus more on their consulting income. This throws up some strategic questions:
  • is the sales force and sales approach optimised for selling teams of people rather than product?
  • should alliances with general management consulting firms or big four accounting firms be pursued or strengthened to participate in larger transformation projects that are underpinned by ERP applications?
  • should Partners' industry specific process knowledge be deepened to be able to provide customers with more than just application configuration expertise?

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