The channel is missing a trick by not taking the $250bn (£160bn) support and maintenance market seriously enough, renewals management giant ServiceSource has asserted.
ServiceSource helps vendors identify revenue gaps resulting from their failure to engage with existing customers. With about 80 per cent of the European IT industry transacted through the channel, the firm works closely with distributors and resellers, providing them with analytics and helping them close sales.
It plans to almost double its UK headcount to 300 by the end of 2012 in response to the growth in its client base, with IT service management vendor FrontRange the latest to come on board.
Talking to CRN, ServiceSource EMEA general manager Martin Moran said: "About 24 to 25 per cent of software spend is on annual maintenance and it is highly profitable. But often a lot of vendors have not seen it as a priority in terms of investment in systems, processes and people, which is why they come to ServiceSource.
"We typically add a 15-point increase in revenue performance and get paid only if we deliver to the agreed business case."
Resellers have traditionally turned up their noses at low-margin, high-volume renewal business, but the move to recurring revenue models - coupled with the need to extract more from existing customers - is prompting a rethink, Moran said.
Thirty-two per cent of new product sales will be cloud-based by 2015, according to IDC figures cited by Moran.
"There is a fundamental shift around where the channel will make its money," he explained. "It will increasingly be around recurring revenue, which is fundamentally a renewal event. That is why the channel is getting more interested.
"The other thing that is happening - but which is only now coming into stark reality because of the economic backdrop - is that the cost of a new customer acquisition is anywhere between four and eight times that of customer retention, depending on which study you read. The imperative for the channel is to stay with the customer."
The support and maintenance market is worth about $250bn a year, according to Gartner figures cited by ServiceSource.
The firm, which floated on the NASDAQ last year and is growing at 35 per cent annually, has 110 vendor clients including Microsoft, IBM, VMware and Blue Coat and transacts more than four million renewals a year.
Moran said ServiceSource has helped Blue Coat raise its renewal rate from 50 per cent to more than 80 per cent since the duo began engaging last decade.
But the firm also aims to improve its clients' channel proficiency.
"A good example of this is when we started working with VMware," said Moran.
"Using our Channel Sales Cloud technology, we measured the effectiveness of their partners. They gave us what they thought was their top 10 partners, and it transpired that some should not have been in it. As a result of that benchmarking, we worked with VMware to put in a programme called Partner 360, which took the best behavioural attributes of their best partners and made that inherent in their processes and how they rewarded their channel."
ServiceSource's model is margin-neutral for resellers, as the firm is paid out of the increased performance agreed with the vendor.
"The upside for the reseller is they get insight into their renewals book and we can assist them to help them sell if they do not have the capacity," said Moran. "They all have access to the Channel Sales Cloud so they can see how they are performing against other resellers, which they like."
Moran said ServiceSource is well placed to help resellers handle the culture shift involved in selling subscription-based services.
"From a channel perspective it is about a different engagement model," he added.
"Because [cloud] is a consumption model, you have to think about whether the customer is consuming the service. It is not only about what they bought, but what they are using. If the customer is dissatisfied, they can switch more easily so there is much more emphasis on managing the customer life cycle.
"Where we come in is, over the past 10 years, we have moved to a higher-touch model where we are engaging the customer earlier."
However, Jon Busfield, managing director of security VAR Cygnia, disagreed with suggestions that the economy had made renewals business more attractive.
"I do not think there is any new news here," he said. "Looking after existing customers has always been better value than going after new ones. And the economy has meant there is less margin in renewals as people are willing to do it for less reward."
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