In the 1990s you could make money selling accounting systems to small businesses. You'd get a 35 per cent margin on the product.
You would charge £4,000 for the software, about the same again for installation, set-up and training, and then – if you had a nice vendor – get a decent margin on the annual maintenance contract, plus upgrades, add-ons and the occasional bit of extra consultancy.
In the 2000s you could make money selling CRM systems to small business. You'd get a 40 per cent margin on the product (Pivotal, Onyx or Maximizer, for example), about the same again for training, and you know the rest.
Back in the 1980s, you could make money selling word processing and spreadsheets to small businesses, and you could sell them PCs too. And a printer, floppy disks, old-fashioned paper with holes in the sides – the list was seemingly endless.
My point is that one decade's nice little business for a VAR is the next decade's commodity. People buy accounting software today from eBay, and kids are taught how to use Word and Excel at school. So now the time has come for small-business CRM systems. This is today being killed by online CRM systems.
Most customers no longer need a VAR with specialist IT or CRM skills to help them install and set up CRM systems. In fact, with cloud CRM systems, there is nothing to install and what used to take two weeks to deploy can be done in half a day by the customer themselves, or thrown in for free by the cloud vendor as part of pre-sales.
Large companies implementing the likes of Siebel or SAP will still need lots of help, but that tends to be provided by SIs such as CapGemini or Logica. Cloud vendors do not have VARs; at best they have implementation partners, which get no slice of the system revenue or perhaps a little consultancy.
But there are some other businesses that benefit from this change. For instance, marketing companies that run lead-generation campaigns for their customers or outsourced IT companies that have customers paying by subscription.
These people do not know how to install a CRM system that needs SQLServer as a back end, or how to synchronise laptops to the central server. They don't need to. What they know is how a CRM system can add value to their existing services, rather than actually being their service.
So, the old small-business CRM VAR is dying out. Such resellers are being squeezed out of the market by the newer cloud systems. The savvy ones will move upmarket and focus on installs of expensive and complex products such as NetSuite, Oracle or Siebel.
To take their place, VARs offering CRM will need more people with sales, marketing and business skills instead of technical IT skills.
John Paterson is chief executive of Really Simple Systems
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