Upgrades yield small returns for VARs

The Channel Marker blog makes a very interesting point that I've commented on several times, commenting on the software business' "dirty little secret". Although it's not really much of a secret, what blogger Barbara Darrow is referring to is the tendency of software vendors to pay resellers only for new customers. More often than not, the reseller gets cut out of the loop when it comes to getting a share of upgrades and maintenance contracts.

It's an unfortunate tendency, and one that is likely to increase during the recession as software vendors try to keep as much as they can for themselves to weather the storm. Unfortunately, as the software vendors work towards self-preservation, they may be killing their own VAR channels. Barbara's question poses a relevant and thoughtful question, and that is, is this trend indicative that to the VAR, the "jig is up?"

My answer is that the jig may not be up completely, but resellers will definitely have to dance to a different tune. We'll see more software vendors closing in on upgrade commissions, and VARs that depended on upgrades as a revenue stream in the past will be facing some tough times. But that's the nature of business. Any business at all that doesn't change over time is doomed to failure. Take the American auto industry for example. They had a business model that worked well for them from World War Two to the sixties or so, but unfortunately, they're still operating based on that same business model. It just doesn't work any more, and the Big Three (and the UAW too for that matter) need to get with the times and take on some drastic changes.

The obvious difference of course, is that VARs can't hop in their private corporate jets, fly to Washington and ask for a $25 billion handout. (What's the matter, you guys, afraid that your cars wouldn't make the trip?) Like most smaller businesses which don't have the wherewithal and lobbying power to request government bailouts, VARs will be left to their own devices to succeed or fail. The judgment of the American auto industry has been clouded by greed, and the belief that because of their sheer size they are immune to failure and entitled to the public trough. I have more faith in the massive VAR network that they will be nimble enough to change and survive the hard times, and will do so on their own power and innovation.

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