What ‘net new’ kemosabe?

The dirty little secret of software, is the tectonic shift of the whole business from selling new licenses to selling upgrades. There just aren’t that many green field opportunities left.

“Well, duh,” you might say. “What’s the big deal?” For resellers or for solution providers who sell software licenses as part of their overall practice, the big deal is that most software vendors pay partners margin on “net new” sales or the elusive “customer adds.” But when it comes to the lucrative upgrade- and maintenance contracts partners are out of luck. See ya. Nice knowing ya. Don’t let the door hit you …..

Face it: Maintenance and upgrades are where the real dough is. If you don’t believe that, talk to the top brass at Oracle, who see those juicy contracts as their inalienable right and are most definitely not interested in sharing them. Many partners say that Oracle wasn’t really buying new products and technologies when it acquired PeopleSoft/JD Edwards, Siebel Systems, Oblix, insert-company-name-here as much as it was buying captive maintenance and upgrade revenue streams. Historically, the same argument could be made for Computer Associates, now known as CA. Computer Associates years ago was known as “the Borg” for its tendency to snap up small software companies and milk their maintenance revenue for all it was worth.

Microsoft, which some call the new borg,  hardly ever pays margin to partners on upgrades of its “classic” software.  Microsoft Business Solutions (MBS) pays 20% margin on ERP upgrades. Although don’t ask them because they won’t tell you.

The issue gets worse in the field. When a solution provider registers what he or she feels is a new deal, that often ends up the start of a negotiation. Many times vendor sales reps will mysteriously find that opportunity already in their own paperwork. Or maybe the new deal is a subsidiary or division of a bigger company that has some of the vendor’s software buried in its bowels. If that’s the case, the vendor rep will argue that it is not net new at all. And so it goes.

There are some bright spots on the horizon. Solution providers say that NetApp is extremely enlightened in the way it handles –and shares–upgrade and maintenance revenue. Ditto Sun Microsystems. But in most of the software world, there is a pervasive direct-only upgrade-and-maintenance world view. Should Google ever start selling appreciable amounts of its SaaS goods, it doesn’t take a genius to know there won’t be a huge partner component there either.

So here’s the question: Is there enough “net new” out there to float a resellers boat going forward? Or is this just one more big chunk of evidence in the case that says the software reseller jig is up and it’s time to move on?