COFES 2010: Cloud Computing Casts Shadows Over Resellers’ Fate

As I type, several fellow tech reporters and bloggers from Europe and the UK are staring anxiously at the clear blue sky over Scottsdale, Arizona. Though they cannot discern it with their naked eyes, they can certainly feel the volcanic ash cloud lingering over their home continent. They had flown across the Atlantic last week to attend this year’s Congress on the Future of Engineering Software (COFES). By Friday afternoon, with their return flights canceled, they realized they’d be marooned indefinitely beyond the Grand Canyon.

Among those stranded is Allan Behrens, an analyst from Taxal. As it happens, Behrens also led a COFES discussion about the menace of another cloud—cloud computing.

Traditionally, professional software publishers like Autodesk, Dassault, PTC, and Siemens distribute their CAD and PLM (product lifecycle management) software suites through resellers. They’re not just there to take your purchase orders and process them. They often bundle the transaction with consultation, services, training, technical support, and other complementary offerings. Hence, the term Value-Added Resellers (VARs).

What’s to become of these resellers when cloud computing gains mass adoption? Would breaking up current software packages into a bunch of browser-accessible services makes resellers unnecessary? What values can they offer if vendors choose to transform complicated modeling packages into simpler modules, delivered over the web? These questions—and many more—force resellers to scan the horizon in search of cloud computing’s silver lining.

Excerpts from Behrens’ Briefing and the Conversation that Followed (edited for brevity and clarity)

Martyn Day (DEVELOP3D): The interesting thing about VARs is, when they were asked, “If you have the seed money to start all over again today, would you sell [products] from the same companies?” they all say “No.” They want to carry on doing what they’ve been doing only because they have a customer list that they can make money from. If [software] moves into the cloud, they [VARs] will still have their customer lists, but firms like Autodesk, SolidWorks, and others are getting much more savvy about dealing directly with customers, so VARs are kind of losing their edge on that ...

Behrens: We have to remember that, a significant portion of the VAR channel partners needs to have a three-month cash flow window. So changing the solution [they sell] is not a trivial exercise ...

Martyn Day: This is the worst recession I’ve ever seen. Yet, only a couple of dealers have gone bust. That’s amazing. In the previous [recession], dealers were against the wall. They were lucky if they’ve got three months’ cash. Now, this is the worst time yet, but no large dealers have gone bust, because they’re guaranteed the subscription revenues; they’re selling it forward ...

Unknown: The other side of the issue is, can a vendor afford to not have a [reseller] channel? They’ve all tried direct sales before; they haven’t been successful. Is being in the cloud going to change that?

Behrens: One of the true values of being a reseller is that you have ongoing revenues from the same customers from subscriptions. Within the cloud-based delivery model, are the vendors going to allow resellers to capitalize on subsequent years? That’s the real issue for the resellers. Resellers are worried about that, because the cost of the sales they bear is offset [by anticipated revenues] over a number of years ... The thing about the cloud is, if you don’t have a channel for products that are sub-$5,000, who’s gonna sell to the customers? Customers still need to be sold. They don’t buy products, unless they’re sold to. You still need face-to-face, desk-to-desk sales from people ...

Unknown: Are you describing a PLM system that’s more like Salesforce.com?

Behrens: Well, I’m trying not to describe anything, because I don’t think any of us know actually what the outcome will be. But there are solutions that are out there, being prototyped by SolidWorks ... and Autodesk ... And there are PLM solutions that are practically made available over the web. I don’t think we know yet, but we make the assumption—certainly, I made the assumption—that it will happen, because the cost-benefit [ratio] of going to a thin client or some sort of thin platform at the office is there, so it’s going to happen one day. The challenge is, how soon, how will it be delivered, how will it be serviced?

Chris Schaefer (Novedge, online design software store): Channels—not necessarily just VARs—are aggregators and integrators. Theoretically, anybody can just produce whatever they produce and sell it direct. But the supermarket exists, because we go there [to find] pasta and sauce, made by completely different companies. If we’re left to buy them separately, you would then be ...

Behrens: I think, for solutions that are $5,000 and up, people don’t just go to a supermarket and buy them. They generally have to be convinced to buy them.

Chris Schaefer: I agree with that, but even for the more costly, sophisticated solutions, there’s still a universe of add-ons and things that make them work better. If anybody sells something on their own, it may be difficult [to offer those]. I think that’s one of the values resellers offer ...

Martyn Day: Do you think the price [of software] is going to go down [in cloud-hosted model]? Is [Autodesk] Inventor really something someone could pick up and use willy-nilly, then put down and go off to do something else? Because, with iPhone apps, it’s a no-brainer. You don’t really think about them [if you don’t use them again] because you’ll never miss that money.

Ping Fu (Geomagic): The price might go down, but the total cost of ownership doesn’t go down. The total cost actually goes up. I certainly pay more for my iPhone than I’ve ever paid for any other phones. So that’s the difference between subscription model and one-time license. Yeah, you charge someone $5,000 for one time, but [with the latter], over a lifetime, you sell them subscription, then more subscription, and they pay every year ... But the idea is, you don’t pay for what you don’t want. You actually pay more for what you want ...

Martyn Day: But that means more component-alization of software ...

Ping Fu: I do believe the change is pretty sweeping ... we all love Apple apps, not just because they’re cheap, but because they’re so easy to use. I don’t have to learn; I don’t have to wait for someone to train me ... How many things we offer today in our software could be broken down [into] little apps?

Don Richardson (Microsoft): The difference with your analogy is, with Apple, Apple is the channel for those apps. In the PLM world, we’ve got a bunch of vendors, but they’re not that channel for those apps.

Arnold van der Weide (Open Design Alliance): The trick of being a reseller is, you need to add value. In the past, it was delivering a CD. In the future, it might be breaking [the software] up into apps ...

Ping Fu: With this new way of [delivering software], we could actually do it smarter. Instead of customizing [the software] for each industry, we could have apps for different industries that run on the same complex, powerful code.

Behrens: Is that going to happen with an established player, or is that coming from a start-up business? Is that a new company coming out of the left field?

Unknown: My prediction is, it’s going to be a new player. You’ve got these ships—the channels, R&D, everything, this is the way they do it. To change direction, it’s going to take somebody new with a different idea ...

What Comes First? PLM on Cloud or CAD on Cloud?

Chris Williams, founder and CEO of Vuuch, inquired, “Do you think customers want CAD on cloud first? Or PDM (product data management), PLM on cloud first?”

I’m inclined to think PDM/PLM on cloud will go mainstream before CAD on cloud does. In fact, PDM/PLM on cloud has been online for quite some time now. One of the most notable companies is Arena Solutions, which sells web-based change-order management and bill of materials (BOM) management modules for as little as $100 per user per month.

On 3D CAD in cloud, SolidWorks cofounder Jon Hirschtick’s assessment is worth noting: “Is 3D CAD going to become an online application tomorrow? I don’t think so. I don’t think tomorrow, or anytime soon, you’re going to do everything you do in SolidWorks online. I just don’t think that’s going to happen” (”Jon Hirschtick Shares Insight on Cloud, from the Cloud,” April 7, 2010).

Autodesk Twitch, a testbed platform that lets you use Autodesk titles such as Inventor and AutoCAD from a thin client, proves browser-based 3D CAD is possible, but may not yet be practical for production work at the present. Latency, the physical distance between the user and the server where the applications are stored, and high bandwidth demanded by the transmission of large volumes of graphics data prevent software on Twitch from running as smoothly as their counterparts on local desktops.

Adding New ValuesThe groundwork for SaaS CAD and PLM applications has already begun. In my view, there’s no turning back. But cloud applications are products, just like their desktop counterparts. Selling, managing, and supporting a subscriber base requires dedicated IT infrastructure and staff. Historically, professional and enterprise software vendors have shown that they prefer to leave these responsibilities to resellers, channel partners, and systems integrators.

But two of the most prominent characteristics of web-hosted solutions present a dilemma for VARs. By and large, cloud-based solutions are delivered in smaller modules, requiring little or no installation; and they’re expected to be easy to learn and use, even for the uninitiated.

Furthermore, users from the younger generation seems to have an aversion for formal training, the kind that forces them to remain in a classroom for 4-6 hours without any other distraction. Given a choice, they’d rather learn by watching YouTube clips, while they simultaneously surf the web and engage in IM sessions with friends and colleagues. And if they need support, they may turn to forums and online communities to get immediate answer. A 24-hour turnaround by traditional tech support is simply inconsistent with the iPod generation’s need for instant gratification.

What values can a value-added reseller add to the transaction when changing circumstances deny him the chance to offer two of his strongest suits: training and installation? The answer is hidden beyond the cloud, invisible to our naked eyes.

Accidental TouristsFinding out that the earliest flight home is a week away, DEVELOP3D‘s Martyn Day resorted to rewriting famous songs to pass the time. His revision of an American classic resulted in:

Somewhere over the volcano, ash up high;

There’s a land that I can’t get to, never mind how hard I try.

Day’s colleague Alistar Dean mapped out his ambitious route on Twitter: Fly to Texas, fly to Paris, train to Calais, boat to Dover, car/train/walk to home. Deelip Menezes rode a jeep, mounted a white horse, and explored native cactus species in the Sonoran desert while he waited for updates from the airline.

I salute them—and all other stranded travelers—for their spirit of adventure and wish them safe passages!