The 500 lb gorilla in the room - how does a Lotus BP make a living with LotusLive?
There are some things still to be addressed, like data migration, true monthly service and renewals (more on that gem later) and the ability for BPs to demo the much hyped "hybrid" model so potential customers can see it is real and can touch it. Anyway I digress.....
The real question is economics. Is it possible to make a living touting and selling LotusLive? Remember, most Lotus shops make their living from their services practice and that revenue is supplemented by software sales and renewals (that IBM still steal). With the move to the cloud on-going services will pretty much cease to exist (and programming VLANs is not a substitute) so you can count on ever decreasing services revenue year on year. This reduction in services is happening anyway due to the erosion of Domino customers (you all know it's true so get your head out of the sand) and LotusLive will further exacerbate the situation.
There is maybe one sliver lining in this cloud (get it?):
Recurring revenue
So here's some petty dirty math using list margins on IBM software that are 7%. For the US readers you will see the default margins on IBM software are the same as a very shitty tip ;)
We will take Domino Messaging Express and LotusLive Notes as an example. List price for the former is $105.00 while the latter is $5 per user per month for a annual cost of $60. For renewals, we'll take Domino Messaging Express at 36% of list which comes to $37.80 per user per year. LotusLive Notes is....well.....$60.
So here's our figure so far for a 3 year TCO:
Domino Messaging Express : $180.60
LotusLive Notes : $180.00
Hum, that looks good right? At 7% they would both "pay" approx $12.60 over the 3 year period. But that is only if the renewals process works. And it don't. Sorry IBM it still sucks and you're still stealing my customers. You know where I am if you want another series of conference calls to tell me I'm just confused or where you promise to look into it.
So, if the renewal has a far less chance of coming my way then lets look at a more realistic 1 year TCO:
Domino Messaging Express : $105
LotusLive Notes : $60
Ah-ha. Not too good now is it? DME gives a $7.35 margin yet LLN only gives $4.20. That's a pretty big decrease and is more true to life as far as I have seen. A 42% decrease in margin.
Now if we take into account loss of services AND a flawed renewal process it looks pretty hard to make a living at this. In effect I need to sell twice as many LLN seats to even keep up with the renewals walking out the door (or into IBM's I should say) and effectively working on a net new only revenue stream. When you add in the vanishing services revenue (and other follow on sales) this becomes a pretty steep mountain to climb.
The good news? It looks like Microsoft are having the same issue too with margins being paper thin (and look at the comments following this post on the VarGuy). Google never had the problem, try counting Google partners and I'm pretty sure you'll only need one hand.
Now, as someone will no doubt point out, there are ways to increase margin beyond 7%. That's not the issue. The issue is the 42% difference in margin (which will scale no matter if 7% or 20%) as there is little chance of the renewal bouncing the partners way.
Am I missing something here or is the Lotus (Domino) services company going the way of the Dodo?
Oh, and I also think LotusLive is a pretty good solution. It just may not keep the lights on long (or mid) term.
Discussion for this entry is now closed.
Comments (9)
Maybe, but if I wanted to be a McDonald's drive-through window cashier I'd work for McDonald's. There a plenty of people in this world who'll take your cash and sign you up for any old service and that's what all of this boils down too. It maybe software as a "service", but with very little "actual" service.
As IBM claim that 50% of their business is partner generated (I may have just made that up, so sorry) then you may want to think about them before doing this. MS obviously didn't.
Darren,
Good to address this point.
For 180$ IBM used to deliver only software, and now within this 180$ LotusLive IBM is also delivering hosting and support.
Meaning there is less margin for IBM to give to channel/BP.
And your response would be, we as a business patners are still spending the same time in selling the solution. Correct. No discussion about that
The problem is that $5 is the marketprice. LotusLive Notes price was 9$, Microsoft BPOS Exchange was 10$. And they both dropped the price to 5$
You are right selling the On-Premise software gives you more margin.
This is the same for BP-ers who sell tradional PBX, they make less money selling Hosted-PBX (VOIP)
But they all are switching to sell Hosted-PBX.
Because the same functionality of On-Premise is now available in the Cloud.
And it is an open market, so the price is visable to all.
And also in the Hosted PBX market there is less margin for the BP. The same is going to happen for Lotus and Microsoft partners.
Our solution we sell LotusLive in combination with support, training, migration for a fixed price per month per user.
1$ Saas + 1$ Support.
And yes it is an upfront investment from BP
Yes there is a commission discrepancy, no question.
There is a loss of services in the long run, short run you still have it.
It's not that we won't sell it, we do and have, but the truth is this will make up a small percentage of our business so it is not our immediate worry.
IBM will open more aspects up to BPs just not right now, which means ISSL gets the business as you point out.
There is a large audience to sell to, but not all parts of LL are equal(technically or functionally to each other or to their namesake products if on premises) and should be sold as appropriate.
to the cloud (for real this time unlike 1999 hosted desktops , so its better to pick up 6-7% vs Zero.
Its impossible to compete with someone that have 0% cost price on their licenses and buys servers in containers.
It will kill some business partners but so will ignoring it.
Venders will kill the business partners when they no longer fits a purpose , google just started out without them
Notes was (and still is) nice and profitable for us but IBM lost the war to MS so it's not really important how wide is your margin, 100% of zero is still zero.
I don't think IBM internal forecast for 2015 has more then 5-10 million notes client licenses, I'm sure same forecasts contain at list 50 million live licenses and they don’t think they need partners for it.
IBM has to answer to it's shareholders not you or any other BP out there. IBM probably has to do this, in order to stay in the market, BP's are just caught in the cross fire.
The only recourse that I can see is to package a solution that can produce a revenue stream based on these offerings under the hood, like a hostable solution in a particular sector......A straight licensing renewal model for BP's looks like an endangered species right now. The only problem is that I think alot of BP's didn't see it coming and just got hit by the "LotusLive bus"....
With our Service Industries system and about to be released Legal Management System aimed at small business, we are ideal for the cloud - now if only I could convince IBM to let us in :-)
The thing you are not taking into account is simple. The revenue you are losing would not come to you. It will either go to a business partner competitor or to a competitive technology. You are looking at ever decreasing revenues from your installed base of customers as they begin the long move toasted aops like this being proved as a service.
So in a way you are measuring future revenue using the rear view mirror.
Angus