Veeam Channel Chief: Shift from Perpetual Licenses to Subscriptions Going Strong
… a profitable exercise, moving a customer from a traditional, large perpetual sale to a one-year or three-year type subscription sale. The sting on those purchases for a sales rep is right up front. You suddenly had a big deal where someone was going to spend – for example, $500,000 for a perpetual license – and now they’re going to spend $50,000 for a one-year subscription.
CF: What kind of changes did you make to make that profitable for traditional resellers accustomed to those big upfront perpetual licenses?
KR: We worked some things internally in the program to have that be more profitable. Now, when subscriptions come to being renewed, they’re treated like a new license sale from a discounting standpoint. So, actually in the life of that subscription, they will do better in their profitability than they would in selling perpetually and then going back and just renewing the maintenance, because the maintenance was always small, single digits, in terms of margin.
CF: How did you make that work?
KR: When you sell a subscription, you use that subscription for a year. And when it gets done at the end of the year, you have to sell a new subscription. That’s the way people feel — t’s not just renewing the one-year subscription; you’re selling a new one-year subscription. We said we’re not going to have that argument. We said, “Fine, call it a subscription renewal, but we’re going to treat it as a new sale from a discount margin standpoint.” So, there’s a real motivation for our partners to get these subscription sales in place, because the profitability over time in the life of those subscriptions is going to be much more beneficial than the one-time perpetual sale.
CF: What is the math that makes that work?
KR: Well, let’s just put it this way: A perpetual maintenance renewal is low single digits. On a subscription renewal, we can go up to 20 points.
CF: How is this changing the makeup of your overall partner base?
MK: When I started here six years ago, just around the same time as Kevin, we had two distinct go-to-market motions between our service providers and our resellers. Over the years, it’s become more intertwined. We have resellers out there — thousands of resellers, who are either trying to come up with their own service offerings, whether that be backup as a service, managed services, Office 365 as a service or disaster recovery. But a lot of them also don’t want to invest. There are others out there who have already built those offerings and built them [to be] very, very successful. So we’re starting to marry up those ecosystems. In other words, we have these competencies that are now built. And our resellers can go and find service providers that they can then resell. So that ecosystem becomes a little bit more intertwined.
CF: And the resellers would go through the cloud service provider?
KR: Yes, they would negotiate their own relationship. Some of them just get referral fees, while others stay really heavily involved in the deal with the service provider. The big jump-off point is, do they want to build the infrastructure and a NOC and have all of that personnel on board? They’re still out there getting a ton of …