There has always been a distinct difference, however, between the business goals software vendors set for themselves and those sought after by their VARs.

The software vendors, for their part, want to sell as many software licenses as they can to new customers, as well as to charge software maintenance fees from their existing clientele. This provides them a steady income stream from existing customers while new customers grow the business. Their partners, on the other hand, prefer long and complex implementation projects from which they generate significantly more revenue than they do from commissions on software license sales.

This symbiosis used to be great. Since most traditional BI companies are focused on high-end corporations with huge budgets, there was enough to go around. These customers have large numbers of employees who can benefit from BI (read: big money selling software licenses for the software vendors) and who have no problem spending hundreds of thousands (or millions) of dollars on implementation projects (read: significant income from project fees for the implementer).

Mutually Beneficial Relationships?
It so happens, however, that changing conditions over the past couple of years (and particularly during 2010) have brought the traditional business intelligence industry to a point where the mutual vendor-VAR benefits are not as obvious anymore. While these conditions have contributed to a deterioration in relationships between BI software vendors and their partners, the good news is that companies exploring business intelligence options stand to benefit substantially from the situation.

Let’s take a look at some of the conditions affecting the BI industry in recent years:

1. Tough Economic Times - Obviously, the economic crisis which began in 2008 affected everyone, vendors and customers alike. Business intelligence as a concept was actually positively affected by this crisis as it became painfully obvious how important it is to track a business’s operational and financial performance. On the other hand, available budgets shrank significantly and there was a smaller pie to share between BI software vendors and their partners. This fact has been causing friction between the two sides as each attempts to vigorously protect its own piece of the pie.

2. Too Many Partners - In an attempt to gain more market share, software vendors invested extra effort in recruiting more and more VARs for their partner networks. While this had a positive effect on software vendors’ revenues, it wasn’t as good for those in the partner network. Having more partners leads to more competition which, in turn, means more investment in marketing and sales (and lower profits). To make matters worse, in a further attempt to increase revenues, some software vendors actually began competing with their own partners on implementation deals.

3. QlikTech and their IPO - Ever since QlikTech began gaining popularity, their main sales pitch has been shorter implementation times and reduced ongoing costs (due to the supposedly fewer IT personnel required to maintain their BI solution). While this holds mighty appeal to BI customers, it flies in the face of the entire premise of BI resellers, which rely on project implementation and BI maintenance revenues. QlikTech addressed this issue by providing their VARs higher commissions on software license sales (as compared to those offered by Microsoft, Cognos or Business Objects, for example). Coupled with the implementation and maintenance work a QlikTech solution still requires, the higher commissions provide reasonable revenues for their partners.

Along with their impressive sales and growth numbers, QlikTech’s recent IPO revealed that they generated $157M in revenues during 2009 with total expenses of $150M. The resulting profit of $7M is not great.

Whether QlikTech’s intentions are to be acquired soon or to keep growing their business remains a mystery, but either way their partners should pay close attention. If they do seek a quick exit, their partners face an uncertain future. If they intend on growing their business and improving profitability, they will have to raise their prices and/or expand their partner network significantly and/or increase their direct involvement in both software sales and implementation. Existing partners will not be pleased with either of these alternatives.

As the successful pioneer of a newer, faster, easier approach to BI, the QlikTech example should be considered carefully by VARs as an indication of what the future may hold for the BI industry as whole.

4. The Self-Service BI Hype - The hottest thing in the BI industry today is the self-service BI concept. Regardless of whether it’s promoted by vendors providing personal analysis tools or cloud BI platforms, the basic idea behind it is the same: traditional BI is too expensive, takes too long to implement and is a big pain to maintain. Instead, the customer wants tools to enable self-reliance (as opposed to relying on external consultants/implementers who live off service fees). Whether these solutions actually deliver what they promise is beside the point (you can read my opinion about cloud BI here), but the buzz is out there and the market hears it, so it’s getting harder these days to justify long and expensive BI projects.

5. Microsoft PowerPivot - PowerPivot is Microsoft’s attempt to promote the self-service BI concept. By introducing PowerPivot, Microsoft is basically giving up on penetrating the mid-market with SQL Server Analysis Services and is trying instead to do it by introducing stronger BI capabilities in their Office product. While some believe that PowerPivot is just a lot of hot air, the fact remains that Microsoft is investing a lot of effort and money on marketing it. This places their existing partners – who rely on SQL Server sales – in a very problematic situation. These partners prefer SQL Server-based solutions, which provide more license commissions and more project hours, yet they need to fight Microsoft’s own marketing machine which is now essentially promoting self-service BI. Not an enviable situation to be in, to say the least.

What Does the Future Hold?
It’s great that so much emphasis is being placed on simplifying business intelligence and making it accessible to companies that do not have multimillion dollar budgets. Since established players and new startups alike are now beginning to focus on this type of approach, it is actually realistic to expect that self-service BI is on its way to gradually becoming a commodity. Customers will benefit greatly from this trend.

On the other hand, business intelligence VARs must understand that this is where the market is headed – and adjust their business models accordingly. A company selling BI solutions based on existing BI platforms will need to provide real added value to the customer in order to stay in business. In the not-too-distant future, this value will almost certainly come from industry-specific professional knowledge and experience (as opposed to purely technical expertise). More and more customers will no longer accept lengthy R&D projects to achieve BI and, with the new software and technologies now emerging, it is no longer justifiable.