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How to make a profitable business
with industry-specific intellectual property
on top of Microsoft Dynamics CRM
By
Wim Geukens
Executive MBA Brussels 2014-2016
Promoter: Prof. Dr. Leten Bart
Company promotor: Özkan Erener, Ceo VeriPark
Project submitted in fulfilment of the degree of Master of Business Administration
November 2016
2
Acknowledgement
The idea for writing about IP on top of Microsoft Dynamics CRM comes from my passion for CRM
since Microsoft launched this product in 20031, the year I also co-founded a consultancy company
Travi@ta, dedicated to Microsoft Dynamics CRM.
I tried to make a profitable business with IP from within the services company, without too much
investments, which was very hard to do. The company was acquired by Realdolmen2 in 2013, and
they gave me the opportunity and budget to build out the IP and a worldwide distribution channel.
This “In-Company Project” (ICP) started when I was working at Realdolmen as VP Global Alliances
Intelligent Customer Engagement, with the CEO as my promotor. In the meantime, I left Realdolmen,
and selected VeriPark as my new company promotor, since VeriPark is the leader in this domain.
This “Knowledge in Action” pillar of my Executive MBA journey was intended to boost the practical
relevance of my MBA studies by generating a real return on investment for myself, Microsoft and
some Microsoft Dynamics CRM partners, by solving the issue “How to make a profitable business
with industry-specific intellectual property on top of Microsoft Dynamics CRM”. And it worked out.
It is difficult to express my gratitude to everyone who has been involved in this ICP, what I prefer to
call a thesis. I would like to thank the following persons:
Bart Leten, Associate Professor at KU LEUVEN and VLERICK BUSINESS SCHOOL, for his
guidance, review and ideas that unlocked some potential in me;
Özkan Erener, CEO at VERIPARK in Dubai, for his thought leadership;
Siska Bossuyt, Customer Centricity Coach at JEZZUP in Belgium, for reviewing my drafts;
Hans Peter Bech, Author of "Building Successful Partner Channels" - An Amazon #1
bestseller, based in Copenhagen for writing a blog about this thesis to attract people to
answer the survey;
John Gravely Founder, CEO at CLICKDIMENSIONS, for sharing his ideas on the subject;
Christy Spokely, CEO at EXTREME LLC, for writing a webpage about this thesis, and giving me
the opportunity to explain the results in December on her event in LA;
Kris Sevenants, co-founder of Thrives; for reviewing and challenging my drafts, and finally;
my family, wife, children and friends, for their love, patience and advice.
Without the numerous suggestions and recommendations from this team of experts, my thesis
would have been different and would have missed some crucial issues and trends.
I also would like to acknowledge the help of the 117 people from 33 countries that answered my
survey, which gave me a lot of market insights, that were used to realize my main thesis objectives.
Wim Geukens,
Londerzeel - Belgium,
November 2016
1 https://support.microsoft.com/nl-be/lifecycle/search?alpha=crm 2 See appendix D: About Realdolmen
3
Executive summary
Objectives
This In-Company Project had two main objectives. The first one was to come up with a business case
on how to make a profitable business with industry-specific intellectual property (IP) on top of
Microsoft Dynamics CRM3. This business case was made for partners having an existing Microsoft
Dynamics CRM Services practice, not yet being an Independent Software Vendor (ISV4), and
interested in investing in IP on top of Microsoft Dynamics CRM. A market research was conducted,
mainly by using an online survey5, to get some insights and numerical data to be used in the business
case. All partner data was clustered in three groups around profitability: Top Performer (> 75%
margin), Average Performer (between 75 and 35% margin) and Bad Performer (below 35% margin).
The second objective was to define the success factors on how to become a Top Performer. These
learnings came out of the survey, by analyzing all questions where the Top Performers cluster had
unique survey-results compared to the other 2 clusters.
Conclusions
The cost-benefit analysis of the business case results in a positive NPV (Net Present Value) around
900k$, an IRR (Internal Rate of Return) of 102% and a PI (Profitability Index) of 46,01. The most
important assumptions taken were: a five years’ timeline, fifteen active partners in year three that
close two deals per year with an average deal size of 50k$ per year, a partner margin of 15%, a
discount rate of 10%, tax rate of 33% and an operating cost of 10%.
The profitability of the business case is 65% after five years, while the Services Gross Margin related
to Microsoft Dynamics CRM is on average 28% in the survey, making this an interesting case.
The IP revenue should grow from 200k$ to two million $ in five years’ time, and after one and a half
year the breakeven point shall be reached.
The initial team should start with three FTE (Full Time Equivalent) and after five years they should
have grown to six FTE’s, covering fifteen different roles.
The ROI (Return on Investment) of the indirect channel is 106%, while the direct channel ROI is 32%.
The Project should be done in three steps, spread over five years:
1. Select the vertical market, deliver maximum value to the industry specific customer and
become a local champion with the solution
2. Mature the product, learn from your first channel experiences
3. Go global and scale fast by using an indirect partner channel
A simplified Excel model was used together with Oracle Crystal Ball6 to do a sensitivity analysis. Five
assumptions describe the uncertainty around the annual Cost of the team, based on the number of
FTE that are foreseen, and five others describe the uncertainty around the License units sold, by
using a minimum and maximum value for each. This shows that the NPV has a mean of 1M$ while
3 www.microsoft.com/crm 4 See paragraph 1.3 - The Microsoft Dynamics CRM partner ecosystem 5 See appendix G: Survey questions 6 http://docs.oracle.com/cd/E52437_01/en/crystal_ball_users_guide/frameset.htm?index.html
4
the base is 900k$. The Revenue from the last years are the assumptions that affect NPV most,
because the last years must make up for the initial period that was unprofitable.
Technical, financial and organizational risks are analysed and mitigated.
The factors that deliver success, are discovered by analyzing the survey results.
60% of the partners that use grants are in the Top Performers cluster.
71% of the Top Performers sell their reused code to their customers.
50% of the Top Performers partner with other ISV’s to use their add-ons in their Cloud
Solution Provider (CSP7) solution.
57% of the Top Performers have only one ISV solution, 14% has two, 14% has three but
none of them have more than three different ISV solutions.
50% of the Top Performers invest in building a richer platform than the others, including
integrating Office 365 and the Azure platform in their solution.
85% of the Top Performers support both CRM deployment models: Cloud and On-
premises.
Top Performers use only 12 CRM consultants on average.
Top Performers have deal sizes that are twice as high as the others
Actions
The results of the ICP will be presented to all Microsoft Dynamics CRM partners present at the
ExtremeCRM event8 in LA on December 4-8.
A meeting with Microsoft Corp will be held to discuss the outcome of this thesis. Together with
them an action plan could be built to take this one step further, to convert the AppSource to a
monetizing platform for Microsoft. That would boost the ISV activity tremendously.
It’s clear that this business case shows a lot of potential to all VAR’s that want to become ISV, what
52% of them confirmed in the survey. Partners will be assisted in their journey together with
Microsoft, supported by the learnings from this thesis.
I will co-found with VeriPark9 their European branch end of November in Brussels, to start selling
their solutions in Europe and French speaking Africa.
The future is bright, Dynamics 365 is growing fast, the platform is getting better, some partners start
to see the IP opportunity, and Top Performers are leading the way, like VeriPark does.
Nobody wants to miss this momentum.
7 See paragraph 1.3 - The Microsoft Dynamics CRM partner ecosystem 8 http://www.extremecrm.com/eXtremeCRM2016NewportBeach/Dynamics365PartnerCloudSurvey/tabid/350/Default.aspx 9 See Appendix E – About VeriPark
5
Table of content
Acknowledgement .................................................................................................................................. 2
Executive summary ................................................................................................................................. 3
Table of content ...................................................................................................................................... 5
1 The building blocks ......................................................................................................................... 7
1.1 About CRM .............................................................................................................................. 7
1.2 About Microsoft Dynamics CRM ........................................................................................... 10
1.3 The Microsoft Dynamics CRM partner ecosystem................................................................ 12
1.4 VeriPark, an example and inspiration for other partners ..................................................... 17
1.5 What is IP for a Microsoft Dynamics CRM partner? ............................................................. 19
2 Market Research ........................................................................................................................... 23
2.1 Partner survey ....................................................................................................................... 23
2.1.1 Objectives ...................................................................................................................... 23
2.1.2 Population ..................................................................................................................... 24
2.1.3 Survey method .............................................................................................................. 24
2.1.4 Sample size .................................................................................................................... 24
2.1.5 Data collection process ................................................................................................. 24
2.1.6 Clustering questions ...................................................................................................... 25
2.1.7 Survey design ................................................................................................................ 26
2.1.8 Pre-test of the survey .................................................................................................... 26
2.2 Research results .................................................................................................................... 26
2.2.1 Clustering around performance .................................................................................... 26
2.2.2 Personal data ................................................................................................................ 28
2.2.3 IP related ....................................................................................................................... 29
2.2.4 Marketplace related ...................................................................................................... 30
2.2.5 Product related ............................................................................................................. 31
2.2.6 Distribution related ....................................................................................................... 32
2.2.7 Data to support the business case ................................................................................ 34
3 Business case................................................................................................................................. 38
3.1 Assumptions .......................................................................................................................... 38
3.2 The problem statement ........................................................................................................ 38
3.3 Analysis of the situation ........................................................................................................ 38
3.4 Solution options .................................................................................................................... 40
3.4.1 Higher margins .............................................................................................................. 40
3.4.2 Higher company valuation ............................................................................................ 40
3.4.3 Different solution options ............................................................................................. 41
6
3.4.4 Going global .................................................................................................................. 42
3.5 Project description ................................................................................................................ 44
3.5.1 Step 1: build the MVP, with direct sales in the local market ........................................ 45
3.5.2 Step 2: Extra modules, setup distribution channel ....................................................... 48
3.5.3 Step 3: Go global, and scale fast ................................................................................... 49
3.6 Cost-benefit analysis ............................................................................................................. 51
3.6.1 Benefits ......................................................................................................................... 51
3.6.2 Costs .............................................................................................................................. 53
3.6.3 Financial project return ................................................................................................. 54
3.7 Sensitivity analysis ................................................................................................................ 54
3.8 Risk assessment .................................................................................................................... 57
3.9 Success factors on how to become a Top Performer ........................................................... 58
3.10 Recommendations ................................................................................................................ 59
4 Conclusions ................................................................................................................................... 62
5 Appendixes .................................................................................................................................... 63
5.1 Appendix A - What CRM Magic Quadrants Does Gartner Offer ........................................... 63
5.1.1 Marketing ...................................................................................................................... 63
5.1.2 Sales .............................................................................................................................. 63
5.1.3 Customer Service .......................................................................................................... 64
5.1.4 Cross-CRM ..................................................................................................................... 64
5.1.5 Digital Commerce .......................................................................................................... 64
5.1.6 Service Providers ........................................................................................................... 64
5.2 Appendix B - The CRM Market overview .............................................................................. 66
5.3 Appendix C - MS CRM is a Leader in SFA .............................................................................. 68
5.4 Appendix D - About Realdolmen ........................................................................................... 70
5.5 Appendix E - About VeriPark ................................................................................................. 72
5.6 Appendix F - Forecasted ROI on own IP at Realdolmen ....................................................... 74
5.7 Appendix G - Survey questions ............................................................................................. 76
5.8 Appendix H - Ways to value a software business ................................................................. 77
6 Glossary ......................................................................................................................................... 80
7 Table of Figures ............................................................................................................................. 81
8 Bibliography .................................................................................................................................. 83
The building blocks About CRM
7
1 The building blocks
This thesis is about how to make a profitable business with building and selling IP (intellectual
property) on top of a common CRM platform like Microsoft Dynamics CRM. This introductory
chapter will take you through some background information and fundamentals about CRM,
Microsoft Dynamics CRM, the Microsoft Dynamics CRM partner ecosystem and will tell what IP
means for a Microsoft Dynamics CRM partner. These concepts will be used later to show there is a
momentum at Microsoft to build a profitable business with IP on top of Microsoft Dynamics CRM
when done in the correct way.
1.1 About CRM CRM stands for Customer Relationship Management and is a business strategy whose outcomes
optimize profitability, revenue and customer satisfaction by organizing around customer segments,
fostering customer-satisfying behaviors and implementing customer-centric processes.
The key is to understand that the core of the CRM definition is nothing less than the transformation
of a company from product centric to customer centric. An example from the retail banking
industry10 will show this:
Figure 1: From traditional organizational centric to customer centric
It’s about creating a single customer view, but there are some big challenges like poor data quality,
siloed departments and the inability to link different technologies. CRM is a complete
transformation, and will only happen if the transformation is based on and executed upon a real
customer vision and strategy, to look outside-in instead of inside-out.
CRM 3.011
The CRM revolution started with CRM 0.0, emphasized on people and
strategy; CRM 1.0 introduced software that focused on workflow
automation of administrative activities; and CRM 2.0 has been
introduced to focus on the interface between technology and
strategy.
CRM 3.0 is designed to address the gaps found in CRM 0.0 to CRM 2.0
that relates to integrating strategy, people, and technology
perspectives, and to allow for building a greater depth for each
perspective. Although all three perspectives are important, CRM 1.0
10 http://www.pwc.com/us/en/financial-services/publications/viewpoints/assets/viewpoint-retail-bank-customer-centric-business-model.pdf 11 CRM 3.0, The Bridge to the Future of Customer Relationships, 2011, Semplar, LLC
Figure 2: The CRM triangle
The building blocks About CRM
8
and 2.0 tend to overemphasize technology, and underemphasize the strategy and people
perspectives.
CRM 3.0 will have a transformational effect. CRM 3.0 is a clear roadmap for marketing and sales
organizations interested in achieving a sustainable competitive advantage. Though there are
challenges inherent in the evolution to CRM 3.0, there are also significant opportunities. Using CRM
3.0 as the foundation of a customer relationship approach is not only helping transform the CRM
design and implementation, it is also helping to transform the entire organization. CRM 3.0 is the
bridge to the future.
The American research and advisory firm Gartner Inc. has built a framework called “the 8 building
blocks of CRM” 12, to help enterprises see the big picture, make their business cases and plan their
CRM implementation.
Figure 3: Eight Building Blocks of CRM from Gartner
CRM should enable greater customer insight, increased customer access, more effective customer
interactions, and integration throughout all customer channels and back-office enterprise functions.
Over the past four decades, CRM has evolved out of a variety of other business programs.
The 1980s: Digital “rolodexes” like ACT! and database marketing tools like Goldmine were
well knows, and the personal computers and client-server architectures were boosting their
market share.
The 1990s: The evolution of contact management software toward sales force automation
(SFA) with thought leadership from Tom Siebel. In 1995 the CRM acronym was born and the
CRM industry finally had a name. Forced by the Enterprise Resource Planning (ERP)
competition, more marketing, sales, and service applications were added to CRM. Using
intranet, extranet, and internet, e-CRM vendors offered a level of intra-organizational
collaboration that hadn’t previously been available in the CRM industry. SalesForce13 was
founded in 1999 as the first major Software as a Service (SaaS) vendor.
12 John Radcliffe, Gartner Inc, 2001, http://www.gartner.com/2_events/crmawards/2006/docs/buildingblocks.pdf 13 https://en.wikipedia.org/wiki/Salesforce.com
The building blocks About CRM
9
The 2000s: e-CRM was hit hard by the bursting of the dot-com bubble, but luckily survived.
Microsoft entered the CRM space with Dynamics CRM in 2003, and Oracle acquired Siebel
and numerous other enterprise application vendors. In 2007, Salesforce created the next big
change in the CRM industry with “Force.com”, and addressed the criticism that cloud-based
applications weren’t customizable. Cloud-based and SaaS CRM solutions continue to
integrate more features like customer service and social CRM.
Worldwide CRM market totaled $26.3 billion in 201514 according to Gartner Inc. and grew with
12.3%.
Figure 4: CRM revenue and market share in 2015 - reported by Gartner
Ed Thompson, VP & Distinguished Analyst at Gartner Inc. did a CRM survey in 201215 to check out
the top 10 objectives for a CRM program, and linked them all to 4 drivers:
Revenue
Information
Loyalty / satisfaction
Cost reduction
This can be a good guideline when a partner must define his IP on top of CRM.
Figure 5: CRM Survey top 10 objectives reported by Gartner in 2012
14 http://www.gartner.com/newsroom/id/3329317 15 Ed Thompson, Gartner Overall CRM Market - Competition June 2012
Company 2015 revenue (Millions of Dollars) 2015 Market share (%)
Salesforce 5,170.9 19,70%
SAP 2,684.4 10,20%
Oracle 2,046.5 7,80%
Microsoft 1,141.5 4,30%
Adobe 936.8 3,60%
Others 14,307.7 54,40%
Total 26,287.8 100,00%
The building blocks About Microsoft Dynamics CRM
10
The CRM software market is so fragmented, that even analysts like Forrester and Gartner had to
split it up in different sub-markets.
Gartner created a Gartner Magic Quadrant16 to position technology players within a specific market.
By applying a graphical treatment and a uniform set of evaluation criteria, a Magic Quadrant helps
you quickly ascertain how good technology providers are executing their stated visions and how well
they are performing against Gartner's market view.
Gartner does not provide one, all-inclusive CRM Magic Quadrant17 for analyzing application
providers in the CRM space. In fact, Gartner built 18 different detailed Magic Quadrants relevant to
CRM. See Appendix A for more details.
Salesforce and Microsoft Dynamics CRM, appear in only six and five Magic Quadrants respectively.
They have been the fastest growing in recent years and are the most commonly assessed in two of
the biggest CRM markets: sales force automation and customer engagement centers. These two
vendors approach the market in a different way, providing a core of CRM functionality and then each
promoting itself as a platform for partner applications to add to (SalesForce AppExchange and
Microsoft AppSource).
1.2 About Microsoft Dynamics CRM Microsoft Dynamics CRM18 is a customer relationship management software package developed by
Microsoft and launched in January 2003. The product focused first on Sales and Services, but
Marketing was added to its third release. Microsoft has been positioning Dynamics CRM also as a
business development platform (comparable to Force.com19 from SalesForce) and has been
encouraging partners to use its framework to customize it and build IP on top of it.
Figure 6: Microsoft Dynamics CRM in facts
The current version of Microsoft Dynamics CRM is 2016 and described by Microsoft as follows: “At
the heart of every successful business are the people who make things happen. Microsoft Dynamics
designs modern business solutions that empower individuals with intuitive tools that allow them to
do their best work. The proactive, easy-to-use business applications adapt to the way people and
systems work, enabling businesses to rapidly deploy and be forward-looking in an ever-changing
world.”
16 http://www.gartner.com/technology/research/methodologies/research_mq.jsp 17 Ed Thompson, Gartner, The Elusive CRM Magic Quadrant, 3 April 2015 18 https://en.wikipedia.org/wiki/Microsoft_Dynamics_CRM 19 https://www.salesforce.com/products/platform/products/force/
The building blocks About Microsoft Dynamics CRM
11
Satya Nadella, CEO at Microsoft, announced on the 11th of July 201620 at the World Partner
Conference in Toronto, the latest product Microsoft Dynamics 365.
Designed to help change the nature of digital work within organizations of all sizes, Microsoft
Dynamics 365 empowers business users with built-in insights and intelligence within the business
applications they're working in - applications like field service, sales, finance, and operations. As a
result, Microsoft Dynamics 365:
Introduces a disruptive and customer centric business model to build what you want and
buy just the capabilities you need, while ensuring all roles have access to all the data they
need to be successful in their jobs
Helps organizations move from monolithic application suites to purpose-built, SaaS
applications with intelligence built-in
Integrates Microsoft Office 365
Partners can integrate Dynamics 365 with the consistent app platform and common data framework
provided by Dynamics solutions today, or take advantage of the rich analytics, Internet of Things
(IoT), Business Intelligence (BI) or productivity solutions independently to build third-party offerings
that work with other business apps.
The brand has changed, and Dynamics 365 came to life with base text: “End-to-end intelligent
business applications in the cloud”.
As you can see below, the previous positioning with a focus on the Sales, Marketing and Service
modules has become much richer now, and got connected to many other Microsoft components,
fully integrated with the CRM application to get an even richer user experience.
Figure 7: Dynamics 365 components
Even though more and more new building blocks like for instance the “Operations” block (ERP) are
now included in Dynamics 365, there was no focus in this thesis on the new possibilities that they
bring. The name Microsoft Dynamics CRM will be used in the rest of this document when talking
about Sales, Marketing, Customer Service, etc.
20 http://www.gacollective.com/dynamics/Dynamics_Business_and_Cloud_News_August_2016.html
The building blocks The Microsoft Dynamics CRM partner ecosystem
12
While Microsoft is pushing their cloud solution Dynamics CRM Online, they still support CRM On-
premises as well referred to as Microsoft Dynamics CRM. Since it uses the same code base, it is easy
to move from one to another.
This is called “The power of choice”: to choose the way you want to consume your CRM solution and
how you would like it deployed.
Licensing. Choose if you want to purchase licenses or subscribe to them.
Deployment. You can choose which model you want; on-premises, hosted or hybrid CRM.
User Experience. Which CRM clients do you want to use? Outlook, the browser, a Portal or a
Mobile apps.
Microsoft Dynamics CRM provides a powerful business application platform that delivers to
customers, Microsoft Partners, and Independent Software Vendors (ISVs) an opportunity to extend
and provide value added solutions. These solutions build on top of the robust core platform
capabilities included with Microsoft Dynamics CRM. By using these capabilities, a partner can build
customized solutions without having to custom build the foundation.
1.3 The Microsoft Dynamics CRM partner ecosystem The Information technology consulting industry can be split in different domains:
Professional services firms which maintain large professional workforces. Some professional
services involve providing specialist business support, to businesses of all sizes and in all
sectors.
Staffing firms, which place technologists with businesses on a temporary basis, typically in
response to employee absences, temporary skill shortages and technical projects.
Independent consultants, who are self-employed or who function as employees of staffing
firms, or as independent contractors.
There are different reasons why consultants are called in:
To gain external, objective advice and recommendations.
To gain access to the consultants' specialized expertise.
Temporary help during a one-time project where the hiring of a permanent employee(s) is
not required or necessary.
To outsource all or part of the IT services from a specific company.
So, IT consulting is combining business advice with technology to become a partner and a trusted
advisor for the customer. On the technology part, they get linked more and more to Software
Editors and Independent Software Vendors (ISV’s), and are evaluating to build or to buy software.
To give some insights, on why going for a build option for a CRM Software should be the exception,
here some points to consider, including some from a whitepaper published by Infosys21.
Packaged CRM cost factors Custom Build CRM cost factor
The more users, the more licenses, the higher the cost
The cost of creating a CRM framework like packaged CRM could be huge, but is not related to the number of users
The more customizations, the greater the effort and cost
Time-to-market and risks are greater which could have a significant commercial impact
21 https://www.infosys.com/digital/insights/Documents/building-buying-CRM-software.pdf
The building blocks The Microsoft Dynamics CRM partner ecosystem
13
Product vendor support horizon, costs for forced upgrades and cost of support from third parties
Upgrading custom applications may demand more effort as opposed to packaged applications
CRM packages are so flexible today, you typically configure more than you need
Application extensibility is an additional cost factor
Depending on the chosen package, higher training, change management and user adoption cost, since UI and processes are completely new for users
Training can be lower is built on top of existing legacy system
New staff needed with package skills mainly for after go-life support
Staffing requirements will need different skill sets with developers and testers
In fact, building IP on top of a CRM package, delivers best of both worlds.
Microsoft does not sell directly, but uses a partner channel.
Microsoft has about 5.000 certified partners worldwide that are doing business related to the
Microsoft Dynamics CRM product.
Before talking about the full Microsoft Dynamics CRM partner ecosystem, more focus is needed on 3
different types of Microsoft Dynamics CRM partners, that are all related to IP:
- Independent Software Vendors (ISV)
- Cloud Solution Provider (CSP)
- Value Added Reseller (VAR)
The simplified picture below might help to position them between a pure services oriented business
model at the left and a software company at the right. The 3 partner types above are all in the grey
zone, and some are closer to one side than the other. This can also depend on the Line of Business,
but let’s focus here on the CRM LOB, not related to the overall strategy of the partner company.
So, at the left side, we have the IT consulting company, a pure services company that delivers people
(CV’s) with specific Microsoft Dynamics CRM skills to customers, without selling any Microsoft
Dynamics CRM licenses or any own IP. A VAR will focus next to services on selling Microsoft
Dynamics CRM licenses along the way. Depending on the size and focus of the partner, the CSP
model is a way to add own IP in a bundled solution to a CRM Online cloud offering. A real ISV focuses
on selling their own IP on top of Microsoft Dynamics CRM, or integrated with Microsoft Dynamics
CRM. And the last one, is one that sells only licenses, but not directly integrated with Microsoft
Dynamics CRM. Most partners combine these models and make their own offering based on that.
Figure 8: Positioning all partner models
Let’s now go deeper in the 3 models, and start with the Independent Software Vendors (ISV’s).
ISV’s are partners who build software that integrates with and enhances the functionality of the
Dynamics CRM products. ISV solutions are essential to the Microsoft Dynamics strategy. More and
The building blocks The Microsoft Dynamics CRM partner ecosystem
14
more customers choose a solution because of the value that an ISV has added to a Microsoft
Dynamics product by developing a packaged software that fits their specific industry or business
needs.
Microsoft Dynamics offers an ISV a lot:
Opportunities: Microsoft’s products offer expansive business opportunities for ISVs by
providing superior value to customers, helping them to maximize their Microsoft IT
investment and streamline processes across all areas of their business.
Extensive Partner Ecosystem: Microsoft Dynamics is committed to selling through a
channel-engaged model.
Leading Innovation: Microsoft’s proven commitment towards continually improving its
products and becoming the leader in new markets makes Microsoft Dynamics a good
platform to build software solutions on.
Best of Breed Solutions: Microsoft Dynamics enables ISVs to utilize its advanced base
functionality (e.g. multi-currency, analytics, database model, multi-language, multi UI) to
build next generation solutions to retain the installed bases of customers and generate new
revenue streams.
Jeff Edwards, Director Partner Marketing at Microsoft, explained during a webinar the renewed
Partner Strategy and Program overview for Microsoft Dynamics 365: “The partner of the future will
lead with the Cloud, and offer his customer a comprehensive solution, based on deep
understandings of his customer business processes and taking into account his technology strategy”.
Microsoft realizes that since they cover so many different types of customers, and through so many
partner channels, they don’t make it easy for the partners to understand all the details, because of
the different pricing and licensing models.
Microsoft also changed a lot his MPN (Microsoft Partner Network) program with related
competency evolutions, related exams and Gold or Silver flavors. They are moving away from Cloud
& CRM competencies that were based on either On-premises or cloud revenue/seats, exams and
customer references to Cloud CRM Competency only, with the Dynamics 365 Competency Impact
still to be determined, but focused on Cloud Business Applications only. So a partner better build his
IP strategy on Cloud.
Microsoft is also betting on his Cloud Solution Provider (CSP) program, to give access to all cloud
services to the CSP partner, so he can own the end-to-end customer lifecycle. He can create his
packaged offer including his IP, he can define the price and can own the billing terms with their
customers, in their selected markets.
The CSP partner can choose for a tier-one (direct) or tier-two (in-direct) business model, depending
on his capabilities:
Figure 9: The CSP models
Microsoft’s recommendations for partners are:
The building blocks The Microsoft Dynamics CRM partner ecosystem
15
Take an end-to-end vertical, or highly specialized approach
Sell the cloud – expand the opportunity, fully leverages Microsoft
Expand and strengthen solution offerings – Microsoft technologies will be easier to sell,
install and integrate than ever before
Build new IP using Dynamics platforms, PowerApps, Logic Apps and Flow to deepen the
relevance and differentiation to prospects and customers
Validate and promote the new solutions in AppSource for maximum market exposure
and quality assurance
This shows how much Microsoft is pushing to adopt a Cloud-only mentality and to turn away from
non-strategic industries that you selected as a partner, demonstrating that IP gets more and more
support from Microsoft.
However, until Microsoft sees the AppSource as a monetizing platform with e-commerce
functionalities (taking money from every IP transaction from their ISV’s), their ISV support will stay
within well determined boundaries. Their competitor SalesForce made many millions with this
Marketplace business model.
The third partner model is the Value-added Reseller (VAR), a supplier of specific solutions to specific
markets, also called channel partners.
Traditionally, a VAR created an application for a hardware platform and sold the combination as a
turnkey solution. In many cases, such bundles targeted vertical market niche applications.
While such custom-application VARs still exist, many Microsoft VARs have turned to services as their
key value-add. A VAR may provide consulting, design, implementation and training services around
the Dynamics CRM licenses it resells. VARs offering such professional services in addition to products
are often referred to as solution providers.
Some VAR’s implemented a CRM solution in the same industry, because of the industry specific
know-how that they acquired during the
previous implementation. So, they use a
customer reference to win more deals in the
same industry, but mainly as a re-active
approach, even not realizing they are doing this.
Once they realize this, they can switch to a pro-
active approach, and bundle this experience in
an accelerator, to avoid doing the same work
again and again in the same industry. Once that
gets repeated, it becomes a real IP that can be
sold “as-is”, or can become the start for an IP
based Licensing model, as you can read in the
paragraph 3.5.1 “Step 1: build the MVP, with direct sales in the local market”.
There is a great model developed by Noel Burch which is called The Learning Cycle22. This model
describes four states which we move through as we learn. Applied to the CRM Partner that starts as
a typical VAR, he learns about IP on his journey, and at the end, he sells next to his professional
services a part of IP in a licensing model, as shown in the picture above.
22 https://olivergearing.com/unconscious-conscious-learning-cycle/
Figure 10: The CRM VAR learning Cycle
The building blocks The Microsoft Dynamics CRM partner ecosystem
16
However, the Microsoft Dynamics CRM partner ecosystem exists of more elements, forming a real
Value Network23:
- Microsoft resources, who can be split in different categories
o Local people (needed for local sales support)
o Corporate people located in HQ in Redmond (needed for strategic product support)
o Industry specific people for the verticals selected
o Partner related contacts for relationship management
o AppSource (the new marketplace replacing PinPoint) people
- Microsoft MVPs (Microsoft Most Valuable Professional)
o They are not on the Microsoft payroll, but they are influencers in the market
- Microsoft partners
o Local Gold or Silver certified CRM partners
o Global SI’s (System Integrators)
- Industry specific partners
o Influences in RFP’s (Request for Proposals)
o Lead generators
- Existing Microsoft Dynamics CRM Customers
o For cross and up-sell of IP to existing Microsoft Dynamics CRM Users
- Microsoft Dynamics CRM Prospects
o In the selected industry or when the IP is horizontal no industry filter is needed
o In the regions where the partner is active
o With a specific company segment, size, region, etc.
- 3rd party ISV products
o To include in the partner’s IP solution as Original Equipment Manufacturer (OEM)24
for example
- Microsoft Dynamics CRM Events people
o ExtremeCRM25 – to meet and convince new partners to sign up
o CRMUG26 (usergroup) - to meet and influence possible future end-users
o Microsoft Envision27, to meet partners and customers
o Other Microsoft CRM events28
- Competitors
o SalesForce, Oracle, SAP, SugarCRM, Sage, etc. or industry specific competitors
- The different Partner roles a typical CRM partner combines
o Consulting & Deployment
System Integrators
Service Provider
o Managed & Hosted Solutions
Hosting partner with his own datacenter
The Cloud Solution Provider (CSP) partner
o IP & Solution Development
The Independent Software Vendor (ISV) partner
The OEM partner
The CSP partner
23 The Smart Entrepreneur”, 2nd Edition, Edgar & Thompson, 2011 24 https://en.wikipedia.org/wiki/Original_equipment_manufacturer 25 www.extremeCRM.com 26 https://www.crmug.com/home/welcome 27 https://www.microsoft.com/en-us/envision/default.aspx 28 https://www.microsoft.com/en-gb/dynamics/events/index.html#!/
The building blocks VeriPark, an example and inspiration for other partners
17
o Reseller & Distributor
The VAR partner
Disti’s (Microsoft Distribution Centers)
o A combination of the above
1.4 VeriPark, an example and inspiration for other partners A good Microsoft Dynamics CRM partner example to is VeriPark29. They started about 18 years ago
as a pure service provider for the Financial Services Industry, with a lot of services and custom build
applications. Along the way, they started to focus more and more on Microsoft Dynamics CRM and
re-usable IP, that got bundled and sold to customers. Below you can see the main events in their
history.
Figure 11: History of VeriPark
In the picture below you can see how the revenue and profits changed over time, including effects of
exchange rates. At the top of the picture, you can see when they evolved from one type of
partnership to another one, from a service company to a VAR and to an ISV on top of Microsoft
Dynamics CRM. They could go from zero IP revenue to 5,7 Million $ over four years’ time, and today
about 25% of their revenue comes from selling IP through a licensing mechanism. Recently they
were named by Microsoft as the first Global ISV for Microsoft Dynamics CRM.
29 See appendix C for more info on VeriPark
The building blocks VeriPark, an example and inspiration for other partners
18
Figure 12: VeriPark's revenue growth over 18 years
VeriPark focusses on Bank and Insurance segments. They sell 4 different software products, of which
VeriTouch is the most related to Microsoft Dynamics CRM. They also have an implementation team
that sells services, used when they sell directly to customers, or in subcontracting of their partners.
Their biggest cost is in the HR department with a lot of developers in R&D. A big part of the revenue
comes from license fees. Although they sell together with their partners to end-customers, they are
opening offices in most continents. To show more details on their business model, a Business Model
Canvas for VeriPark can explain all the important components, including their ecosystem.
Figure 13: Business Model Canvas for VeriPark
The building blocks What is IP for a Microsoft Dynamics CRM partner?
19
1.5 What is IP for a Microsoft Dynamics CRM partner? IP30 stands for Intellectual Property31, which means most of the times in IT companies a license for
software.
We can divide software licenses in different categories:
Software as a Service or SaaS – renting the software, which always includes maintenance.
Perpetual license with maintenance: the customer can buy the licenses and pay a yearly fee for maintenance.
OEM – for integrating the IP in something bigger (also called “White Labelling”).
Re-usable IP: Next to the 3 models above, partners also sell “re-usable IP”, what means that they re-use some code that was developed for one customer specific, and deploy it at another customer for a fix cost. There is typically no maintenance involved at this point. This kind of “IP” is also called an “Accelerator”, to have a quick start in a software implementation project.
As an Application Builder or Independent Software Vendor, there are many important business
decisions to consider up front. What platform should you invest in? What business model should you
have? What business operations do you need? Who is your target customer? What price do you
charge? How should you go to market?
Some of the key factors the partner should look at when evaluating which product will best serve his needs and market are:
Geography: Is there a need for multilingual or multicurrency functionality?
Scalability: What is the average size of customers in the target market? How many users would need to access the system concurrently?
Industry: What industry will the solution target? The Microsoft Dynamics Solution Coverage Map may help to select industries where there may be a growth opportunity or understand which Microsoft Dynamics based solutions may already be in market.
Price Threshold: What is the current and competitive pricing strategy?
Cloud versus On Premises – Which framework will be used for sales and support??
Customization: Does the selling model include customizations to the end product to meet specific customer requirements?
Today, Microsoft helps ISV’s more and more, since they support ALM (Application Lifecycle
Management) and added Solution Management32 right inside their
platform. “Solutions” are how customizers and developers author,
package, and maintain units of software that extend Microsoft
Dynamics CRM. Customizers and developers distribute solutions so
that organizations can use Microsoft Dynamics CRM to install and
uninstall the business functionality defined by the solution on top of
Microsoft Dynamics CRM.
Solution components are created by using the customization tools or APIs included in Microsoft
Dynamics CRM and are fully hosted in the application.
For protecting the IP from the Partner, Microsoft came with the concept of a “Managed Solution”, so
that the partner does not have to give his source code to his customer. Using managed properties,
30 Marc de Jong, Nathan Marston, and Erik Roth, “The eight essentials of innovation”, McKinsey Quarterly April 2015: 1+. 31 Eric S. Freibrun, esq., “Intellectual Property Rights in Software: What they are and how the law protects them”, Law Offices of Eric S. Freibrun, Ltd., 28/02/2016, < http://www.freibrun.com/articles/articl2.htm>. 32 https://msdn.microsoft.com/en-us/library/gg334576.aspx?f=255&MSPPError=-2147217396
Figure 14: Extensibility Choices
The building blocks What is IP for a Microsoft Dynamics CRM partner?
20
the creator of a managed solution can control whether a solution component is customizable and
which specific parts of it can be customized. The license key mechanism for own IP is something the
partner still should provide himself.
Once the partner has his Managed Solution package, it’s time to create an installation package by
using the Microsoft Package Deployer33. A CRM package is a setup package for deploying CRM
solutions, data and executing install and upgrade operations on an instance of CRM. This allows for
the automation of installation tasks to support deploying an application into the customers CRM
environment.
Build business apps – let business users try it
Develop line of business apps, whether it’s for a specific industry, process, or department like HR,
finance, marketing or operations. Assure customers that the app is just the app they’re looking for.
Let them try it out with a free trial.
With AppSource, customers can find new line-of-business apps for their industry—plus apps that help them do more with the solutions they already use. Publish the app now and reach new customers seeking better ways to run their business. Submitting the app to Microsoft to get published on the AppSource is a multi-step program, that takes many weeks to get it done:
1. Submission: Submit the app for review. 2. Review: Microsoft will check that the app meets the criteria and send the metadata
requirements and instructions for onboarding the app. 3. Staging: On-board your app for staging and testing. 4. Publishing: Once the partner and Microsoft are satisfied with the staging and testing results,
post the app!
Figure 15: The AppSource
33 https://msdn.microsoft.com/en-us/library/dn688182.aspx
The building blocks What is IP for a Microsoft Dynamics CRM partner?
21
Some criteria used by Microsoft in the admission and test of the solutions:
Product Roadmap Microsoft is looking for some kind of proof that the IP solution will be aligned with the roadmap of the Microsoft Dynamics product, so that they are ensured that as they add new features, the solution will be upgraded, allowing the customers to install the latest version.
Software Escrow34 Escrow generally refers to money held by a third-party on behalf of transacting parties. It is best known in the United States in the context of real estate. However, an unrelated type of escrow is when a purchaser of a complex system, such as bespoke process control software or a large industrial installation, may require the supplier to place the design into source code escrow, so that the purchaser remains able to maintain and modify the system in case of the demise of the supplier.
Source code escrow agents hold source code of software in escrow just as other escrow companies hold cash. Normally a customer does not own or have any rights to the software (including source code) that he is accessing, under the terms of a regular SaaS or desktop software agreement. This does not usually become an issue until technical problems start to arise, i.e. unexpected service interruptions, downtime, loss of application functionality and loss of data. This can add significant costs to the business and the customer remains reliant upon the software supplier to resolve these issues, unless the customer has an escrow agreement in place. Escrow is when the software source code is held by a third party – an escrow agent – on behalf of the customer and the supplier.
The Certified for Microsoft Dynamics (CfMD35) program identifies third-party solutions that have met Microsoft's highest standards for Dynamics implementations. This logo assures that the solution:
Was developed by a certified and reputable Independent Software Vendor
Was designed for a unique business and industry need
Has been tested for seamless integration with Microsoft Dynamics
Has been used and recommended by other companies
Is low-risk, fast to implement, and simple to maintain
Is properly supported and protected
Meets industry-specific requirements and local language, tax, and governmental regulations
To meet the Certified for Microsoft Dynamics Escrow requirement, ISV partners must offer an Escrow within their license terms. More details on the escrow requirement can be found on the Lionbridge36 website, the partner that Microsoft has chosen to certify IP solutions on top of Microsoft Dynamics CRM.
Once the solution has completed the CfMD process, Microsoft will promote the listing on the AppSource. Solutions that are Certified for Microsoft Dynamics on the latest version are branded with the CfMD logo, and receive priority ranking.
However, this CfMD process is going through a complete review now and will be relaunched in 2017.
34 https://en.wikipedia.org/wiki/Escrow 35 http://microsites.lionbridge.com/veritestcertification/SitePages/microsoft-dynamics.aspx 36 http://microsites.lionbridge.com/veritestcertification/SitePages/microsoft-dynamics.aspx
The building blocks What is IP for a Microsoft Dynamics CRM partner?
22
Escrow4All37 B.V. based in The Netherlands is an example of an approved Escrow Provider for Microsoft CfMD products, used by Invenso38, an ISV from Belgium. They depose their Source Code, Technical Documentation and updates of their ISV solution once or twice a year for a yearly fee of 750€. The term “Source code” is defined as “the computer programming code of the product in human readable format, including all documentation and instructions necessary to maintain, interpret, compile and install.” In fact, the goal is that a suitable qualified person can carry out maintenance, corrections, modifications and compilations of the product. Escrow4all provides an Escrow Portal, a secured website, only accessible with a personal username and password, provided and maintained by Escrow4all as part of its services and standard procedures whereby parties (Licensor and Beneficiary) can obtain specific information on the Agreement such as Material deposit and copies of verification reports. A verification report is made by Escrow4all after each new deposit, once the tests on the material are done.
So, when is such an Escrow Agreement used by the Beneficiary, the customer, who typically has to pay for this service to the ISV partner:
Figure 16: Events when escrow contract must release the materials to the beneficiary
37 www.escrow4all.com 38 www.invenso.com
Market Research Partner survey
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2 Market Research
In this chapter, the Microsoft Dynamics CRM partner market has been deeply analyzed. The
conclusions are mainly based on a partner survey to serve the double goal of this thesis:
- come up with a business case on how to make a profitable business with
intellectual property on top of Microsoft Dynamics CRM at one side, and
- define the success factors on how to get there.
Data was collected through a worldwide B2B survey, that was used to build a business case which
will confirm some success factors based on the feedback from the “Top Performers”.
2.1 Partner survey Since there is no publicly available listing of the Microsoft Dynamics CRM partners and since
Microsoft cannot share this data because of confidentiality clauses, it was very hard to reach out to
the target group.
The market research was mainly done via an electronic online survey, since the targeted partners
were spread all over the world.
Software from SurveyMonkey39 was used together with their
mobile app, to follow up the results.
All sources of CRM partners were collected together with
related contact persons and email addresses:
- Inner Circle40 and President Club partners
- PinPoint website
- My LinkedIn network
- ExtremeCRM
- Personal connections
Social media was used to let people know about the
existence of the survey.
- Yammer
- LinkedIn groups
- Blog site
Personalized emails were sent to the list of companies found
(around 500 companies).
2.1.1 Objectives The main objective was to get more insights in the current Microsoft ecosystem around Dynamics
CRM, for example what is done with IP today by ISV, VAR and CSP partners, and how do they make
money. What good players do well, and bad performers do wrong. The goal was to use a multi
variant analysis to figure out if some questions were correlated to the fact that a partner can be
39 https://www.surveymonkey.com/ 40 https://news.microsoft.com/2016/05/31/microsoft-announces-2016-partner-of-the-year-winners-and-finalists/#sm.0000v3lkys90ifmmqeu1do14h8ai0
Figure 17: SurveyMonkey mobile app
Market Research Partner survey
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successful with selling IP on top of Microsoft Dynamics CRM. Can a good statistical model be found
and what quantitative data is needed for building a business case.
2.1.2 Population The target group was all partners, active in Microsoft Dynamics CRM worldwide, certified or not, ISV,
VAR or CSP. The problem however was that the questions asked were about finance, and so mainly
CEO or C-level people were needed to answer these questions. Since company level info was
needed, one person to answer the survey per company was sufficient, if all related questions were
filled in.
There are about 5.000 Microsoft CRM partners worldwide, according to Microsoft. By adding the
new components to it, Microsoft Dynamics 365 will have even much more partners, including the
ERP and Office 365 ones. This thesis will not focus on these additional side products, but only on the
partners with current business around the CRM solution.
2.1.3 Survey method Two surveys were conducted with different brandings giving 117 responses, of which 77 completed
ones:
The first one was created on the 20th of May 2016, and gave 107 responses in total of which
71 with completed responses, that gave a completion rate of 66%. Last response came in on
09/08/2016.
The second one was less successful but ran only for a month linked to one big mailing done
by an external company. This one gave only 10 responses, of which 6 were complete.
2.1.4 Sample size How many people were needed to participate in the research to obtain reliable results and was that
reached?
Population size N = 5000
Confidence level c = 90% so Z-score is 1.65, and Z(c/100) is the critical value for the
confidence level c
Margin of error E =10%
Response distribution = 50%
n (sample size) is 67 people.
Since there were 77 completed answers, this test passed and these were sufficient to deliver a 10%
margin of error. So, if the survey would be repeated, there is a chance of 90% that the results would
be the same.
2.1.5 Data collection process Hans Peter Bech is an Amazon bestselling author. He is a frequent blogger on issues related to
growing information technology companies to global market leadership and has written several
books and numerous whitepapers on business development in the IT industry.
When reading his book “Building Successful Partner Channels”, it was crystal-clear that this was a
book all CRM partners should read when they are interested in selling IP on top of Microsoft
Dynamics CRM, because he wrote down his experience selling Microsoft’s ERP software. So, the idea
was born and executed to offer some books to motivate people to fill in the survey. Hans Peter was
so kind to write a Blog41 about this thesis.
41 http://tbkconsult.com/how-make-money-microsoft-dynamics-crm/
Market Research Partner survey
25
The first emails sent out to promote the survey was to 471 persons collected from the Microsoft
PinPoint website, where all CRM partners could promote their ISV solutions as well as their services
offered on top of Microsoft Dynamics CRM.
When no reaction was received from the well-known ISV players, a personal note got sent to
motivate them to answer.
Since the activity on some social platforms, where CRM partners read and exchange information, the
same info got posted there as well. My LinkedIn has +3000 connections, and it resulted in 177 views
of the post. The same content was posted in many LinkedIn Groups, from which some new answers
came in. The Twitter account was also used to tweet the same message.
Finally, the ExtremeCRM CEO got convinced to sponsor the survey, and to let me fly over to present
the outcome of his thesis in the USA in December 2016 at the ExtremeCRM 2016 Executive
Exchange42 in New Port Beach, LA. The survey was also branded with their ExtremeCRM logo, but
this was not very successful, as shown in Paragraph 2.1.3 “Survey method”.
The result of the continued pushing over 2 months’ lead to all the peaks in the graph below:
Figure 18: Progress in the survey responses
2.1.6 Clustering questions The questions were clustered around these 6 topics:
- Product information - Marketing questions - IP related experience and best practice - Personal data, to make sure the right
partners participated - Numerical and Financial data, to be used
in the business case and to cluster partners in top, average and bad performers
- Information about their distribution channel
42 http://www.extremecrm.com/eXtremeCRM2016NewportBeach/Dynamics365PartnerCloudSurvey/tabid/350/Default.aspx
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In total, there were 44 questions (some questions had sub questions, which resulted in 76 detailed
questions). Only the people who selected all different categories for partnership types had to
answer all these 76 questions. On average, it took people less than 8 minutes to complete the
survey. A complete list of all questions can be found in the Appendix G.
2.1.7 Survey design The questionnaire was constructed in a way that all types of CRM partners could answer some
specific questions, depending on their type of partnership with Microsoft. In total, there were 6
survey pages, shown in orange on the high-level design model below, including in green the number
of questions.
Figure 19: Survey Design
SurveyMonkey is very powerful, and makes it possible to define the flow behind each question, to
obtain a kind of dynamic survey:
Figure 20: SurveyMonkey and dynamic questions
2.1.8 Pre-test of the survey The survey was sent to a few people, and their feedback got incorporated, by rephrasing unclear
questions, adding and removing questions, repositioning of some questions to have a better logic,
and by adding and deleting some response options.
2.2 Research results
2.2.1 Clustering around performance The goal was to find a great model for ISV’s, by using the regression analysis technique, but the
conclusion was that there were not enough records to have extraordinary results.
A relation was found between Question 2943 (how much revenue did your IP did generate the last 3
years), Question 26 (how much money did you invest in the product development the past 3 years)
43 See Appendix G - Survey questions
Market Research Research results
27
and Question 27 (how much money did you invest in support, sales and marketing activities
(including partner management) the last 3 years?), but not with other explanatory variables.
A remark however: think about cause and effect here. Maybe a partner just spends more money
when he has earned more money.
Goodness-of-fit measures: The R² and Adjusted R² looked both quite fine. Being close to 70% with
only two explanatory variables (Q26 & Q27) indicated these were quite appropriate, as also shown
by the F-significance which was far below 0.01.
Significance (P-values): If the p-value for Q26 would have been in the range of 0.01 to 0.05,
significance would have been questionable. But here Q26 is clearly strongly significant, since it was
one order of magnitude below the threshold of 0,05. Moreover, the resulting coefficient for Q26 in
the regression (7,78) was quite higher than its typical error (2,06), confirming its relevance.
Q27 was indeed clearly not significant individually, yet jointly significant with Q26.
Very interesting was also to test Q26 alone where the R² was very close to the results with Q26 AND
Q27, showing that the focus should clearly be on Q26.
Since there were not many records, multi variant analysis and other advanced statistical calculations
did not gave great results. So, some basic techniques were used together with manual correlations
to transform the data into insightful partner information.
Since most IP is used by ISV’s, the focus was on partners that answered at least the ISV questions.
Since this thesis is about “how to make a profitable business”, an indicated profitability level was
calculated, to cluster the partners in 3 categories with the same number of partners:
- Top performer (> 75% margin)
- Average performer (between 75 and 35% margin)
- Bad performer (below 35% margin)
The answers were converted to quantitative data where possible, and removed in case it was not
possible. For example, an important question “How much money did you invest in the product
development the past 3 years? (not including support, sales & marketing costs)” was answered by
selecting a specific range:
RANGE to answer Converted to an average amount for calculations
< 100.000 $ 50.000$
100.000 – 200.000$ 150.000$
200.001 – 300.000$ 250.000$
300.001 – 400.000$ 350.000$
400.001 – 500.000$ 450.000$
500.001 – 600.000$ 550.000$
1.000.001 – 2.000.000$ 1.500.000$
>2.000.000$ Cannot be used for calculations
The formula used for the profitability margin for the last 3 years for an ISV was:
Total IP revenue - (product development cost + Support, Sales & Marketing cost) / Total IP revenue.
The fact that the “big” ISV’s with investments over 2 Million $ or with revenue over 20 Million $
are not considered by applying this technique, will assure that the results will be average, and not
Market Research Research results
28
malformed by some exceptions. So Top Performers are doing even better than indicated in the
figures used.
These 3 categories will be used in the analysis of the results, especially the Top Performers, to learn
more about their success factors.
Leaving out the most negative one with -680% profitability, results in an average of 42%
profitability, and a median of 42% as well. More details on profitability can be found in paragraph
2.2.7 “Data to support the business case”.
The “success factors” will be pointed out, where the Top Performers have a meaningful statistical
difference compared to the other less successful partners.
2.2.2 Personal data The survey was completed by people from the whole world, with head offices in 33 different
countries. The majority were VAR’s, but as you can see below, there was a nice balance between all
type of partners, and most of them play more than one role.
Since most survey questions were at strategic level, reaching out to the C-level to answer the survey
was needed. The graph below confirms that this worked out fine, and shows that 42% of the 70
people that specified their role in the company were CEO or General Manager.
Figure 21: # Partners per region and type
Figure 22: Spread of roles in survey answers
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29
The survey was answered by 38 different ISV’s, including some well-known ones like ProTech,
InsideView, ClickDimensions, LinkDev, VeriPark, TeamKnowledge, ProMX, MTC, Cincom, Xperido and
Realdolmen, who sponsored many CRM events, and therefor known in the CRM world of today.
To know at what speed Microsoft is getting new ISV partners on board, ISV’s were asked to give their
starting year. The average of new ISV’s that started in this survey subset is 2.38 new partners per
year, showing that Microsoft is adding new partners at almost the same speed for the last 13 years.
This is not showing the drop outs, since those partners would not have answered the survey.
Below you can see the table with the major Microsoft Dynamics CRM releases44, the exact release
date and the impact year, which is the full calendar year that followed the release date, to show the
impact period:
It is also clear that there is a strong correlation between a new release and a good starting year for
ISV’s.
Figure 23: Correlation between ISV starting year and CRM release year
2.2.3 IP related As expected, only 36% of all the partners has an Escrow Agreement in place today. This will increase
in the next years since Microsoft is pushing this by linking it to the AppSource certification process.
However, 60% of the Escrow agreements are signed by partners from the Top Performers cluster.
Protecting your business ideas45 from imitation is important, so an ISV should protect himself to
others that skim off a part of their market or industry. The sustainable value of their venture is
determined to a large extend by two factors: protectability and freedom to operate. You can’t
protect ideas, but you can protect software by using for example Copyrights, which don’t need any
44 http://survivingcrm.com/2013/09/history-of-microsoft-crm/ and https://buildnumbers.wordpress.com/crm/ 45 The Smart Entrepreneur, 2nd Edition, Edgar & Thompson, 2011
CRM Version Release date Impact year
CRM 1.0 1/jan/03 2003
CRM 3.0 1/dec/05 2006
CRM 4.0 19/dec/07 2008
CRM 2011 30/jan/11 2011
CRM 2013 16/dec/13 2014
CRM 2015 17/nov/14 2015
CRM 2016 1/dec/15 2016
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form of registration, and which works for many years counting from the end of the year in which it
was made, depending of the country where it was made, just by simply keeping records of creation
date and author. Since the original creator of the work holds the material right, it is important to
have IP clauses in the contracts of the creators.
Almost all partners are using an IP clause in their personnel agreements, to make sure that IP
generated by the personnel is transferred to the Company, but for contracts with freelancers or
other service suppliers, there is more reluctance: only 69% could confirm that they have this
covered.
Surprisingly almost nobody (20%) is using government grants for Research and Development.
However, 60% of the partners that use grants are in the Top Performers cluster, so this is a success
factor.
Since filing a patent to prevent others from using your idea is very expensive, linked to territories,
and excluding computer programs, only 2 ISV partners filed for a patent. On top of it, a patent can be
challenged by competitors at any time until it expires 20 years later.
On the question “Have you registered the brand name(s) for your solution(s)?”, the result was below
expectations. In total 47% of all partners registered their brand name(s), but only 25% of them were
in the Top Performers, so not a success factor.
What about re-using the previous project experiences, in the role of a Value-Added Reseller? Almost
everybody (+91%) is re-using source code from one project in another one, but only 60% is letting
the customer pay for it. So, +30% is giving it away for free, leaving some money on the table. It’s also
remarkable to see that the 71% of the Top Performers sell their reused code, making it a success
factor.
Almost 68% of all partners is considering starting selling licenses on top of Microsoft Dynamics CRM
(so to start their ISV business) including the ones that are already ISV, and as you can see in the
picture at the left, 53% of the non-ISV
partners are open to it, and 24% not
sure. So this represents a big group that
should be interested in this thesis.
Almost 80% of all partners do work together, as part of the Value Network, by using third party add-
ons from ISV’s to embed and sell in their projects. It seems that there is no extreme usage of Open
Source, since only 53% of the partners use that in their projects. It’s also remarkable to see that this
is used the most by Low Performers.
More than 55% of the partners use their own IP in their CSP offering, while only 34% is using IP from
other suppliers in their CSP bundle, like using Resco46 to extend your offering with more mobility
options. Since 50% of the Top Performers use other ISV’s in their CSP solution, this seems like a
successful formula.
2.2.4 Marketplace related It came as no surprise that the previous marketplace from Microsoft - Pinpoint is being used by two
third of the partners, since Microsoft pushed all partners hard to be on their marketplace platform.
What came out as a big red flag to Microsoft was that almost 81% of all partners is not getting any
leads out of this platform, and another 10% is not sure of that, confirming that this is of no use, and
wasted all partners time and efforts.
46 www.resco.net
Start selling licenses
Partnership No Not sure Yes Grand Total
VAR 17,65% 14,71% 29,41% 61,76%
VAR-CSP 5,88% 8,82% 23,53% 38,24%
Grand Total 23,53% 23,53% 52,94% 100,00%
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The company Prodware47 tried to fill in this gap since a few years (since 2011), and launched their
own marketplace for Dynamics CRM apps & Add-ons48. It was a big surprise to see that less than 10%
of the partners is using this additional platform to promote their solutions.
With the new CSP model, Microsoft asked the partners to implement their own click-try-buy
platform, so that prospects and customers can download the solution package, install it, test it, and
when all goes well, buy and pay for it. Amazingly already 28% of the partners have implemented this,
since this is quite complex and a big investment. Microsoft could help the partners much more in
this area.
2.2.5 Product related Microsoft’s vision is that partners should focus on the industry specific (or vertical) aspects of CRM,
while Microsoft will put all his R&D and M&A efforts on the horizontal CRM side, also called “the
platform”. On the ISV side, 63% of all partners confirmed that they focus on a specific industry, and
on the CSP side it was a bit less (53%) but still the majority. However, there is no correlation to
performance clustering here.
There is a correlation with the number of different ISV solutions a partner sells and their
performance clustering. If a partner is focused on only one ISV solution, they have more chance of
success, since two on three are Top Performers. Looking at the Top Performers, 57% has only one
ISV solution, 14% has two, 14% has three but none of them have more than three different ISV
solutions. So, this can be categorized as a success factor as well.
Since Microsoft has changed his release cadence to come with a new version every 6 month (spring
and fall release), they give partners much more work with their IP on top of Microsoft Dynamics
CRM. Partners do not only need to validate each time the impact for their own solution, but they
need to validate if everything still works fine, since Microsoft only supports one major release
backwards compatibility. Therefor partners were asked if they can keep up with the speed of new
releases, and how much delay they have with their own releases. It seems that Top Performers need
the most time, what can be explained by the size of the source code they added to Microsoft
Dynamics CRM (on average 2,5 months after GA of Microsoft’s products), while Average Performers
need only 1,3 months. The total average over all partners is 2 months. This means that most
partners make good usage of the beta programs Microsoft launches before the GA dates.
Now that Microsoft launched the new Dynamics 365 platform, it was interesting to know if partners
already included other products in their offering next to CRM, because that will also complicate the
release follow up.
It is very clear that Top Performers invest more in a
richer platform that the others, including Office 365
and the Azure platform. Microsoft Enterprise Mobility
(EMS) and AX7 (a Microsoft ERP solution) were
mentioned as well, but almost nobody is integrating
those in their packaged solutions.
It’s also clear that almost all partners understood that
the Cloud is the future, which gets confirmed with over 90% of all partners supporting CRM Online
with their solution. However, still 9,5% of all partners did not understand this, and only support On-
premises CRM. It’s also remarkable that all the partners that do not support Cloud, are in the Low
47 www.prodware.fr 48 http://www.crm-appstore.com/main
Figure 24: Additional products next to CRM
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Performers profitability category. In the Top Performers category, 85% supports both models, and
only 15% goes for only Cloud.
Since most of the Top Performers exist for many years, they also support the most Microsoft
Dynamics CRM Versions with their products. Some Top Performers still give support for CRM 3.0,
while Microsoft’s support policy is for 5 years after GA date of the CRM version. Average and Low
Performers do not give support for CRM 3.0 and 4.0, but they only start supporting customers from
CRM 2011, although this version is since 12/07/2016 no longer supported by Microsoft. So, partners
are servicing their customers better than Microsoft does. This also means that upgrading from one
version to a newer version is costlier and more time consuming than it should be, since it still blocks
customers from doing it. With the Cloud this will change, since there customers only have 1 year
that they can stay on a specific version of CRM Online, since they can skip only one major version49
of the 2 per year. In other words, at any given point a customer must be on the current version (n) or
a version prior (n-1).
Figure 26: Number of CRM versions supported
How many User Interfaces Languages were offered by ISV’s, since Microsoft support 45 different
language packs? It seems that 2.2 languages are the average cross all partners, and 5 is the
maximum, however, here is no correlation to the partner profitability.
2.2.6 Distribution related What’s the preference for setting up a partner channel for ISV’s? Do they use the direct model or the
indirect model, and for the indirect channel do they use CRM certified partners, or industry specific
ones? Any other channels that were overlooked? Only System Integrators, Microsoft and the
AppSource were mentioned.
Since there are so many combinations possible, the top 3 models count only for 50% of all partners.
The most popular model is the combination of Direct sales by the ISV partner and Microsoft
Dynamics CRM certified partners.
The next two most popular ones on the list are the Direct model and the Direct model combined
with Industry Specific partners.
Is going global a must to be successful these days, meaning the partner sells his solution across the
globe? 80% of all ISV partners are selling in their local market and in 1,3 additional continents. It
seems however that Low Performers had much less presence in multiple continents than the Top
and Average performers, so having a bigger market helps to be more profitable, but this is not a
success factor, since the difference is not big enough.
Imagine a partner has set up an indirect channel,
how many partners are finally actively selling his
solution? The answer was on average 84, based
on input from 25 companies. More details are
shown in the table at the right. However, since
not all bigger partners did provide their revenue
49 https://technet.microsoft.com/en-us/library/dn308237.aspx?f=255&MSPPError=-2147217396#BKMK_Policy
Cluster Average of how many versions do you support
1 - Top Performer 3,6
2 - Average Performer 2,8
3 - Low Performer 2,6
Grand Total 3,0
Cluster Average of years in ISV business
1 - Top Performer 8
2 - Average Performer 5
3 - Low Performer 4
Grand Total 6
Figure 27: Number of distribution partners
Figure 25: Years in ISV business
Partnership Average of Distribution Partners
ISV 158
ISV-CSP 5
ISV-VAR 79
ISV-VAR-CSP 42
Grand Total 84
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data, this could not be correlated to the profitability clusters.
Another important question is “How fast can you
grow the channel, or how many months do you
need to recruit a new partner?”. It depends a lot
on the ISV solution itself. Some small add-ons are
sold without even having an active signed Partner
Agreement, and typically represents a portion of
the cost of the Microsoft Dynamics CRM licenses.
It’s once the deal is done that they become an
official partner. This is where ISV partners
answered “less than one month”, since it is just an
administrative process. On the other side,
complete vertical solutions have a different sales
cycle. It takes sometimes 1 year to get a deal
signed, where the ISV solution itself might be more
expensive than the Microsoft Dynamics CRM
licenses. Here the ISV vendor takes up a more
active role in sales and presales, and gets to team
up with a new local prospect partner, speaking the
local language and knowing the local culture and
habits, that only once the deal is signed, get
onboarded officially. Since vertical solutions have a
smaller market, it’s not always easy to have the
same partner sell many deals. On average
onboarding a new partner takes 3,2 months, while
for the Top Performers it is only 2.7 months.
The top 3 support channels that are used for partner support are email, telephone and on-site
support.
Figure 29: Support channels supported by Partners
The 4 less used support channels are also shown in the graph above, which makes sense seen the
associated investment, and the low volume of partners to support. For the “other” support some
Figure 28: Months to recruit a new partner
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mentioned Remote Support via VPN when CRM On-premises is involved or Screen sharing when
CRM Online was chosen.
On the open question “How do you help the partners to become successful and what do you
recommend your partner should do?”, some interesting feedback was returned, including the
following:
- Include consultancy on the processes the solution automates.
- Provide partners with the required readiness in terms of sales, presales and
technical. Try to provide our partners with on-site support for their first sales
engagement with customers to get the confidence in selling our
solutions/products.
- Use the products themselves internally (internal usage rights).
- Assist as much as possible in the first deal.
- Do demonstrations on behalf of partners and for the right opportunity built
bespoke demos. Also provide them with free training and support.
- Full instruction on how to sell the solution, including demos. Proactive follow-up
to monitor pipeline and offer sales support.
- Provide free training and allocate a certain amount of mentoring days for Sales,
pre-sales, and post-sales support to help partners get started. All that plus,
documentation, videos and marketing materials.
- Partner enablement program with training and access to marketing resources and
sales tools.
- Doing together first three presales activities; Doing together fist three Project on
Customer side.
- Intensive training before sales and on-site support after sales.
- Participate to pre-sales activities and recommend partners to bring in various
resources specialized in banking, security, architecture, performance, integration,
migration, etc.
- Full support at all times, presales, installation and configuration, support services.
Online and documents for user adoption and support. Free of charge internal
use copies as well as free demonstration copies, extended customer trials.
Additional customization services to tailor the solution further to an end client’s
requirements.
Once a partner has a new active partner, how many deals is he going to close? The first year is
always special, with more support and own investment, but the average is between 1 and 2 deals
across all partners. For the second year and the average year, 25% of the partners answered “more
than 3”, and the other 75% of the partners has an average of 1,8 deals.
2.2.7 Data to support the business case To define the pricelist for IP, a partner needs some numbers like the average number of users per
deal and the market size with the number of customers.
Microsoft stopped sharing details on number of Microsoft Dynamics CRM
customers, once they were above 40.000 customers worldwide. To get a
feeling on the ISV customer install base, the survey contained this
question: How many clients does your company currently have with your
solution: Without the 2 exceptions with more than 1.000 customers, the
average is 92 customers for each ISV, based on 28 different ISV’s that gave
input for that question.
customers partners total customers
2,5 5 12,5
7,5 4 30
12,5 2 25
22,5 2 45
37,5 6 225
75 2 150
300 7 2100
totals 28 2587,5
average 92
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Microsoft has more than 4 million Microsoft Dynamics CRM users, spread over all their customers.
The survey asked “How many Microsoft Dynamics CRM Users are using your solution?” to get a view
on a typical deal size for an ISV in number of user licenses. Without the 3 exceptions with more than
250.000 users, results were a total of 6.426 users as average per partner, so 67 users as average per
customer deal, which is close to the 100 average from the Microsoft figures (4 million users / 40.000
customer).
Figure 30: Average number of users that use the ISV solution
To calculate the IP revenue, the next question would be “What is the average customer deal size
with your ISV solution(s) for a yearly subscription fee?”, where the average answer was around 16k
$, but it seems that Top Performers have deals that are twice as much, so this is also a success
factor.
Combining the number of users and the average deal size, comparison becomes possible of the ISV
IP license price and the Microsoft Dynamics CRM license price. Top Performers have set their IP price
around 19% of the Microsoft Dynamics CRM license price. However, seen the detailed answers, it
might be that some ISV’s answered the question incorrectly including On-premises revenue, which is
typically higher in the first year, but lower over 5 years’ time.
The discount margin partners give their channel partners on the customer list price is on average
15%. There are almost no differences between the performance clusters, so partners should not give
too much margin to the partner channel. This was also confirmed by Hans Peter Bech in his book
“Building successful Partner Channels”.
What period of investment is needed before a partner gets profitable? More than 1 on 3 partners
are profitable within the first year, and even almost 80% in less than 3 years. Top Performers are
bigger investors, needing more years to recover than the 2 other categories. The partners that
were not yet on their break-even point, were on average only 1,4 years active as ISV. The figures
below give more details.
Users partners total users
50 8 400
300 2 600
750 4 3000
3000 4 12000
12500 7 87500
35000 2 70000
totals 27 173500
average 6426
67average per Customer
Performance Cluster Average number of users Yearly CRM online price ISV Average Yearly dealprice ISV price compared to CRM
Top 192 161 280$ 30 893$ 19%
Average 51 42 840$ 3 333$ 8%
Low 21 17 640$ 13 375$ 76%
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Figure 31: # Years before breakeven Figure 32: # Years before breakeven by
Profitability cluster
Figure 33: # Years in ISV business for those that are not yet breakeven
Let’s focus on finance in more details. In the table below, the product development cost is
represented by “R&D cost” and the Support, Sales & Marketing cost is represented by “S&M cost”.
The table gives a great view on the clusters averages:
Their current growth estimation on IP sales in the current fiscal year, that averaged on 21,9%
compared to the CRM growth Microsoft has forecasted which is even higher (35%-40% growth).
However, Microsoft will realize this growth by adding new user seats at existing and new customers,
but will also use a price increase (around 25%) to get there. They will use the fact that now the
customers must migrate from CRM Online to Dynamics 365, with new license models and related
functions and features. ISV’s will have more difficulties to grow their revenues by changing their IP
pricelist, so they need to focus on keeping existing and adding new users.
This growth % was used to spread the last 3 years’ IP revenue linear over those last 3 years, and 2
additional forecasted years were added on top of it by using extrapolation. A fix % for R&D growth at
8% was used, based on data from Realdolmen, since this was not a question in the survey. This
brought the following insightful graphs:
Figure 34: Profit margin per cluster
Figure 35: Summary over 5 years of cost and benefit per cluster
Row Labels Count of RespondentID
1 34,48%
2 31,03%
3 13,79%
4 3,45%
Breakeven point not yet reached 17,24%
Grand Total 100,00%
Row Labels Count of RespondentID
Average Performer
1 16,67%
2 50,00%
Breakeven point not yet reached 33,33%
Low Performer
1 25,00%
2 50,00%
Breakeven point not yet reached 25,00%
Top Performer
1 14,29%
2 14,29%
3 42,86%
4 14,29%
Breakeven point not yet reached 14,29%
(blank)
1 75,00%
2 12,50%
3 12,50%
Grand Total 100,00%
Row Labels Average of years in ISV business
Breakeven point not yet reached 1,4
Grand Total 1,4
Cluster Profitability % Avg R&D cost Avg S&M cost S&M % of total cost R&D % of total cost Avg total COST Avg Revenue Avg Profit
1 - Top Performer 83,77% $135 714 $63 571 32,39% 67,61% $199 286 $1 671 429 $1 472 143
2 - Average Performer 44,33% $183 333 $79 167 25,42% 74,58% $262 500 $525 000 $262 500
3 - Low Performer -86,25% $331 250 $38 750 28,11% 71,89% $370 000 $275 000 -$95 000
Grand Total 7,73% $223 810 $58 571 28,77% 71,23% $282 381 $811 905 $529 524
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Figure 36: Data per cluster on costs and benefits
An imported remark, this is not Year 1 of the ISV activity, but year 1 represents the current fiscal
year, since most of them are in business for many years.
Some statistics were assembled like the number of CRM consultants that were active. This is
probably accurate since 60 partners provided valuable input for this. Apparently the less people the
better the performance on ISV activity.
Figure 37: # CRM consultants per cluster
Cluster Category YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
R&D cost -41 804 $ -45 149 $ -48 761 $ -52 662 $ -56 875 $
S&M cost -19 582 $ -21 149 $ -22 840 $ -24 668 $ -26 641 $
Revenue 457 344$ 550 780$ 663 304$ 798 817$ 962 015$
Profit 395 958$ 484 482$ 591 703$ 721 488$ 878 500$
Cum. Profit 395 958$ 880 440$ 1 472 143$ 2 193 631$ 3 072 130$
Profit % 87% 88% 89% 90% 91%
R&D cost -56 473 $ -60 991 $ -65 870 $ -71 139 $ -76 830 $
S&M cost -24 386 $ -26 337 $ -28 444 $ -30 719 $ -33 177 $
Revenue 138 556$ 172 266$ 214 178$ 266 288$ 331 076$
Profit 57 697$ 84 939$ 119 865$ 164 429$ 221 068$
Cum. Profit 57 697$ 142 635$ 262 500$ 426 929$ 647 998$
Profit % 42% 49% 56% 62% 67%
R&D cost -102 036 $ -110 199 $ -119 015 $ -128 536 $ -138 819 $
S&M cost -11 936 $ -12 891 $ -13 922 $ -15 036 $ -16 239 $
Revenue 74 584$ 90 530$ 109 886$ 133 379$ 161 896$
Profit -39 388 $ -32 560 $ -23 052 $ -10 193 $ 6 837$
Cum. Profit -39 388 $ -71 948 $ -95 000 $ -105 193 $ -98 356 $
Profit % -53% -36% -21% -8% 4%
Top
Average
Low
Cluster Average of How many consultants are working on MS CRM?
1 - Top Performer 12
2 - Average Performer 22
3 - Low Performer 35
(blank) 27
Grand Total 26
Business case Assumptions
38
3 Business case The main purpose in developing a business case for a project is often to obtain funding for the
financial investment. However, in the context of this thesis and the realization of the business
benefits, the term “business case” has a wider meaning. In addition to providing information to
decide whether to make the financial investment, it should also enable the company to plan and
manage the project to a successful conclusion.
This business case was made for partners having an existing Microsoft Dynamics CRM Services
practice, whom are not yet an ISV, and interested to invest in IP on top of Microsoft Dynamics CRM.
The proposed solutions in the business case will not apply to other types of partners, like Software
companies, whom typically existed before Microsoft Dynamics CRM was launched, that want to get
additional business out of Microsoft Dynamics CRM connectors to their existing IP, like Cincom50 or
Scribe51.
3.1 Assumptions The partner will have
o between 15 and 80 active partners
o 40 customers after three years
o 150 users on average deals
o Recurring revenue per customer of 50k$/year
o IP revenue growth of +/- 50%
Partner margin is 15%
Discount rate is 10%
Tax rate is 33%
Operational cost is 10%
Services will not be taken in to account
3.2 The problem statement Services done right is a great line of business, tremendous margin opportunity and extremely sticky
with the customers. However, it’s a people business, and it has its limitations like every business
model.
Depending on the region, scale, specialization, activities, standards and billability or utilization rate,
the Services Gross Margin related to Microsoft Dynamics CRM will vary a lot, but the margin was
averaged at 28% in the survey.
Seen all the related risks, it seems there is a need for a change, to bring higher margins with
another business model based on monetizing the IP, another business model that can co-exist in the
same company and leverage the CRM knowledge and experience.
3.3 Analysis of the situation The services market can be characterized by low entry barriers. It cannot be ruled out that
intensified future competition could lead to margins falling, making the need for an alternative
income higher. The economic developments and competition may differ per region/country and per
market segment in which the partner is (or will become (more)) active. The ability to compete
successfully depends on several factors, both within and outside his control. These factors include:
success in developing new or enhanced services
50 www.cincom.com 51 www.scribe.com
Business case Analysis of the situation
39
ability to address the needs of the customers
pricing and quality of the services portfolio
ability to attract and retain high quality industry and ICT experts
quality of the customer services
brand recognition and partner image in the market
technology introductions by competitors
If the partner is not able to compete successfully in each of the segments in which he is active, this
may affect his margins, profitability and market share.
The business will be negatively affected if it is not able to anticipate and keep pace with rapid
changes in technology or if growth in the use of technology in business is not as rapid as in the past.
Large international competitors as well as Pan-European players trying to further penetrate local
markets may lead to increased competition, which in turn could lead to higher pressure, both on
margins and profitability.
Should the partner fail to successfully deploy, retain and hire skilled CRM employees, this will
adversely affect his future success.
Personnel is a critical success factor and an important condition for growth. The partner must recruit
highly qualified personnel to fuel growth. In addition, retaining personnel is of great importance. At
present, the demand for persons with the ICT skills of his personnel is again increasing, especially for
CRM SME’s. A shortage of personnel, or a high turnover of personnel, could have a restraining
influence on his growth, just as an excess of unproductive employees could certainly harm his
performance. With a good order book at hand the focus is on hiring people under challenging job
market conditions in the current ‘war for talent’-environment.
While the partner can have several types of contracts, including time-and-material, fixed-price and
contracts with features of both contract types, there are risks associated with these types of
contracts when commitments are made in terms of timing, budget, competences or project
deliverables.
Profitability will suffer if he is not able to maintain his pricing and utilization rates and/or to control
his costs.
Profitability is largely a function of the rates charged for services and the utilization rate, or
chargeability, of professionals. Accordingly, if he is not able to maintain the pricing for services or an
appropriate utilization rate for professionals without corresponding cost reductions, he will not be
able to sustain the profit margin and profitability will suffer.
The rates are affected by several factors, including but not limited to:
Client’s perception of the ability to add value through the services
Competition
Introduction of new services by him or his competitors
Pricing policies of competitors
General economic conditions
The utilization rates are also affected by several factors, including but not limited to:
The speed customers can keep up with change, to avoid slowing down the projects
The quality and price of Microsoft Dynamics CRM
Seasonal trends, primarily because of holiday and summer vacations
Business case Solution options
40
Ability to transition employees from completed projects to new engagements
Ability to forecast demand for services and thereby maintain an appropriate headcount in
the appropriate areas of the workforce
Ability to manage attrition
Effectiveness of sales force
That’s why there is a need for a different source of revenue, next to the CRM services one, that can
complement each other.
Since Services business is achieving relatively consistent revenues, which is also a benefit during
economically unstable times, killing the Services business is not advised, but adding it as a new line
of business next to it, is preferable.
3.4 Solution options
3.4.1 Higher margins Monetizing IP means entering the Software Product market, with a distinct uniqueness that it has
negligible variable costs, meaning that producing additional units comes almost at zero cost. This
cost structure indicates that Software licensing, at least at first glance, is much more profitable than
the Services business. Besides that, Software may be replicated at any time and without any lack of
quality. It can bring 90 to 100% percent profitability (83,77% for the Top Performers in the survey),
with a much higher contribution margin to consulting and maintenance business.
There are also certain characteristics that are relevant only for Software markets. Almost no other
industry shows such immense internationalization. Designed and developed on a global basis,
Software can be distributed via the internet within seconds at almost zero costs.
The profitability of the different business divisions is also of great significance for investors, who are
rather interested in the rate of return than the total turnover.
3.4.2 Higher company valuation Software Vendors are much more valuated than IT Services. Let’s discuss the factors that go into
determining the value of each.
Multiples analysis is one of the oldest methods of analysis. It was well understood in the 1800s and
widely used by U.S. courts during the 20th century, although it has recently declined as Discounted
Cash Flow and more direct market-based methods have become more popular.
KPMG Corporate Finance brings out every two months’ market multiples52 split over 3 domains:
Software Vendors
IT Services
Technology consulting services & engineering
The table below contains the figures from early this year.
52 https://www.kpmg.com/FR/fr/IssuesAndInsights/ArticlesPublications/Documents/01012016-KPMG-CF-Technology-Deal-Industry.pdf
Business case Solution options
41
Figure 38: KPMG Market Multiples - January 2016
This shows us that the Median Enterprise Value/EBIT is
11,9 for Software Vendors
8,6 for IT Services
8,0 for Technology consulting services & engineering
This shows that based on this multiple Software Vendors are 38,3% more valuated than IT Services.
Another popular multiple is EV / Net Sales. Here we see in the latest estimated median figures for
2016
1,6 for Software Vendors
0,8 for IT Services
0,6 for Technology consulting services & engineering
This shows that based on this multiple Software Vendors are 2 times more valuated than IT
Services.
There are ten generally recognized ways to value a software business, although not all will be
appropriate for every company, and a weighting of the various selected methods should be used.
Each of these methods is briefly described in Appendix H - Ways to value a software business.
3.4.3 Different solution options Of course, we cannot review the license and service revenues independently, because the amount of
license revenues and the pricing strategies can have significant influence on the revenues from
services. It might be an attractive option to offer the Software almost for free, and add
complementary services on top of the Software and to generate the whole turnover based on
Services and Maintenance.
Another solution could be to invest more in IP on top of Microsoft Dynamics CRM, and to distribute
this IP cross the globe, to make money from Software Product Sales. This can be done in different
formats:
1. Build a horizontal add-on with a low price compared to Microsoft Dynamics CRM.
This solution has the risk that Microsoft will add the add-on features to his next release,
and put the partner out of business.
2. Build an accelerator for a specific industry or vertical, but sell it “as-is”, without
maintenance and support. This solution does not bring many risks, but not all customers
are in favour of a solution without continuity, it’s less sticky, and it is not easy to
distribute this cross the globe.
Business case Solution options
42
3. Build a starter-pack that can be useful in any CRM project, to have a faster project
delivery for example, and some focus on data quality (data migration, templates,
validation tools for addresses, phone numbers, VAT numbers, etc.). This solution has
the same risk as solution 1 above, but has on top of that already many competitors
worldwide. There is also a limited amount he can charge a customer for this starter-
pack’s value.
4. Build an industry specific add-on, to have a fast GTM, because customers are looking
for shorter project implementation times and ROI’s in less than 1 year. Customers are
also open to pay more money for more value.
Let’s not forget the option to do nothing, and to keep on going with the Services business. Maybe
partnering with another ISV partner that has a vertical solution, could bring a differentiator and
extra services as well.
The survey however shows that it is best to go for only one solution out of the list above.
My personal preference is option 4, Build an industry specific add-on, where a partner can add the
most value to the customer in a specific industry. In the survey, 85% of the Top Performers has
answered “Yes” on the question ”Is your solution(s) focused on a specific vertical or specific
industry?”. This is also the option where you can have the highest Deal Size with typically the
highest number of users per deal, since you will focus on all users, and not just one department. This
way it is bringing the opportunity for bigger revenues on a shorter period. That’s what I have been
working on during the last 5 years, in the Insurance industry, with IP called Travi@ta53 (CRM for
Insurance Carriers). This is also the option Microsoft prefers, since this will help them sell faster
more Microsoft Dynamics CRM licenses, and even more important today, to have faster “active
users” on Microsoft Dynamics CRM, on which they are incentivized these days.
The solution to build an industry specific add-on on top of Microsoft Dynamics CRM is the one that
will be used in this business case. The strategy and goals will be built around this specific industry.
3.4.4 Going global Once the solution is selected, partners can benefit from expanding internationally in the following
ways:
Expand the scale: Grow revenues by addressing more opportunities in larger markets.
Optimize the risk: Reduce risk of local economy decline by addressing growing markets in
other countries.
Build a better product: Improve the product in response to more diverse customer feedback
and competition.
Establish a strong brand: Increase company market value through the ability to address
more opportunities globally.
How should a partner undertake its new market entry and expansion?
It will depend on the complexity of the ISV solution and the associated price, which goes hand in
hand. The graph below indicates where the Business Case is positioned. This means that an Indirect
channel will probably be the best channel strategy for market entry and expansion.
53 www.traviata.eu
Business case Solution options
43
Figure 39: What partner channel to use for the business case?
The online channel could be useful in transactional sales (once Microsoft offers e-commerce for
ISV’s), but that will be limited to “simple” solutions, that are intuitive and not too complex.
Once a partner enters the vertical solution market, depending on the industry, his solution will
become much more complex. Some solutions will be too complex to be sold through an indirect
channel, seen the high investment that would be needed to have a partner fully trained, and the
typical long lead time to close a deal. In the table below the 2 models are compared with positive
and negative points for each, but the Indirect Channel is used the most, since the Direct model
needs a big investment, once you go global.
Figure 40: Pros and cons of direct versus Indirect channel
To complete the business case, let’s calculate what this cost would be, by using these assumptions:
The average deal size is 50.000$ for the ISV solution. To simplify the calculation, recurring revenues
are not taken into account, and there is no direct sales done in the indirect sales model (while in
practice most of the times there is a combination)
In the direct case, there are 3 solutions sales, working on selling the ISV solution. They should each
close 6 to 7 new deals per year, so the whole sales team should sign up 20 new customers. That
makes a 1 million $ sales target for the direct sales model.
In the Indirect case, there are 15 active partners that sell the same ISV solution, and they get 15%
discount margin on the list price. That means the partner gets 85% of the total sales revenue they do
all together. As seen in the survey, they can close 2 deals per year. That makes a total of 1.5 million $
sales target for the indirect sales model.
Concerning the team and their related costs, there will be a difference as well, as indicated in the
table below:
FOR AGAINST FOR AGAINST
Committed and focused resources High infrastructure costs More opportunities addressed Challenge to maintain focus
Quality of sales and support High sales, marketing, support costs Low infrastructure costs Lower margins
No margin split Fewer opportunities addressed Low sales, marketing, support costs Higher training requirements
Full control of actions Better leverage of local relationships
Direct Indirect
Business case Project description
44
Figure 41: Detailed costs for Direct and Indirect Channels for the Business Case
Next to the team, there is also a difference in marketing costs.
With all these figures, let’s now calculate the ROI (Return on Investment) of both models, to see that
the Indirect channel is much better with 106% ROI compared to 32% in the Direct case.
Figure 42: ROI calculation for Direct and Indirect Channel
So, in the Business Case in paragraph 3.6.2, the figures from above will be used. They correspond to
the Year three figures, because that’s when the customer references exist, to be able to accelerate
the sales.
In Appendix F – Forecasted ROI on own IP at Realdolmen, another model can be looked at where the
calculation goes more in detail with more parameters involved.
3.5 Project description Starting a new project is easy, but finishing on time within budget is never easy in IT, because change
is the only constant. Below you see a high-level view on my business case and the breakeven point,
that can be improved by reducing some costs, and accelerating and increasing some gains.
Internal research and development costs Yearly salary cost
- Team Manager 50% 100 000,00$ 50 000,00$
- Product Manager 30% 100 000,00$ 30 000,00$
- Scrum Master 20% 100 000,00$ 20 000,00$
- Business Analyst 50% 100 000,00$ 50 000,00$
- Functional Consultant 50% 100 000,00$ 50 000,00$
- Technical Consultant 100% 100 000,00$ 100 000,00$
- Channel Manager 0% 100 000,00$ -$
- Pre-Sales Consultant 20% 100 000,00$ 20 000,00$
- Back-Office Manager 30% 80 000,00$ 24 000,00$
- Support Follow Up 20% 80 000,00$ 16 000,00$
- Partner Support 0% 100 000,00$ -$
- Technical Assistant 0% 100 000,00$ -$
- Product Trainer 0% 100 000,00$ -$
- Project Manager 20% 100 000,00$ 20 000,00$
- Marketing Manager 40% 100 000,00$ 40 000,00$
- Solution Sales (for direct sales) 300% 100 000,00$ 300 000,00$
Total FTE budget 720 000,00$
Direct Team
Internal research and development costs Yearly salary cost
- Team Manager 50% 100 000,00$ 50 000,00$
- Product Manager 30% 100 000,00$ 30 000,00$
- Scrum Master 20% 100 000,00$ 20 000,00$
- Business Analyst 50% 100 000,00$ 50 000,00$
- Functional Consultant 50% 100 000,00$ 50 000,00$
- Technical Consultant 100% 100 000,00$ 100 000,00$
- Channel Manager 70% 100 000,00$ 70 000,00$
- Pre-Sales Consultant 20% 100 000,00$ 20 000,00$
- Back-Office Manager 30% 80 000,00$ 24 000,00$
- Support Follow Up 20% 80 000,00$ 16 000,00$
- Partner Support 30% 100 000,00$ 30 000,00$
- Technical Assistant 20% 100 000,00$ 20 000,00$
- Product Trainer 20% 100 000,00$ 20 000,00$
- Project Manager 20% 100 000,00$ 20 000,00$
- Marketing Manager 40% 100 000,00$ 40 000,00$
- Solution Sales (for direct sales) 0% 100 000,00$ -$
Total FTE budget 560 000,00$
Indirect Sales related team
Item Per year Item Per year
Software License Value/Deal $ 50 000,00 Software License Value/Sale $ 50 000,00
Number of Partners 15,00
Number of Sales/partner 2,00
Income Per year Income Per year
Number of Deals/Year 20,00 Number of Deals/Year 30,00
Revenue from Deals/Year 1 000 000,00$ Partner Revenue from Deals/Year 1 500 000,00$
Margin from Sales (@100%) 1 000 000,00$ Margin from Sales (@85%) 1 275 000,00$
Net income from Licenses $ 1 000 000,00 Net income from Licenses $ 1 275 000,00
Expenses Per year Expenses Per year
FTE's 720 000,00$ FTE's 560 000,00$
Travelling budget 15 000,00$ Travelling budget 15 000,00$
Marketing budget 15 000,00$ Marketing budget 35 000,00$
Renting Microsoft Azure features like
storage, virtual machines, SQL, ... 10 000,00$
Renting Microsoft Azure features like
storage, virtual machines, SQL, ... 10 000,00$
Total Expenses $ 760 000,00 Total Expenses $ 620 000,00
Net Income $ 240 000,00 Net Income $ 655 000,00
profitability 24% profitability 44%
ROI 32% ROI 106%
Direct Indirect
ISV Solution, 3 people in Sales Team ISV Solution, 12 partners engaged
Business case Project description
45
Figure 43: High level view on the business case
A high-level timeline of the first 3 years can be seen in the picture below, which will be explained in
more details later.
Figure 44: High level project timeline
3.5.1 Step 1: build the MVP54, with direct sales in the local market The assumption is that the VAR partner who wants to start an ISV business is not a new partner in
the CRM space, otherwise this approach will not work, and other methods are needed.
The partner should list all his prospects and customers where the company was involved in a
Microsoft Dynamics CRM project during the last 10 years, or since the start if less. Assign a 2-level
vertical market to them, for example main vertical market segment is “Financial Services”, and Sub
segment can be “Insurance”, or “Banking”. Than sort the list to see in what vertical market there is
54 Minimum Viable Product
Business case Project description
46
the most experience. Check on AppSource if other solutions are available for this industry, and ask
Microsoft for strategic advice.
For the top 3, try to answer these questions:
- Who are the competitors for this market on a local and global scale?
- Is it a healthy market that has money to invest in an industry specific CRM system?
- Is Microsoft investing in this market?
- How big is this market (local and global scale) and what is the average number of
users?
Give a score and a weight for each question, do the calculation, and the selected vertical market can
be chosen.
The partner must have a clear understanding of total addressable market, and how to get to this
market, before he defines his Go-To-Market strategy. “The addressable market must be big enough
to create a revenue of at least $50M” was the advice from John Gravely, serial ISV entrepreneur
around Microsoft Dynamics CRM, and currently founder and CEO at ClickDimensions55, the
worldwide leader in Email Marketing & Marketing Automation for Microsoft Dynamics CRM.
It’s also good to get a clear understanding of all competitive alternatives, so this can be used in
building the 7 Ps of marketing (Product, Price, Promotion, Place, Packaging, Positioning and People).
The next step is to make an inventory of all the different functions and features grouped in areas,
and list all the prospects (from RFP’s) and customers (from the project info) that are included in this
vertical market. For each cell, give a high-level description of this functionality, and indicate if this
was used or not by the customer/prospect.
Several sources probably exist to support the definition of a business vision for the selected market.
They typically provide general market tendencies that the partner can try to match with his offering.
At Realdolmen the selected market was Insurance, and the World Insurance Report56 was used as a
big source of inspiration, next to the Microsoft website about Insurance57.
The partner should check if teaming with other ISV solutions (eventually with white labelling) is a
good option to deliver more value to the selected market. Make sure the solution is focused on
“Cloud and Mobile first”, meaning that R&D is done on the CRM Online platform together with the
Azure framework and Office 365, and as a second step the solution gets ported to work on CRM On-
premises. He should start with English as CRM base language, and add at least one other language,
to test the translation concept and show the multi-language capabilities.
Follow all Microsoft guidelines, so that the solution can be pushed on the
AppSource later. Don’t invest in the platform only, but assure that enough
industry specific value gets added on top of the Microsoft Dynamics CRM platform.
The partner should finally come to an undeniable value proposition for the chosen market, with a
unique differentiator with a reasonable barrier to entry.
The partner should make a prioritization for the modules to develop, and start doing the first
estimations for the project scope and the team resources. Once estimations are done, the
milestones can be fixed, and the budget can be approved by top management.
55 www.clickdimensions.com 56 https://www.worldinsurancereport.com/ 57 https://enterprise.microsoft.com/en-us/industries/insurance/
Business case Project description
47
It’s good to start with a small team of three people, each one covering many roles like in a startup:
Figure 45: The starting profiles and their roles
Here the role description for all fifteen different roles a partner will need one way or another:
Figure 46: Role description
Than the partner should build a MVP (Minimum Viable Product), achievable by one developer or
Technical Consultant (free up the best resource to do this, even though this will cost more) in less
than 6 months, and start piloting with this MVP in the local market. He should not forget to extend
the standard CRM database model for the vertical market, so that this can be used as a foundation
for all other modules. The partner will also need to invest some time in building the license key
mechanism, to protect his source code and IP.
Build an internal database with prospects in the selected industry and start the marketing machine.
Use local people to sell the product based on a “Solution selling58” methodology, like SPIN, Miller
Heiman or SPI.
Once this product becomes the winner in the local market, build marketing materials and get the
solution on AppSource.
Since the option to go vertical was selected, adding enough additional value for that specific industry
is needed to make the customer pay a high enough price, to be able to reach one day that 50 million
$ potential.
58 https://en.wikipedia.org/wiki/Solution_selling
1. Pre-sales Consultant 2. Technical Consultant 3. CRM Solution Manager
- Analyst - Technical Consultant - Team Management
- Functional Consultant - Technical Assistance - Product Owner
- Pre-Sales Consultant - Scrum Master
- Product Trainer - Analyst
- Channel Manager
- Solution Manager
- Back-Office Manager
- Follow Up Support
- Project Manager
Business case Project description
48
The goal for year one is set at 200k$ revenue for own licenses in this business case, showing this is a
foundation of a real vertical solution.
Maybe it will take a bit longer than exactly one year, but if after 18 months from the start the
partner is not able to sell the vertical solution he has built to get at least 200k $ revenues for his IP,
he should stop the project and take his losses.
3.5.2 Step 2: Extra modules, setup distribution channel Once the partner has his first customers, they will ask for some functions
and features that were not yet developed as part of the MVP or first
module. That brings the opportunity to get some sponsoring from
customers to co-create the next modules. The partner should keep the ownership of the IP, but
negotiate nice deals around it, where the customer gets benefits in the future for example.
Now that the partner has shown some success, and has some references, he can define his
partnering strategy, and setup the distribution channel for outside his local market. The partner
should not forget to ask specific support from Microsoft, since they have people that are specialized
in ISV’s.
It’s also a good practice to contact an IP Escrow agent now, to negotiate a contract with them, as
discussed in paragraph 1.5 ”What is IP for a Microsoft Dynamics CRM partner?”.
Based on the presence on AppSource and the network with Microsoft and other partners, some
partners from other areas will come automatically to the ISV partner with some opportunities in
their vertical domain.
They will ask for a Partner Agreement, that includes the pricing and margins. So, it’s time for the
partner to connect with his legal department or an external lawyer.
Some of these deals will make the partner realize that he does not speak that local language, and
that he misses the knowledge of the local culture in that area to close the deal. Some other deals will
be done in plain English, and could be done in a direct sales mode as well, where the partner just
needed the lead passed on.
The partner will also feel the pain of doing all by himself, now that he does not have enough
materials to support his partner to do a part of the sales and pre-sales process. This is the moment
where the partner will typically scale up the team to be able to focus on the indirect distribution
channel as well. Some extra time was added in the business case for the following roles to go from
3,4 FTE in year one to 4,25 FTE in year two: Team Manager, Product Manager, Scrum Master,
Channel Manager, Back-Office Manager, Support Follow Up, Partner Support, Technical Assistant,
Product Trainer and Marketing Manager.
There are multiple approaches to setup a distribution channel, as seen in the survey, but in the
Business case, the partner starts with certified Microsoft Dynamics CRM Partners to get the first
deals done, and preferable only Gold certified levels, so he does not spend his valuable time on
selling the standard CRM features.
The partner should make sure he has some “extra budget” on top of the approved project budget, to
achieve profitability without an obliged outside investment (mainly through investors).
It’s also a good moment for the partner to re-estimate some unit economics like CAC (Customer
Acquisition Cost), customer retention, ARPU (Average Revenue Per User (sometimes known as
average revenue per unit)), Average Deal Size, Partner onboarding time, from lead to deal period,
etc. to re-do the maths and see how many partners are needed to reach the targets.
Business case Project description
49
The partner should not forget to check for R&D grants as well, since these might exist in many forms,
depending on the country of residence:
Pay people for the IP they create and pay less taxes on salaries.
Define an innovative development project, and get up to 50% of the investment back.
Get grants for foreign event participation.
It’s also key for the partner to spend enough time with his existing customers, to learn how they use
the solution, and to keep them happy and good references. Starting a User-group to come with new
ideas is also a common practice.
At the end of Year two, the partner should come to a breakeven point, just as the Top Performers
are doing. So, in the business case, this means the partner should be able to sell for 600k$ licenses
revenue.
3.5.3 Step 3: Go global, and scale fast The first focus should still be on reaching the breakeven point (if not yet
reached in step two). Since only from then on, the partner is making
profits after all the time and risks that his company took once top
management approved the project.
Now the time has come to extend the team again, and to become more scalable. While the partner
still can do some direct sales in some areas, he should build out a good active indirect distribution
channel, covering the whole world, but step by step, with well-chosen priorities.
The schema below shows the ecosystem around IP at Realdolmen, to sell the Travi@ta IP worldwide
to insurance companies via an indirect channel:
Figure 47: Realdolmen's IP ecosystem
Business case Project description
50
To be able to execute all roles in the schema above, growing to a full CRM Product Development
Unit of 6 FTE will be needed, that gets connected to Support Services, delivered by other divisions of
the partner’s company:
Figure 48: CRM product Development Unit
A complete detailed view on the team and their estimated efforts is listed below:
Figure 49: The Realdolmen resource allocation
During the project execution, some risks will appear. One of the biggest risks is that the “IP team”
will become also the “implementation team”, once the partner has sold licenses to some customers.
That would kill the project progress and business case. The first customers and prospects will ask
Business case Cost-benefit analysis
51
that the best people will work on their project, since the partner does not have enough proof that
his product is easy to install, configure etc. The best measure to take here, is to define well in
advance who is going to implement the project. This could also be done by an external service
partner, if the partners own CRM implementation team is not able or willing to offer this
(international) service.
After year 3, or when the partner has a few successful years down the road, he can think of opening
offices in other continents as a local hub to support the local partners even more.
3.6 Cost-benefit analysis In a traditional way, the costs are presented first, and then the benefits, hence the origin of the term
Cost-Benefit analysis. But to argue the value of a project, it’s better to focus first on the benefits,
developing the “value” side, and only if they seem beneficial enough proving that the project has
any prospect of being funded, invest time in building the full business case. That’s the order in the
next paragraphs.
3.6.1 Benefits The first statements in the business case should be clear about the business drivers that mean
change is essential, and how the achievement of the objectives of the investment will address those
drivers. Then, the benefits expected to arise from achievement of each of the objectives can be
classified in terms of the main type of change that will be needed to realize it.
Drivers for investment:
- Improve customer retention (stickiness) and increase market share in other
regions
- The need for more recurring revenue
- The desire to achieve more sales from existing IP
Main objectives:
- Improve profitability margins
- To be less dependent on the war for CRM talent
Benefits associated with these objectives included:
Figure 50: Benefits of the business case
Let’s go over all the 15 benefits in the figure above in some more details:
B1) Less CRM people needed: release 1 FTE staff, cost savings 80.000$ p.a.
Degree of Explicitness Do New Things Do Things Better Stop Doing Things
Financial
B5) New inome for IP licensing:
year 1 - 200.000$
year 2 - 600.000$
year 3 - 1.000.000$
year 4 - 1.500.000$
year 5 - 2.000.000$
B1) Less CRM people needed: release 1 FTE staff,
cost savings 80.000$ p.a.
QuantifiableB6) Higher Enterprise Value (shareprise should go up when public company)
B7) Increase market share in other regions
B8) Recurring revenue
B2) Reduction in bad debts: reduced payment write-
offs: 20.000$ p.a.
B3) Eliminating invoice follow-up, since payment is
needed before license key gets delivered
No project overruns, with unexpected costs: release
0,25 FTE, cost savings 20.000$ p.a.
Measurable
B9) Lower attrition rate of team members, since part of a small dedicated
team
B10) Opportunity for home office, and flexible hours
B4) Less need to “connect” with the local company in
all his aspects since new markets are addressed and
less need for cross and up sell
Observable
B11) Improved customer satisfaction and retention
B12) Improved relationship with Microsoft
B13) Less sales staff frustration, since there is always room to sell Software,
while for Services you needed the people to implement it
B14) Less stress since last month can make things up for the year
B15) Higher quality output (IP is more
replicable than projects)
Business case Cost-benefit analysis
52
For a Services Company, one full time recruiter should be able to hire at least one
experienced CRM consultant per month. Depending on the attrition rate, and based on the
35% growth rate in Microsoft Dynamics CRM license deals, 1 FTE is no overkill for a large
CRM services department.
So, for a Product team of 3 to 6 people, there is no need to have one FTE recruiter, since
attrition will be lower, and less people need to be recruited.
However, this saving is not considered in the calculation, to be not too optimistic.
B2) Reduction in bad debts: reduced payment write-offs: 20.000$ p.a.
Since payment is normally needed before permanent license keys gets delivered, there is
much less administrative work to follow up bad debts. Again, this saving is not considered in
the calculation, to be not too optimistic.
B3) No project overruns, with unexpected costs: release 0,25 FTE, cost savings 20.000$ p.a.
Since no projects are done with the CRM team that gets to focus on IP now, there will be
less overruns. This saving is not considered in the calculation, to be not too optimistic.
B4) Less need to “connect” with the local company in all his aspects since new markets are
addressed and less need for cross and up sell.
B5) New income for IP licensing:
Figure 51: Business case license revenue growth
Without any historical data, it is very difficult to forecast the future. However, this cannot be
compared with the growth rate from the survey, where the average was around 25%, while this
figure will be higher because some partners answered “> 50%” what got translated to 50 in the
calculation, and here we start from zero as well.
The best way to come to an estimation is to refer to other cases, like the one from VeriPark:
The financial benefits are used in the business case calculation.
B6) Higher Enterprise Value (share price should go up when public company)
Business case Cost-benefit analysis
53
Since Software Companies are higher valuated than Services companies, this will have a
positive effect.
B7) Increase market share in other regions
B8) Recurring revenue
Since most of the licence deals will be in the cloud, there is a recurring character embedded.
B9) Lower attrition rate of team members, since part of a small dedicated team
B10) Opportunity for home office, and flexible hours
B11) Improved customer satisfaction and retention
B12) Improved relationship with Microsoft
B13) Less sales staff frustration, since there is always room to sell Software, while for Services
the people are needed to implement it
B14) Less stress since last month can make things up for the year
B15) Higher quality output (IP is more replicable than projects)
3.6.2 Costs There are different categories of costs to consider, some are one-off costs, to start the project, and
other are recurring costs. The costs can also vary over time, since the duration of this kind of
projects is quite long.
The cost for specific CRM internal resources are calculated by using a daily charge-out rate,
assuming there are 200 working days a year. The quantity % total be the number of FTE’s, so in year
5 there are 6,1 FTE’s working on this project. Since this is the biggest cost, a detailed overview was
made of all the resources needed, and the % of their time they are needed per year. The following
different profiles are used: Team Manager, Product Manager, Scrum Master, Business Analyst,
Functional Consultant, Technical Consultant, Channel Manager, Pre-Sales Consultant, Back-Office
Manager, Support Follow Up, Partner Support, Technical Assistant, Product Trainer, Project Manager
and Marketing Manager. The cost was fixed at 500$/day for all resources except for the Back-Office
Manager and the Support Follow 400$/day was used.
An additional operating cost of 10% of the Gross Income (is equal to Revenue minus FTE costs) was
added, except for the first year where 10K$ was fixed as a default cost since there is a negative Gross
Income. The model was simplified and there is no Tax in the first year because of the same reason,
while the benefits in the years after to reduce Tax were not used. Tax rate was fixed at 33% and the
Discount rate at 10%.
Only infrastructure costs that are exclusively used for the project are considered, so workstation
costs for example are included in daily charge-out cost.
Costs of carrying out the Business changes are in this case not included, since considered as
business as usual.
On-going costs associated with the operation of the project are in this case more travelling for sales
and channel management and more marketing costs for event participation and sponsoring.
A timeline of 5 years was used, since most ISV’s have a breakeven point in much less than 5 years.
Business case Sensitivity analysis
54
3.6.3 Financial project return A financial return for this project can be calculated by looking at the financial benefits and compare
these to the project costs.
There are different methods that can be used to evaluate the project investment.
The Payback Period method is biased against long term project, like R&D projects, so this will not be
used. It tells something about the liquidity and risk, but not about its profitability. It is useful if a
partner is suffering from liquidity problems, but should be used as an addition to the NPV (net
present value) method.
In the calculation example below only the “financial” benefits from the “Do New Things” from
paragraph 3.6.1 “Benefits” are used.
As shown in the model below, the NPV is around 900k$, so that looks very promising.
The IRR (Internal Rate of Return) is also very high with 102%.
The PI (Profitability Index) is with 46,01 also very high, because of the small initial investment of
20k$, but does not bring any value here.
Figure 52: The model to calculate the financial benefits return for the project
3.7 Sensitivity analysis A simplified model was made of the one above with the same numbers in Microsoft Excel, and
recalculated the NPV and IRR, based on the 5 years cost-benefits info from above. By using Oracle
Crystal Ball59, the probability distributions were created, which described the uncertainty
surrounding specific input variables like Gross revenue from IP license sales and FTE’s cost of those
that are working exclusively for the IP team.
59 http://docs.oracle.com/cd/E52437_01/en/crystal_ball_users_guide/frameset.htm?index.html
Discount Rate 10%
Operating Costs 10%
Taxes 33%
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Recurring costs
Internal development costs Quantity Quantity Quantity Quantity Quantity Yearly salary cost
- Team Manager 10 000$ 10% 20 000$ 20% 50 000$ 50% 50 000$ 50% 50 000$ 50% 100 000$
- Product Manager 10 000$ 10% 20 000$ 20% 30 000$ 30% 30 000$ 30% 30 000$ 30% 100 000$
- Scrum Master 10 000$ 10% 20 000$ 20% 20 000$ 20% 20 000$ 20% 20 000$ 20% 100 000$
- Business Analyst 40 000$ 40% 40 000$ 40% 50 000$ 50% 50 000$ 50% 50 000$ 50% 100 000$
- Functional Consultant 40 000$ 40% 40 000$ 40% 50 000$ 50% 50 000$ 50% 50 000$ 50% 100 000$
- Technical Consultant 100 000$ 100% 100 000$ 100% 100 000$ 100% 100 000$ 100% 100 000$ 100% 100 000$
- Channel Manager 20 000$ 20% 40 000$ 40% 70 000$ 70% 100 000$ 100% 100 000$ 100% 100 000$
- Pre-Sales Consultant 20 000$ 20% 20 000$ 20% 20 000$ 20% 20 000$ 20% 20 000$ 20% 100 000$
- Back-Office Manager 8 000$ 10% 12 000$ 15% 24 000$ 30% 24 000$ 30% 24 000$ 30% 80 000$
- Support Follow Up 8 000$ 10% 12 000$ 15% 16 000$ 20% 16 000$ 20% 16 000$ 20% 80 000$
- Partner Support 10 000$ 10% 15 000$ 15% 30 000$ 30% 30 000$ 30% 30 000$ 30% 100 000$
- Technical Assistant 10 000$ 10% 15 000$ 15% 20 000$ 20% 20 000$ 20% 20 000$ 20% 100 000$
- Product Trainer 10 000$ 10% 15 000$ 15% 20 000$ 20% 20 000$ 20% 20 000$ 20% 100 000$
- Project Manager 20 000$ 20% 20 000$ 20% 20 000$ 20% 20 000$ 20% 20 000$ 20% 100 000$
- Marketing Manager 20 000$ 20% 30 000$ 30% 40 000$ 40% 40 000$ 40% 50 000$ 50% 100 000$
Travelling budget 5 000$ 10 000$ 15 000$ 15 000$ 20 000$
Marketing budget 5 000$ 20 000$ 35 000$ 50 000$ 75 000$
Renting Microsoft Azure features like storage, virtual machines, SQL, ... 10 000$ 10 000$ 10 000$ 10 000$ 10 000$
Total recurring cost 356 000$ 340% 459 000$ 425% 620 000$ 570% 665 000$ 600% 705 000$ 610%
Revenue from License sales 200 000$ 600 000$ 1 000 000$ 1 500 000$ 2 000 000$
Gross Income -156 000 $ 141 000$ 380 000$ 835 000$ 1 295 000$
Operating Cost (10% of Gross Income) 10 000$ 14 100$ 38 000$ 83 500$ 129 500$
Net Income Before Taxes -166 000 $ 126 900$ 342 000$ 751 500$ 1 165 500$
Taxes -$ 41 877$ 112 860$ 247 995$ 384 615$
Initial investment (one-off cost) 20 000,00$
Purchase Hardware and Software (devices for testing, test-software, etc..) 10 000,00$
External consultancy for specific short term advise 10 000,00$
Net Income -20 000,00 $ -166 000 $ 85 023$ 229 140$ 503 505$ 780 885$
NPV 900 283$ > 0
IRR 102% > 10%
PI 46,01 > 1
Business case Sensitivity analysis
55
Figure 53: The Crystal Ball Model
The model includes 10 probability distributions, referred to in Crystal Ball as "assumptions", shown
in light green. Five assumptions describe the uncertainty around the annual Cost of the team, based
on the number of FTE that were foreseen, and five others describe the uncertainty around the
License units sold.
Figure 54: Assumptions in the Crystal Ball model
The model also includes seven Crystal Ball “forecasts”, shown in light blue in the model. Forecasts
are equations, or outputs, that you want to analyze after a simulation. Analyzing the NPV and IRR,
Business case Sensitivity analysis
56
and the Net Income for each year was the goal. Below you can see the Forecast Charts, which are
histograms of the simulated values.
Figure 55: Forecasts in the Crystal Ball model
To view which of the assumptions had the greatest impact on the IRR and on NPV, sensitivity charts
were created. There are 3 assumptions that affect the IRR the most:
Business case Risk assessment
57
- FTE’s cost Year 1 (most dominant with 38,5%)
- Revenue Year 1 (second most dominant with 32,9%)
- Revenue Year 2 (third most dominant with 16,8%)
This is showing that a good start is very important to get to the IRR.
When looking at the sensitivity results for the NPV, it can be seen that the Revenue from the last
years are the assumptions that affect NPV most, because the last good years must make up for the
first bad years.
Figure 56: Sensitivity charts
3.8 Risk assessment Apart from some obvious factors that increase risk, such as project scale, duration and technical or
business complexity, there are often organizational contextual issues that can create specific risks
for certain projects at particular times.
The following risks are identified that could prevent the realization of all or some of the benefits and
need to be addressed in the approach to managing the project. Initial actions to address or mitigate
the risks should have been identified and a risk review agenda item established for each project
management meeting.
- Technical risks: complexity of the chosen technologies and suppliers, and their
ability to deliver the functionality, security and performance required. Whether
the organization had the internal knowledge, skills and required infrastructure,
and is using the most appropriate process to implement the technology, must also
be considered. Most Project Management methodologies use a risk register to
manage these.
- Financial risks: confidence in some elements of the project costs; confidence in
the evidence for some of the benefits; such risks can be estimated by conducting
sensitivity checks on the financial case assuming higher costs and reduced or
delayed benefits.
- Organizational risks: extent of changes to business processes and practices,
number of departments/functions/staff involved; significant organizational
Business case Success factors on how to become a Top Performer
58
changes needed to realize the benefits; limited existing change management
capability.
Below are the detailed risks that were listed for this project.
Figure 57: Risk factors for the business case
3.9 Success factors on how to become a Top Performer Most partners manage their CRM business in their own style, with a mix of passion and devotion,
challenges and stress, headaches and celebrations. Probably most of them (like myself) never made
a business case comparable to the one above for his current business, and some will have bigger
successes than others.
The goal of this chapter is to learn from the best. The Top Performers can give all CRM partners
advice, inspiration, information and knowledge about their habits and behavior, and their secret
ingredients. Where Top Performers have meaningful different survey results compared to other less
successful partners, it can be an immense learning value. The target of most partners is to become a
winner, with more than 75% profitability. So, let’s have a look at some factors that can deliver
success, discovered based on the survey results.
Almost nobody is using government grants for Research and Development. However, 60% of
the partners that use grants are in the Top Performers cluster. I’m convinced based on my
own experience with grants, that there is a huge potential there, but it will ask for a big
investment in time and management attention. So, if a partner is considering to ask for
grants, it’s better to contract an external company to figure it all out for them. Some of them
work also on a no-cure no-pay basis.
Almost everybody is re-using source code from one project to another one, but only 60% is
letting the customer pay for it. It’s remarkable to see that 71% of the Top Performers sell
their reused code.
Customers value something they pay for more than something they get for free, since many
times nobody from the customer realizes that the partner gave them a present free of
charge. Once the partner realize that this revenue is bringing him net profits, he will start to
like this, and apply this more and more, and integrate this even in his offerings.
More than 55% of the partners use their own IP in their CSP offering, while only 34% is using
IP from other suppliers in their CSP bundle, like using Resco60 to extend their offering with
more mobility options. Since 50% of the Top Performers use other ISV’s in their CSP
solution, this seems like a successful formula. It makes no sense to put the energy in
developing something another ISV partner offers for a small amount of money. Try to focus
60 www.resco.net
Technical Risk Factors Financial Risk Factors Business change and organizational risk factors
Complexity of the system functionality Size of the investment Senior management commitment to the project
Technical novelty Project duration Commitment of resources and knowledge
Number of interfaces
Degree of confidence in all the elements of the
project costs Stability of organizatiob and key staff
Certainty and stability of the business
requirements
Confidence in the evedence for investment
benefits
Extent of changes to business processes and
practices
Technical skills of the project team
Appropriateness of project cost control
mechanism
Number of departments, functions an business
staff involved and affected
Business knowledge of the project team
Reliability of external suppliers' estimates and
enforcebility of contract conditions
Existing change management capabilities and
experience
Degree to which formal methodologies and
standards are adopted Rate of change of the external environment
Infrastructure needed
Degree the system can be prototyped or piloted
Business case Recommendations
59
on delivering more value to the customer, and include in white label (or not) also other
solutions that fit well with the one from the partner. Another good example is a rule engine,
offered by InRule61.
Focusing on delivering only one ISV solution, will be more successful. Looking at the Top
Performers, 57% has only one ISV solution, 14% has 2, 14% has 3 but none of them have
more than 3 different ISV solutions. Realdolmen has built a vertical solution for the
insurance industry based on Microsoft Dynamics CRM, but while doing that, they isolated
some code that could be used in a horizontal market as well. This made them come out with
more than one product, but still very focused on a limited number of solutions that were
related to each other.
Top Performers invest more in a richer platform that the others, including Office 365 and
the Azure platform. One on two Top Performers has already incorporated these
components in the ISV solution package.
85% of the Top Performers support both models: Cloud and On-premises.
Apparently the less people the better the performance on ISV activity. Top Performers
have only 12 CRM consultants on average. Quality is more important than quantity in this
business model.
To calculate the IP revenue, the next question would be “What is the average customer deal
size with your ISV solution(s) for a yearly subscription fee?”, where the average answer was
around 16k $, but it seems that Top Performers have deals that are twice as much, so this is
also categorized as a success factor. Defining the pricelist is very important, but will depend
a lot on the value the partner brings to the customer. Realdolmen made deals between 10k
and 250k, and on average 35k per deal. VeriPark has an even bigger spread of deal minimum
and maximum, but the average deal size will be above 100k$.
3.10 Recommendations It must be said that “doing nothing” was one of the solutions, but in the business case option 4 got
selected, “Build an industry specific add-on” and approved with support from the top management.
Make sure everybody is behind the option selected, since once started, there is no way back, unless
a very costly one. The project should be desirable and bringing value, but is the project also feasible?
Is the partner capable of successfully delivering it?
Never overstate the benefits to get approval for the project. Benefits should be based on a realistic
calculation or referring to other similar business cases.
Since the business case above has a positive NPV of 900k$ and an IRR of 102%, the project should go
ahead, seen the big potential it has. Although looking at the graph below, there should be ways to
improve it.
61 www.inrule.com
Business case Recommendations
60
Figure 58: Profitability margin of the business case compared to the clusters
There are many decisions to be taking during the project lifecycle, and good project management,
including strict cost management will be key.
Some risks are identified that could prevent the realization of all or some of the benefits and need to
be addressed from the start. Initial actions to address or mitigate these risks should have been
identified and a risk review agenda item established for each project management meeting.
Selecting the right industry after making a good analysis is also key. Do not start in a market without
experience in it, since speaking the language of the customer, and solving his typical pains is a must.
The right resources should be made available for a dedicated project team, otherwise it will not take
off. The key person in the first year will be the experienced Microsoft Dynamics CRM developer who
will built the MVP. He/she needs to know all ins and outs of the platform, write a lot of
documentation, be consistent and follow all Microsoft guidelines and stick to the scope. Once his
task is done, the partner need to sell licenses in his local market, so that he becomes a local winner.
Define important milestones in the evaluation stage, and adjust the project while he still can, based
on how he is doing. Stopping the project is hard but might be justified! Cut the losses when needed.
Follow-up gives additional information, checkup between forecast and reality: allow to improve
future analysis by learning.
After 12 to 18 months, the milestone of 200k$ revenue should be reached, otherwise the project
should be stopped, and losses must be taken. In this second step, setting up distribution model will
be the key to become scalable. Listening to the first distribution partners, and learning how to
distribute the work between the ISV partner and his network is very important. Trying to win a deal
without ever speaking or meeting with the customer. This will force the partner to focus on
delivering materials and support to get to this point.
After 24 to 28 months, the partner arrives in step 3, to go global. The reexamination of the project
status will be an important milestone, since by then the breakeven point should be reached. Once
again, if that target is not reachable, consider stopping the project. From this point on, focus on the
channel in a pro-active way should be the focus. Try to build a machine, that sells IP licenses.
Business case Recommendations
61
A good investment comes with a higher future value than its initial price and an investment return
higher than the hurdle rate (cost of capital).
Check the profitability of the sales regularly.
Build on the quick wins, grow the brand reputation and start approaching bigger accounts.
Diversify the sales funnel with a mixture of opportunities.
Remember that the partner is the new entrant. He will require a much higher effort to attract a new
customer compared to a local competitor.
What can partners do to get
o Increased Market Reach: Let the partner give access to more markets, customers and
opportunities by combining his product with other products that he distribution partners sell
and their own industry expertise. Distribution partners can create awareness through their
own sales and marketing channels.
o More Sales and Implementation Capacity: Distribution partners can prospect, win, install
and support many more customers with their own resources than the ISV partner could,
without a large investment in staff and facilities.
o Larger Pipeline: Tap into the distribution partners installed base. Shorter sales cycles with
repeat customers that they have existing relationships with in the selected vertical.
Work hard, have fun and stay focused.
Conclusions
62
4 Conclusions
Customer Relationship Management became a mature concept, but many companies are still
organizational and not customer centric. There is still a lot of work in the coming years.
Microsoft, working via a partner channel, is one of the top 4 players in this $26.3 billion worldwide
CRM market, with his flagship product Dynamics 365, delivering end-to-end intelligent business
applications in the cloud. The CRM market is growing at 12%, but Microsoft is doing better with a
growth around 35%.
Analysts like Gartner and Forrester confirm that Microsoft has a unique market approach, providing
a core of CRM functionality to their customers, and a business application platform that delivers to
customers, Microsoft Partners, and Independent Software Vendors (ISVs) an opportunity to extend
and provide value added solutions. By using these capabilities, a partner can build customized
solutions without having to custom build the foundation.
Microsoft has still a lot to learn from their competitor SalesForce on how to monetize these partner
build applications via e-commerce. Today Microsoft only offers a “click-try” experience via their
AppSource, and asks the partners to deliver the “buy” experience.
Microsoft realizes that since they cover so many different types of customers, and through so many
partner channels, they don’t make it easy for the partners to understand all the details, because of
the different pricing and licensing models, that change almost every year.
It’s not easy for a partner to do business with Microsoft. He needs to be passionate and focused.
Although Microsoft preaches “Mobile and Cloud first”, one of the USP’s of Microsoft stays “the
power of choice”, while his main competitor SalesForce only offers cloud. Most ISV partners still
offer solutions that support both Online and On-premises.
Services done right is a great line of business, tremendous margin opportunity and extremely sticky
with the customers. However, it’s a people business, and it has his limitations like every business
model. Seen all the risks related to it, it seems there is a need for a change, to bring higher margins
with another business model based on monetizing the IP, another business model that can co-exist
in the same company and leverage the CRM knowledge and experience. Another motivator is that
Software Vendors are much more valuated than IT Services.
Some VAR partners implemented CRM multiple times in the same industry, and gathered industry
specific know-how by doing so. These partners are great candidates to scope out IP that can be sold
“as-is”, or this can become the start for an IP based Licensing business, referred to as ISV. There are
many partners that went through this journey with success, and others that failed, since the
ingredients are simple and part of their “comfort zone”, but the formula is complex, including a lot
of risks and demanding for liquidity.
Partners can follow 3 steps to grow to a $50M revenue business with high profitability:
select the vertical market, deliver a lot of value, become a local champion
mature the product, learn from the first channel experiences
go global and scale fast
The future is bright, Dynamics 365 is growing fast, the platform is getting better, some partners start
to see the IP opportunity, and Top Performers are leading the way, like VeriPark does. Don’t miss
this momentum.
Appendixes Appendix A - What CRM Magic Quadrants Does Gartner Offer
63
5 Appendixes
5.1 Appendix A - What CRM Magic Quadrants Does Gartner Offer
To address the informational requirements of decision makers, Gartner has produced a
comprehensive set of Magic Quadrants for reference in evaluations. Following is a list of 18 Magic
Quadrants as they pertain to technologies employed for supporting CRM business strategies.
5.1.1 Marketing 1 "Magic Quadrant for CRM Multichannel Campaign Management" — The level of performance that
multichannel campaigns must attain to engage customers continues to rise. We'll show you the
strengths and weaknesses of providers and how they're adapting to these new demands. IBM, SAS,
Teradata, Oracle and Adobe are leaders.
2 "Magic Quadrant for Marketing Resource Management" — We evaluate vendors providing
applications that support the management of marketing resources, such as plans, people, budgets,
projects, tasks, assets and cycle times. Teradata, Infor, SAS, SAP, IBM and BrandMaker are leaders.
3 "Magic Quadrant for Integrated Marketing Management" — We evaluate vendors that provide
applications that integrate executional, operational and analytical marketing processes. Companies
seeking a solution that integrates campaign management, marketing resource management and
analytics should review this research. IBM, SAS, Teradata and SAP are leaders.
4 "Magic Quadrant for Digital Marketing Hubs" — CMOs and digital marketing leaders are under
pressure to engage individuals on increasingly fragmented and unpredictable terms, driving the need
for a common pool of profile data, analytics, workflow and content resources enabled by a digital
marketing hub. Adobe, Salesforce and Oracle are leaders.
5.1.2 Sales 5 "Magic Quadrant for Sales Force Automation" — Sales application managers will find that
improvements in the viability of SAP and Oracle cloud offerings underscore the evolution of
traditional On-premises vendors to SaaS. Salesforce and Microsoft Dynamics CRM are Leaders.
6 "Magic Quadrant for CRM Lead Management" — Investment in lead management continues to be
healthy, but market consolidation has lengthened evaluation and sales cycles. Leaders in marketing
and IT need to assess vendors' visions of a single marketing automation suite against their own
tactical and strategic business requirements. Oracle and Marketo are Leaders.
7 "MarketScope for Configure, Price and Quote Application Suites" — The CPQ market has moved
beyond supporting traditional sales configuration to support self-service, e-commerce, contact
center and partner channels. Sales leaders should know the key CPQ application vendors, including
best-of-breed and enterprise application suite vendors, and what they now offer. The highest rated
vendors on the MarketScope were Big Machines (now Oracle), IBM, Oracle E-Business Suite, Oracle
Siebel and SAP.
8 "Magic Quadrant for Sales Performance Management" — Sales performance management (SPM)
vendors had several notable accomplishments in the last year, as evidenced by clients' successes
with incentive compensation, training and onboarding processes. However, IT leaders who plan to
invest in SPM should still temper expectations and plan for a long-term path to productivity.
CallidusCloud, Xactly and IBM are leaders.
Appendixes Appendix A - What CRM Magic Quadrants Does Gartner Offer
64
5.1.3 Customer Service 9 "Magic Quadrant for the CRM Customer Engagement Center" — This Magic Quadrant reflects the
slow emergence of globally scalable, consumer-facing customer support applications in a
multitenant cloud model. Consequently, many CIOs will favor an emphasis on CRM applications and
projects for self-service, mobile, social engagement and real-time analytics. Salesforce, Pegasystems,
Microsoft and Oracle (Service Cloud) are Leaders.
10 "Magic Quadrant for Customer Engagement Center Workforce Optimization" — The two
established Leaders still dominate the market overall, but increasing pressure is being applied by the
up-and coming contact center infrastructure (CCI) vendors that are gaining mind share due to their
broader value proposition. Analytics is now integral to most new workforce optimization (WFO)
investments. Verint Systems and Nice Systems are the Leaders.
11 "Magic Quadrant for Contact Center Infrastructure" — As the contact center infrastructure
market continues to consolidate, some lesser-known offerings may warrant strong consideration.
Companies should evaluate vendors' technology and ability to deliver in relevant regions. Avaya,
Cisco, Genesys and Interactive Intelligence are Leaders.
12 "Magic Quadrant for Field Service Management" — The field service management market
continues to evolve and mature in response to new technology developments in the areas of SaaS
and mobility. We assess the major vendors that enable field service organizations to schedule and
execute field service to support and improve overall service. ClickSoftware Technologies, Oracle
(TOA Technologies), ServiceMax, SAP and IFS are Leaders.
5.1.4 Cross-CRM 13 "Magic Quadrant for Intelligent Business Process Management Suites" — This iBPMS Magic
Quadrant positions 14 vendors that are focused on the maturing iBPMS market, where process
participants, including people and systems, are supported by greater intelligence to ensure
improved process outcomes. Pegasystems, Appian and IBM are Leaders.
14 "Magic Quadrant for Master Data Management of Customer Data Solutions" — Vendors'
integrations of acquired business process management software have progressed modestly over the
past year, and functionality to integrate MDM and big data, though unproven, is now the norm. This
Magic Quadrant will help information management leaders find the right vendor for their needs.
IBM, Informatica, Oracle and Tibco Software are Leaders.
5.1.5 Digital Commerce 15 "Magic Quadrant for Digital Commerce" — We see continuing strong demand for digital
commerce as organizations invest to improve the customer experience and extend the
infrastructure required for the creation of new digital business designs. Business and IT leaders and
C-level executives can use this Magic Quadrant to guide their decisions. SAP (Hybris), IBM
WebSphere Commerce and Oracle Commerce are Leaders.
5.1.6 Service Providers 16 "Magic Quadrant for CRM Service Providers, Worldwide" — Customer experience
implementation services continue to be in high demand, fuelled by front-office and digital business
transformation. This Magic Quadrant positions the largest customer experience and CRM
implementation service providers to help enterprises identify providers that best fit their needs.
Deloitte, Accenture, IBM Global Business Services and PwC are Leaders.
17 "Magic Quadrant for Customer Management Contact Center BPO" — Gartner's Magic Quadrant
for customer management contact center business process outsourcing services evaluates a
Appendixes Appendix A - What CRM Magic Quadrants Does Gartner Offer
65
dynamic and transforming provider landscape. Sourcing managers need to know that providers are
fast evolving due to changing markets, technology and customer needs. Convergys,
Teleperformance, Atento, Sitel, Sykes Enterprises, Sutherland Global Services, Xerox, West,
Concentrix, TeleTech Holdings and Serco are Leaders.
18 "Magic Quadrant for Global Digital Marketing Agencies" — As CMOs and digital marketing
executives continue to influence and lead strategic growth plans, particularly those available from a
connected economy, a new type of agency — which blends business strategy, creative services,
experience design and technology — continues to evolve and mature. Razorfish, SapientNitro, IBM
Interactive Experience, AKQA, R/GA, iCrossing and Isobar are leaders.
Appendixes Appendix B - The CRM Market overview
66
5.2 Appendix B - The CRM Market overview
Below the Magic Quadrant of SFA62 and Customer Engagement Center63 from Gartner:
Figure 59: Gartner Magic Quadrant of SFA
Figure 60: Gartner Magic Quadrant of Customer
Engagement Center
Also The Forrester Wave confirms that Microsoft is doing well in their “CRM Suites for Large
Organizations, Q1 2015” report 64 and “CRM Suites for Midsize Organizations, Q1 2015” report 65:
Figure 61: CRM Suites for Large Organizations, Q1 2015
Figure 62: CRM Suites for Midsize Organizations, Q1 2015
Forrester also looked at Customer Services, and delivered 2 reports: Customer Service Solutions For
Enterprise Organizations, Q4 201566 and Customer Service Solutions For Midsize Teams, Q4 201567.
62 https://www.gartner.com/doc/reprints?id=1-3EHWQ8Z&ct=160811&st=sb 63 https://www.gartner.com/doc/reprints?id=1-356YAFH&ct=160505&st=sb 64 http://reprints.forrester.com/#/assets/2/108/'RES119104'/reports 65 http://reprints.forrester.com/#/assets/2/108/'RES119105'/reports 66 http://www.forrester.com/pimages/rws/reprints/document/122947/oid/1-X0E5QI 67 http://www.forrester.com/pimages/rws/reprints/document/128461/oid/1-X0E5QK
Appendixes Appendix B - The CRM Market overview
67
Figure 63: Customer Service Solutions For Enterprise
Organizations, Q4 2015
Figure 64: Customer Service Solutions For Midsize Teams,
Q4 2015
Appendixes Appendix C - MS CRM is a Leader in SFA
68
5.3 Appendix C - MS CRM is a Leader in SFA68
Microsoft Dynamics CRM On-premises, returns in the Leaders quadrant again this year. Sharing the
same codebase as the online Dynamics product, Microsoft Dynamics On-premises offers a full set of
SFA capabilities for B2B and B2C processes. Microsoft maintains a single annual product release for
Dynamics CRM, updating the product with functionality already released in the preceding two
releases of Online. Organizations consider Microsoft Dynamics CRM On-premises primarily in order
to capitalize on their existing investments in the On-premises Microsoft technology stack (such as
SharePoint and SQL Server), and to maintain control over data security considerations. It also gives
them control over when product enhancements are released and applied, which is not an option
with many other SaaS SFA offerings.
Strengths
Partner networks: Microsoft continues to maintain a large community of value-added
resellers and independent software vendors for selling, implementing and maintaining On-
premises SFA implementations.
Microsoft integration: Customer references gave Dynamics CRM high scores for its
interoperability with Microsoft Outlook, Office 365, SharePoint and Skype for Business.
Configurability: Customer references scored Dynamics CRM highly for its deep application
configuration capabilities and its ability to customize processes with Azure and xRM
administrative functions.
Cautions
Product release schedule: Microsoft's single annual release will not be frequent enough for
companies that want to rapidly transform their sales processes, an issue also cited by its
customer references.
Mobile: Microsoft scored comparatively low levels of satisfaction with its mobile offering.
References cited issues with limited functionality and a lack of customization.
Outlook integration: Clients of Dynamics CRM cited several issues with Outlook
integration, including the Outlook login and the ability to synchronize calendar events.
Microsoft Dynamics CRM Online remains a Leader in this year's Magic Quadrant on the strength of
its SFA product capabilities, SFA product vision, marketing execution and end-user satisfaction.
Dynamics CRM Online appears on many buyers' shortlists, because of its attractive price and its
relevance to other Microsoft offerings, but Microsoft has also improved its ability to sell to sales
leaders. Dynamics CRM Online has a wide range of SFA capabilities that are relevant to sales
organizations, both midsize and large. In the past year, Microsoft acquired additional technologies,
notably VoloMetrix and FantasySalesTeam. Microsoft announced its intention to acquire LinkedIn in
June 2016, but roadmap details were not available at the time of publication.
Strengths
SFA product vision: Among the leading SFA vendors, Microsoft has a notable vision for how
advanced analytics in SFA applications apply to sales execution. Microsoft Power BI
advanced analytics and Azure predictive analytics are already embedded into Dynamics CRM
Online. In the future, Microsoft Dynamics CRM Online will unite these capabilities with big
68 https://www.gartner.com/doc/reprints?id=1-3EHWQ8Z&ct=160811&st=sb
Appendixes Appendix C - MS CRM is a Leader in SFA
69
data analytic capabilities to produce data-driven sales execution benchmarks and to identify
sales process best practices.
Platform: Microsoft Dynamics CRM Online offers a highly configurable solution, based on
Microsoft's proprietary technology. Customer references give Microsoft high scores for the
ability to use the platform to build custom sales processes.
Customer experience: Microsoft's reference customers gave it high scores for postsales
customer support and customer success processes.
Cautions
Platform architecture: Microsoft Dynamics CRM Online is supported by two different
technology architectures, the product configuration architecture and the Azure cloud
platform for advanced capabilities such as predictive analytics and offline mobile
functionality. Clients and prospects with significant customizations should be aware that
Microsoft plans to migrate all Dynamics CRM Online services onto Azure, but has not yet
publicly committed to a cut-over roadmap with firm migration dates.
Sales strategy: Microsoft needs to improve how it sells to enterprises; it currently relies on
an extensive partner network to source, sell and implement Dynamics CRM Online. Some
Dynamics CRM Online customers have told Gartner that they had expected better input
from Microsoft regarding product implementation and product best practices.
Application marketplace: Compared with other leading SFA vendors, Microsoft offers relatively few
sales-specific applications in the CRM App Store, which is a consideration for clients wanting to
quickly extend their SFA implementation with additional processes without building extensive
customizations.
Appendixes Appendix D - About Realdolmen
70
5.4 Appendix D - About Realdolmen
Industry Segment: Software application Turnover: € 247.773.474 Employees: 1.250 Head Office: Huizingen, Belgium Fiscal Year Ends: March 31th Market Capitalization: € 114M Share Price (7/11/2016): € 22,26 Number of shares outstanding: 5.207.76
Realdolmen is an independent ICT expert with about 1,250 highly skilled ICT professionals, serving
more than 1,000 customers in the Benelux with their strategical, tactical and operational ICT demands.
In every cooperation Realdolmen endeavors to realize the potential of people and organizations and
wishes to make ICT human again. All this guided by the company motto “To get there, together”.
Realdolmen has over the past few years successfully integrated Real Software and Dolmen into a
“one stop solution provider” aimed at the mid-sized companies. Executing that strategy, Realdolmen
has achieved flat revenue over the past 4 years. Now, Realdolmen is looking to refresh its strategy,
with the ambition to return to growth, aiming for sustainable added value with improved
profitability. With the help of “Mc Kinsey & Company” a reorganization was defined and approved
by the board. The implementation of the new organization will start as of April 1st 2015.
The new Realdolmen will deliver sustainable added value for their customers, for their stakeholders
and for the Realdolmen employees. It is setup with these drivers in mind:
- Technology is changing the world faster than ever, and people too are changing faster than
ever. According to Forrester Research we are now living in the age of the customer. This
means that there is a shift in power, from the organization towards the customer, due to
technology. On the other hand, internally, there is a shift from a siloed enterprise to a
connected enterprise, where organization are also including customers and partners in their
operational processes. Internally you need to understand the trends that are shaping the
workplace of your employees. They are impacted by multiple trends – mobility,
demographics, social networks, information wave and consumerization of IT.
- You need to follow the market: Maybe what differentiates you today, is only ‘good enough’
in the competitive market of tomorrow. So we strongly believe that the companies that are
MOST adaptable to change to these new business & ICT trends are the ones that will survive
tomorrow. “People simply like to do business with people they know, like and trust.”
“Engaged employees truly make the customer experience.” It’s easy to claim a new value
proposition – in line with the new Business & ICT trends – but how do you deliver on that
promise? It is by embracing the customer (customer centricity) & the employee (engaged
workplace) in every aspect of the operating model.
Realdolmen will do this through 5 simple types of engagement:
o act as Trusted Advisor o act as Reliable Implementer o act as Stable Host o deliver Competent Resources o deliver State-of-the-art Products
This is easier said than done, so Realdolmen re-organized their own organization structure to become more aligned with the questions and the challenges their customers are raising to them, enabling a more agile and flexible end-to-end cooperation.
Appendixes Appendix D - About Realdolmen
71
This resulted into a new structure at Realdolmen with 4 logical groups:
- Consulting group – combining all the ‘Trusted Advisor’ and ‘Reliable Implementer’ activities.
- IT Outsourcing group – focusing on all the ‘Stable Host’ activities.
- Professional Services group – focusing on delivering the right person, with the right
competences, at the right price for our customer.
- Products & Licenses group – focusing on delivering the right technology fit for the customer.
Finally Realdolmen recognized that the specific
challenges their customers are facing might be
different sector per sector. So the go-to-market
strategy is split up in 4 main segments: PUBLIC –
INDUSTRY – SERVICES – HEALTH.
So the Vision and Mission stays the same:
- Vision: to be the reference in the local market for integrated solutions supporting the complete ICT-lifecycle.
- Mission: We make ICT work for your business.
But will be enforced with 5 clear ambitions:
- One vibrant Realdolmen organization
- Realize everyone’s talents
- Sustainable added value
- We always deliver
- Socially relevant
The biggest change Realdolmen is making is in Sales and Marketing, where they appointed on the
10th of March 2015 a new Director Tim Claes to succeed Chantal Roosens who left the company.
He aims for one sales & marketing organization for the whole of Realdolmen that follows the
complete customer journey to make the sales and marketing approach more effective (doing the
right things) and efficient (doing things right). The primary focus should be on generating new
business through standardized offerings, taking the customer sector into account.
The full transition to this new organization will take 2 to 3 years to complete, and will happen in a
phased approach, step-by-step, side-by-side. Realdolmen will need to break down the high walls
between the business units, by changing the P&L structure, by implementing cross- and group-
communities, by describing the collaboration points and by clustering and building team dynamics.
This way Realdolmen will become a connected enterprise instead of the current siloed enterprise.
Appendixes Appendix E - About VeriPark
72
5.5 Appendix E - About VeriPark69
Founded in 1998 and headquartered in Istanbul, Turkey, VeriPark is leading global provider of multi-
channel delivery, customer relationship management and loan origination solutions for financial
institutions.
VeriPark creates technological innovations that transform businesses worldwide - Europe, Asia,
Middle-East, Africa, Turkey - including banks, credit unions, insurance companies, pension funds,
telecom companies, brokerage and investment firms.
VeriPark is dedicated to helping customers to grow their business and give them a competitive
advantage in their sector. This ranges from strategic consultancy to internet and technology enabled
business solutions.
VeriPark develops pioneering, integrated and scalable applications with new intellectual content and
solutions. VeriPark meet every evolving business demands and deliver technology solutions in four
areas of competence:
Customer Management: Solutions to attract, retain and enhance customer relationships and
provide easy to use solutions for staff
Channel Management: Next generation multi-channel experience for end users that is
reachable any time and any place. And modern business-driven multi-channel solutions for
ease in management for direct banking professionals
Payments: Solutions to optimize all aspects of Corporate Cash Management and Payments
to drive growth
Loan Origination: Solutions to manage the full asset of finance transaction life cycles, from
origination and decision support to booking and end-of-term activities.
VeriPark combines craftsmanship with expertise across a wide range of Technologies and platforms:
Enterprise Architectures / SOA / Integration .Net Development BizTalk Server / Host Integration Server Microsoft Dynamics CRM Unified Communication with Microsoft Lync Server Corporate Efficiency Microsoft Office SharePoint Server Corporate Search with Fast Server Digital Certificates and PKI Infrastructure Banking Call Center and CTI Integration Microsoft Customer Care Framework Enterprise Applications Security Silverlight/WPF/WWF Mobile Banking Applications (IOS, Android, Blackberry, Windows Phone, Symbian) E-Commerce and Virtual POS SMS/MMS Gateway Internet Banking Windows 8 & Windows 10/Pixel Sense / X Box Kinect
69 www.veripark.com
Appendixes Appendix E - About VeriPark
73
VeriPark has 5 solutions around and inside Microsoft Dynamics CRM:
Appendixes Appendix F - Forecasted ROI on own IP at Realdolmen
74
5.6 Appendix F - Forecasted ROI on own IP at Realdolmen
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 TOTAL
Expected Expenses -834 592,51 € -910 071,82 € -1 003 357,92 € -1 072 510,80 € -1 155 514,10 € -4 976 047,14 €
Expected Incomes 607 680,20 € 1 033 831,30 € 1 560 518,40 € 1 950 950,90 € 2 419 582,00 € 7 572 562,80 €
TOTAL -226 912,31 € 123 759,49 € 557 160,48 € 878 440,11 € 1 264 067,90 € 2 596 515,66 €
Cumulated -226 912,31 € -103 152,83 € 454 007,66 € 1 332 447,76 € 2 596 515,66 € 2 596 515,66 €
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 TOTAL
RealDolmen CRM Single View Builder 84 456,00 €- 84 456,00 €- 84 456,00 €- 84 456,00 €- 84 456,00 €- 422 280,00 €-
Travi@ta CRM for Insurance Carriers 140 760,00 €- 140 760,00 €- 140 760,00 €- 140 760,00 €- 140 760,00 €- 703 800,00 €-
RealDolmen CRM Sales Journey Assistant 56 304,00 €- 56 304,00 €- 56 304,00 €- 56 304,00 €- 56 304,00 €- 281 520,00 €-
SUBTOTAL investments 281 520,00 €- 281 520,00 €- 281 520,00 €- 281 520,00 €- 281 520,00 €- 1 407 600,00 €-
Cumulated 281 520,00 €- 563 040,00 €- 844 560,00 €- 1 126 080,00 €- 1 407 600,00 €- 1 407 600,00 €-
RealDolmen CRM Single View Builder 135 864,00 €- 135 864,00 €- 135 864,00 €- 135 864,00 €- 135 864,00 €- 679 320,00 €-
Travi@ta CRM for Insurance Carriers 226 440,00 €- 226 440,00 €- 226 440,00 €- 226 440,00 €- 226 440,00 €- 1 132 200,00 €-
RealDolmen CRM Sales Journey Assistant 90 576,00 €- 90 576,00 €- 90 576,00 €- 90 576,00 €- 90 576,00 €- 452 880,00 €-
Partner discount 100 192,51 €- 175 671,82 €- 268 957,92 €- 338 110,80 €- 421 114,10 €- 1 304 047,14 €-
SUBTOTAL costs 553 072,51 €- 628 551,82 €- 721 837,92 €- 790 990,80 €- 873 994,10 €- 3 568 447,14 €-
Cumulated 553 072,51 €- 1 181 624,33 €- 1 903 462,25 €- 2 694 453,04 €- 3 568 447,14 €- 3 568 447,14 €-
TOTAL 834 592,51 €- 910 071,82 €- 1 003 357,92 €- 1 072 510,80 €- 1 155 514,10 €- 4 976 047,14 €-
Cumulated 834 592,51 €- 1 744 664,33 €- 2 748 022,25 €- 3 820 533,04 €- 4 976 047,14 €- 4 976 047,14 €-
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 TOTAL
RealDolmen CRM Single View Builder 65 655,00 € 102 975,00 € 140 295,00 € 205 950,00 € 230 770,00 € 745 645,00 €
Travi@ta CRM for Insurance Carriers 371 705,00 € 634 585,00 € 1 006 290,00 € 1 229 480,00 € 1 564 485,00 € 4 806 545,00 €
RealDolmen CRM Sales Journey Assistant 42 030,00 € 102 975,00 € 140 295,00 € 182 325,00 € 219 645,00 € 687 270,00 €
SUBTOTAL licensing 479 390,00 € 840 535,00 € 1 286 880,00 € 1 617 755,00 € 2 014 900,00 € 6 239 460,00 €
Cumulated 479 390,00 € 1 319 925,00 € 2 606 805,00 € 4 224 560,00 € 6 239 460,00 € 6 239 460,00 €
RealDolmen CRM Single View Builder 11 817,90 € 18 535,50 € 25 253,10 € 37 071,00 € 41 538,60 € 134 216,10 €
Travi@ta CRM for Insurance Carriers 66 906,90 € 114 225,30 € 181 132,20 € 221 306,40 € 281 607,30 € 865 178,10 €
RealDolmen CRM Sales Journey Assistant 7 565,40 € 18 535,50 € 25 253,10 € 32 818,50 € 39 536,10 € 123 708,60 €
SUBTOTAL software assurance 86 290,20 € 151 296,30 € 231 638,40 € 291 195,90 € 362 682,00 € 1 123 102,80 €
Cumulated 86 290,20 € 237 586,50 € 469 224,90 € 760 420,80 € 1 123 102,80 € 1 123 102,80 €
RealDolmen CRM Single View Builder 16 800,00 € 16 800,00 € 16 800,00 € 16 800,00 € 16 800,00 € 84 000,00 €
Travi@ta CRM for Insurance Carriers 16 800,00 € 16 800,00 € 16 800,00 € 16 800,00 € 16 800,00 € 84 000,00 €
RealDolmen CRM Sales Journey Assistant 8 400,00 € 8 400,00 € 8 400,00 € 8 400,00 € 8 400,00 € 42 000,00 €
SUBTOTAL trainings 42 000,00 € 42 000,00 € 42 000,00 € 42 000,00 € 42 000,00 € 210 000,00 €
Cumulated 42 000,00 € 84 000,00 € 126 000,00 € 168 000,00 € 210 000,00 € 210 000,00 €
TOTAL 607 680,20 € 1 033 831,30 € 1 560 518,40 € 1 950 950,90 € 2 419 582,00 € 7 572 562,80 €
Cumulated 607 680,20 € 1 641 511,50 € 3 202 029,90 € 5 152 980,80 € 7 572 562,80 € 7 572 562,80 €
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 TOTAL
Existing partners 0 12 24 36 48 60
New partners 12 12 12 12 12 60
Inactive partners 0 0 0 0 0 0
TOTAL 12 24 36 48 60 60
Small (1 instance + 20 users) 3 5 7 10 12 37
Medium (1 instance + 50 users) 2 4 6 8 10 30
Normal (1 instance + 100 users) 1 2 3 4 4 14
Large (1 instance + 250 users) 1 1 1 2 2 7
TOTAL 7 12 17 24 28 88
Small (1 instance + 20 users) 2 4 6 7 9 28
Medium (1 instance + 50 users) 4 7 11 15 18 55
Normal (1 instance + 100 users) 2 4 6 7 9 28
Large (1 instance + 250 users) 1 1 2 2 3 9
TOTAL 9 16 25 31 39 120
Small (1 instance + 20 users) 3 5 7 10 12 37
Medium (1 instance + 50 users) 2 4 6 8 10 30
Normal (1 instance + 100 users) 1 2 3 4 5 15
Large (1 instance + 250 users) 0 1 1 1 1 4
TOTAL 6 12 17 23 28 86
TOTAL deals 22 40 59 78 95 294
Cumulated 22 62 121 199 294 294
Return on Investment
Investments
Expected Expenses
Costs
Partner Channel Expectations
Network growth
RealDolmen CRM Single View Builder
Travi@ta CRM for Insurance Carriers
RealDolmen CRM Sales Journey Assistant
Expected Incomes
Product Licensing
Software Assurance
Partner trainings
Licensing - Perpetual (on premise)
Appendixes Appendix F - Forecasted ROI on own IP at Realdolmen
75
Parameter Value -
Partnership fee 1 500,00 € Split of global costs
1st year efficiency 100% 30% On premise Online Check On premise Online On premise Online
Existing partners Y0 0 Small (1 instance + 20 users) 20,0% 25,0% 45,0% 4 710,00 € 2 282,50 € 942,00 € 456,50 €
Software assurance 18% Medium (1 instance + 50 users) 16,0% 20,0% 36,0% 7 700,00 € 4 812,50 € 1 540,00 € 962,50 €
Partner discount licenses -20% Normal (1 instance + 100 users) 7,0% 7,0% 14,0% 12 500,00 € 8 662,50 € 2 500,00 € 1 732,50 €
TRAV Training 1 400,00 € Large (1 instance + 250 users) 3,0% 2,0% 5,0% 23 625,00 € 18 287,50 € 4 725,00 € 3 657,50 €
SVB Training 1 400,00 € Check 46,0% 54,0% 100,0%
SJA Training 700,00 €
Partner discount S.A. -5%
Split of global costs
50% On premise Online Check On premise Online On premise Online
Small (1 instance + 20 users) 15,0% 15,0% 30,0% 29 940,00 € 8 305,00 € 5 988,00 € 1 661,00 €
Medium (1 instance + 50 users) 30,0% 10,0% 40,0% 36 700,00 € 14 025,00 € 7 340,00 € 2 805,00 €
Normal (1 instance + 100 users) 15,0% 10,0% 25,0% 46 450,00 € 22 275,00 € 9 290,00 € 4 455,00 €
Large (1 instance + 250 users) 4,0% 1,0% 5,0% 72 125,00 € 44 000,00 € 14 425,00 € 8 800,00 €
Check 64,0% 36,0% 100,0%
Split of global costs
20% On premise Online Check On premise Online On premise Online
Small (1 instance + 20 users) 20,0% 25,0% 45,0% 4 710,00 € 2 282,50 € 942,00 € 456,50 €
Medium (1 instance + 50 users) 16,0% 17,0% 33,0% 7 700,00 € 4 812,50 € 1 540,00 € 962,50 €
Normal (1 instance + 100 users) 8,0% 9,0% 17,0% 12 500,00 € 8 662,50 € 2 500,00 € 1 732,50 €
Large (1 instance + 250 users) 2,0% 3,0% 5,0% 23 625,00 € 18 287,50 € 4 725,00 € 3 657,50 €
Check 46,0% 54,0% 100,0%
RealDolmen CRM Single View Builder
Travi@ta CRM for Insurance CarriersProbability (weighted) Deal prices Deal discounts
Probability (weighted) Deal prices
RealDolmen CRM Sales Journey AssistantProbability (weighted) Deal prices Deal discounts
Deal discounts
Appendixes Appendix G - Survey questions
76
5.7 Appendix G - Survey questions
Question
Number Cluster Group Question
5 businesscase ISV How many clients does your company have currently with your solution(s)?
6 businesscase ISV How many MS CRM Users are using your solution(s)?
23 businesscase ISV How many years were needed to reach the financial breakeven point?
24 businesscase ISV What is the average customer dealsize with your ISV solution(s) for a yearly subscription fee?
25 businesscase ISV What is the common discount margin you give your channel partners on the customer listprice?
26 businesscase ISV How much money did you invest in the product development the past 3 years? (not including support, sales & marketing costs)
27 businesscase ISV How much money did you invest in support,sales and marketing activities (including partner management) the last 3 years?
28 businesscase ISV What is the IP revenu growth you forecasted for your current fiscal year?
29 businesscase ISV How much revenue did your IP generated the last 3 years?
31 businesscase VAR How many consultants are working on MS CRM?
34 businesscase VAR How is your MS CRM services business growing?
35 businesscase VAR What is the gross marging you make on your services?
15 distribution ISV How many partners are selling your solution(s)?
16 distribution ISV On average, how many new deals a partner close in a year?
16A distribution ISV The second year for the same partner
16B distribution ISV The second year for the same partner
16C distribution ISV Average year for an active partner
17 distribution ISV On average, how many months do you need to recruit a new partner?
18 distribution ISV What kind of technical support do you deliver through various channels? (Multiple selections are possible)
19 distribution ISV How do you help the partners to become successful and what do you recommend your partner should do?
20 distribution ISV What partner channel(s) do you use ? (Multiple selections are possible)
21 distribution ISV What region do you actively cover with your ISV solution(s)? (Multiple selections are possible)
8 IP ISV Have you registered the brandname(s) for your solution(s)?
14 IP ISV Have you protected your IP (Intellectual Property) by one or more of the following options?
14A IP ISV Do you have an Escrow Agreement in place for your customers and partners?
14B IP ISV Do you have a clause on IP in your personnel agreements?
14C IP ISV Do you have a clause on IP in your service suppliers agreements like freelancers?
14D IP ISV Do you receive funding from the government for R&D?
14E IP ISV Have you filed a patent?
33 IP VAR What about re-using your previous project experiences:
33A IP VAR Are you re-using MS CRM "code" or "IP" from one project to another like an accelerator?
33B IP VAR Are you billing your customer for the re-use of the code?
33C IP VAR Are you considering to start selling licenses on top of MS CRM, and to become an ISV?
33D IP VAR Are you using third Party add-ons (IP) from ISV's in your projects?
33E IP VAR Are you using free source code, add-ons or IP (open source) in your projects?
36 IP CSP Did you use your own IP in the CSP solution?
37 IP CSP Did you use IP from other suppliers in your CSP solution?
22 marketing ISV Some Marketplace questions:
22A marketing ISV Are you using Microsoft Pinpoint? (https://pinpoint.microsoft.com/en-US/Home/Dynamics)
22B marketing ISV Is Pinpoint generating leads for your ISV solution(s)?
22C marketing ISV Are you using the Prodware appstore? (https://www.crm-appstore.com)
22D marketing ISV Other marketplaces you use?
39 marketing CSP Did you implement a "Click-Try-Buy" experience for your CSP customers?
1 personal Intro What type of partnership do you have with Microsoft for Microsoft Dynamics CRM? (Multiple selections are possible)
2 personal Intro Where is your Head Office situated?
3 personal ISV What is url to your company ISV website?
4 personal ISV What year did you start with this ISV activity on top of MS CRM?
30 personal VAR What is url to your company VAR website?
32 personal VAR Is your company involved in:
32A personal VAR CRM sourcing business (delivering CRM consultants to customers)
32B personal VAR CRM projects in Time & Material
32C personal VAR CRM projects in Fixed Price
32D personal VAR Repeated sales of the same service(s)
41 personal Personal What is your job role?
42 personal Personal Do you want to receive the book "Building Successful Partner Channels" from Hans Peter Bech?
43 personal Personal Do you want to receive a personal copy of the paper that will result from this survey, so you can compare your position in the market?
44 personal Personal You contact details needed for shipment:
44A personal Personal Name
44B personal Personal Company
44C personal Personal Address
44D personal Personal Address 2
44E personal Personal City/Town
44F personal Personal State/Province
44G personal Personal ZIP/Postal Code
44H personal Personal Country
44I personal Personal Email Address
44K personal Personal Phone Number
38 product CSP What market do you target with CSP? (Multiple selections are possible)
7 product ISV How many different MS CRM ISV solutions do you sell?
9 product ISV What environments do you support? (Multiple selections are possible)
10 product ISV What versions of MS CRM do you support today with your solution(s)? (Multiple selections are possible)
11 product ISV How many User Interface Languages do you support with your solution(s)?
12 product ISV Is your solution(s) focused on a specific vertical or specific industry?
13 product ISV How fast do you deliver your new release after a new release from MS CRM?
40 product CSP Do you include other Microsoft products in your CSP offering, next to MS CRM Online? (Multiple selections are possible)
Appendixes Appendix H - Ways to value a software business
77
5.8 Appendix H - Ways to value a software business
There are ten generally recognized ways to value a software business, although not all will be
appropriate for your company, and a weighting of the various selected methods should be used.
1. Sales Multiple
A quick and easy way to estimate the value of a software company is by applying a multiple to your
annual revenue. For companies with significant direct costs of sale such as purchased hardware,
applying the multiple to gross profit is more appropriate. There is some latitude in valuations based
upon the growth of the company, using trailing (last 12 months), actual (fiscal year projections) and
forecasted (next twelve months or fiscal year) revenue. The sales multiple method is not often used
when revenues are highly volatile or declining. Sales of software companies typically occur in the 1
to 5 times revenue range, although sales at higher and lower multiples do occur.
2. Price Earnings Ratio (P/E)
This traditional method of valuation has been applied to companies in all industries, and is the most
often quoted method of valuation for public companies. P/E multiples ranging from 5 to 50 are
common in the software industry, with growth of company and growth of industry directing the
selection of the multiple. A reasonable valuation is generally around 10 times net income.
3. Discounted Cash Flow (or DCF)
This approach describes a method to value a company using the concepts of the time value of
money. All future cash flows are estimated and discounted to give them a present value. The
discount rate used is generally the appropriate cost of capital, and incorporates judgments of the
uncertainty (risk) of the future cash flows. The problem with software companies is that many of
them do not have a stable history to calculate or rely in the numbers with confidence, therefore we
typically use a five-year period and employ a discount factor of 20% or higher.
4. Free Cash Flow
This method is often used to value privately held software companies, with a range of five to eight
times the cash available to spend after operating expenses being the usual method of calculation.
Free cash flow is important when the buyer intends to finance the purchase using the revenue from
the purchased company itself. Free cash flow is net income plus interest expense, income taxes,
depreciation and amortization, minus software development costs capitalized in the current year
and current year fixed asset purchases.
5. Replacement Value
This is one of the best ways to create some minimum value, especially for young software
companies, or where the investment in technology has been heavy and the life span of the
technology is long. Replacement value goes up where there is a high barrier to entry due to
proprietary tools or patents or new technologies. The replacement value assigned to the software is
determined by calculating the amount of time and cost which would be saved in the rewrite of the
company’s products. The value of the installed base may generally be figured at around four times
the recurring revenue.
6. Book Value Method
Appendixes Appendix H - Ways to value a software business
78
Book value is the amount of assets on the books in excess of the liabilities on the books. While an
important accounting concept and important in managing the business, it is generally not very
relevant in determining the true value of most software companies, since the value of the user base,
recurring revenue stream, and cost to recreate the technology are largely ignored using this method.
Also, book value for a software company may be influenced heavily by the company’s policy with
respect to capitalizing software development costs. Book value is often multiplied by a multiple of 2
or 3, then used as a sanity check against other methods.
7. Liquidity Value
This value, in software businesses especially, is only used as a minimum floor below which no offer
should ever fall. Software companies have very little in the way of hard assets, and the most
valuable assets are intangible, like human capital, goodwill, know-how, Trade secrets, Patents,
Trademarks Copyright and Design. On average there are only 18% of tangible assets, 60% of goodwill
and 22% are other intangible assets in the Technology industry70.
8. Similar Company Transactions
A very logical way to examine the value of a company is to base the value upon what someone else
is willing to pay for a like company. When public companies buy privately held companies, they
must reveal the amount and terms paid in their annual report. Unfortunately, information on private
company transactions is rarely available, because they are not obligated to report purchase price.
9. Recent Internal Transaction Price
This value often sets the basic minimum if there has been such a transaction within a relevant time
period. Qualifying transactions would include actual share sales prices, qualified stock options
granted, valuations by independent appraisers if used for Employee Stock Option Plans, or internal
buy-sell transactions between partners. There is flexibility here, as in any valuation, based on the
negotiation as to how the payment is to be made and over what time period, etc.
10. Dunn-Rankin Formula
This formula can be adjusted for unusual swings in sales or earnings. A rapidly growing company may
use next year's numbers with a present value discount. Since this is the "public" price, you need to
adjust by 20% - 50% downward to reflect the normal discount for stock of privately held companies.
Obviously, if you use your current data, then this formula values your company as currently
operated by you. So to determine the likely value of your company in a strategic acquisition, you
would need to adjust your profit margin, growth rate and revenue to the numbers that could be
generated by the Buyer, and then apply the formula.
[(net profit margin / 5%) + (growth rate / 10%)] divided by 2 = multiple of revenue valuation
multiple of revenue valuation X annual revenue = value of the Company
Rules of Thumb
The value of your specific company will depend on a number of factors, as discussed above,
including not only the financial factors such as revenue, net earnings, cash flow and balance sheet,
but also the size of the potential market for your products, your company’s market share,
competition, your customer base, your technology, distribution channels, the skill of the work force
you have in place, and a host of other factors.
70 www.ip4inno.eu, Pro Inno Europe, Patent Valuation
Appendixes Appendix H - Ways to value a software business
79
Software companies are generally worth somewhere between 1 and 5 times annual revenue, with
valuations of 2 times annual revenue as the general rule. If your company is unprofitable, not
growing, has a small market share and obsolete technology, then it is probably worth far less than 1
times annual revenue. At the other extreme, if your company has leading edge technology, is
profitable, growing rapidly and is the dominant player in your niche, then it may be worth much
more than 2 times annual revenue.
Glossary
80
6 Glossary
Abbreviation Description
ALM Application Lifecycle Management
API Application Programming Interface
ARPU Average Revenue Per User (sometimes known as average revenue per unit)
BI Business Intelligence
CAC Customer Acquisition Cost
CEO Chief Executive Officer
CfMD Certified for Microsoft Dynamics
CRM Customer Relationship Management
CSP Cloud Solution Provider
ERP Enterprise Resource Planning
EULA End User License Agreement
FTE Full Time Equivalent
GA General Available
GTM Go-to-market
ICP In Company Project
ICT Information and Communication Technology
IoT Internet of Things
IP Intellectual Property
IRR Internal Rate of Return
ISV Independent Software Vendor
KPI Key Performance Indicator
Mgmt. management
MPN Microsoft Partner Network
MS CRM Microsoft Dynamics CRM
MVP Minimum Viable Product
NPV Net Present Value
OEM Original Equipment Manufacturer
PI Profitability Index
R&D Research & Development
RFP Request for Proposal
ROI Return On Investment
SaaS Software as a Service
SFA Sales Force Automation
SI System Integrator SME Small and Medium Enterprises
UI User Interface
USP Unique Selling Proposition
VAR Value-added Reseller
VoC Voice of the Customer
WPC World Partner Conference
Table of Figures
81
7 Table of Figures
Figure 1: From traditional organizational centric to customer centric ................................................... 7
Figure 2: The CRM triangle...................................................................................................................... 7
Figure 3: Eight Building Blocks of CRM from Gartner ............................................................................. 8
Figure 4: CRM revenue and market share in 2015 - reported by Gartner .............................................. 9
Figure 5: CRM Survey top 10 objectives reported by Gartner in 2012 ................................................... 9
Figure 6: Microsoft Dynamics CRM in facts .......................................................................................... 10
Figure 7: Dynamics 365 components .................................................................................................... 11
Figure 8: Positioning all partner models ............................................................................................... 13
Figure 9: The CSP models ...................................................................................................................... 14
Figure 10: The CRM VAR learning Cycle ................................................................................................ 15
Figure 11: History of VeriPark ............................................................................................................... 17
Figure 12: VeriPark's revenue growth over 18 years ............................................................................ 18
Figure 13: Business Model Canvas for VeriPark .................................................................................... 18
Figure 14: Extensibility Choices ............................................................................................................. 19
Figure 15: The AppSource ..................................................................................................................... 20
Figure 16: Events when escrow contract must release the materials to the beneficiary .................... 22
Figure 17: SurveyMonkey mobile app .................................................................................................. 23
Figure 18: Progress in the survey responses......................................................................................... 25
Figure 19: Survey Design ....................................................................................................................... 26
Figure 20: SurveyMonkey and dynamic questions ............................................................................... 26
Figure 22: # Partners per region and type ............................................................................................ 28
Figure 21: Spread of roles in survey answers ....................................................................................... 28
Figure 23: Correlation between ISV starting year and CRM release year ............................................ 29
Figure 24: Additional products next to CRM......................................................................................... 31
Figure 25: Years in ISV business ............................................................................................................ 32
Figure 26: Number of CRM versions supported ................................................................................... 32
Figure 27: Number of distribution partners ......................................................................................... 32
Figure 28: Months to recruit a new partner ......................................................................................... 33
Figure 29: Support channels supported by Partners ............................................................................ 33
Figure 30: Average number of users that use the ISV solution ............................................................ 35
Figure 31: # Years before breakeven .................................................................................................... 36
Figure 32: # Years before breakeven by Profitability cluster ................................................................ 36
Figure 33: # Years in ISV business for those that are not yet breakeven ............................................. 36
Figure 34: Profit margin per cluster ...................................................................................................... 36
Figure 35: Summary over 5 years of cost and benefit per cluster ........................................................ 36
Figure 36: Data per cluster on costs and benefits ................................................................................ 37
Figure 37: # CRM consultants per cluster ............................................................................................. 37
Figure 38: KPMG Market Multiples - January 2016 .............................................................................. 41
Figure 39: What partner channel to use for the business case? .......................................................... 43
Figure 40: Pros and cons of direct versus Indirect channel .................................................................. 43
Figure 41: Detailed costs for Direct and Indirect Channels for the Business Case ............................... 44
Figure 42: ROI calculation for Direct and Indirect Channel .................................................................. 44
Figure 43: High level view on the business case ................................................................................... 45
Figure 44: High level project timeline ................................................................................................... 45
Figure 45: The starting profiles and their roles ..................................................................................... 47
Figure 46: Role description ................................................................................................................... 47
Table of Figures
82
Figure 47: Realdolmen's IP ecosystem .................................................................................................. 49
Figure 48: CRM product Development Unit ......................................................................................... 50
Figure 49: The Realdolmen resource allocation ................................................................................... 50
Figure 50: Benefits of the business case ............................................................................................... 51
Figure 51: Business case license revenue growth ................................................................................. 52
Figure 52: The model to calculate the financial benefits return for the project .................................. 54
Figure 53: The Crystal Ball Model ......................................................................................................... 55
Figure 54: Assumptions in the Crystal Ball model ................................................................................ 55
Figure 55: Forecasts in the Crystal Ball model ...................................................................................... 56
Figure 56: Sensitivity charts .................................................................................................................. 57
Figure 57: Risk factors for the business case ........................................................................................ 58
Figure 58: Profitability margin of the business case compared to the clusters ................................... 60
Figure 59: Gartner Magic Quadrant of SFA ........................................................................................... 66
Figure 60: Gartner Magic Quadrant of Customer Engagement Center ................................................ 66
Figure 61: CRM Suites for Large Organizations, Q1 2015 ..................................................................... 66
Figure 62: CRM Suites for Midsize Organizations, Q1 2015 ................................................................. 66
Figure 63: Customer Service Solutions For Enterprise Organizations, Q4 2015 ................................... 67
Figure 64: Customer Service Solutions For Midsize Teams, Q4 2015 ................................................... 67
Bibliography
83
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Alexander Osterwalder, Yves Pigneur Greg Bernarda & Alan Smith, Value Proposition Design,
Hoboken, New Jersey: John Wiley & Sons, 2014.
Bart Clarysse & Sabrina Kiefer, The smart entrepreneur: How to build for a successful business,
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