The VAR Economy: Reseller Consolidation Continues

Faced with losing the initial software sale, VARs are having to consolidate or adapt to users’ needs.

This article originally appeared on Hot Topics. It is reprinted by permission.

I don’t write about VARs (value-added resellers) enough—they are a vitally important part of many users’ PLMish experiences, bringing specialized add-ons, training, and other services to make sense of the (sometimes challenging) out-of-the-box capabilities of the products they buy.

Resellers are that intermediate layer, between the developer of a software toolset, who worry about operating systems, communications protocols and programming languages—stuff the typical user could care less about.

Back in the day, the industry analyst firm I worked for, Daratech, published a sort-of annual report on VARs. We surveyed a bunch of companies, aggregated their results, and then summarized them in a report. I don’t have one, but I do remember very clearly: it’s a tough, tough business. VARs are squeezed between vendors who want to retain as much profit as possible and customers who want to pay as little as they can.

Back then, VARs were more resellers than value-added service providers. Today, the service provided is their main value. Not all VARs are/were interested in service as a business. It’s riskier, in that expensive service providers have to be paid whether or not there is any customization, training and other service or software developed and/or customized from the vendors’ offerings…. That, and more, caused a lot of resellers to exit the business—either by shutting down or selling. And very few new resellers entered the fray.

Last week we learned that Addnode acquired Microdesk to create the largest single Autodesk partner in the world, Symetri. In early March Addnode also acquired DESYS, a German Dassault Systèmes partner, which will join TECHNIA, Addnode’s Product Lifecycle Management Division. That’s some serious consolidation.

You might have wondered, who is Addnode? Addnode Group is a holding company based in Sweden that has hoovered up more than 70 companies since it started on its growth-by-acquisition strategy in 2003. It’s not done. Addnode wants to keep adding. The company invites companies to get in touch if they think they would be a good fit. In its most recent annual report, Addnode states, “Acquisitions are an important part of our growth strategy” and “we acquired four companies in 2021 with total yearly net sales of some SEK 220 million” (about $23 million) and “we still see great potential for value-creating acquisitions in 2022.” Those 2021 acquisitions were S-GROUP Solutions (an ESRI GIS partner), Elpool (which I think makes power utility solutions), Procad (the Irish Autodesk reseller), and Budsoft (a Polish company that offers services for Dassault Systèmes simulation solutions).

Addnode CEO Johan Andersson said, “Symetri (the Autodesk reseller brand)  has successfully grown organically and by acquiring and integrating other Autodesk partners, has become the number one Autodesk partner in the Nordic and UK markets, with a strong portfolio of proprietary software and related services. Through the acquisition of Microdesk we will now have a strong organization also in the US.”

About DESYS: Magnus Falkman, the CEO of TECHNIA ( Addnode’s Dassault Systèmes specific brand) said, “Joining forces with DESYS enables us to build even further upon this position. Our joint customer base will now have access to an even broader mission critical know-how in simulation and other key domains, increased delivery and service capacity and a greater range of complementary software solutions.”

Addnode is publicly traded in Sweden, so we have some transaction details: Addnode will pay a fixed price of $26 million for Microdesk, with the potential for an additional $24 million that is contingent on future financial performance.” [Emphasis mine because I don’t have details on what those contingencies are.] I do not have similar info about the DESYS transaction but may learn more when Addnode next announces its results.

Addnode’s bet is that a bigger footprint will enable it to sell to more buyers and to offer them expertise that the individual entities might not have been able to support.

Later, we learned that Graitec is buying Applied Software. Graitec develops BIM solutions that complement Autodesk’s offerings and is an Autodesk reseller in Europe and North America. Applied Software is also an Autodesk reseller, according to the announcement—one of the largest in North America. This acquisition also brings Nemetschek’s Bluebeam to the portfolio. After the acquisition, Graitec says that its business will be “located 45% in North America and 55% in Europe.” Transaction details were not disclosed.

The companies say that “together, Graitec and Applied Software aim to deliver more value to their customers combining their strong Autodesk expertise and the benefits of the Graitec software. Developed by more than 150 R&D engineers, Graitec software aims to complete the Autodesk ecosystem, especially for Architects, Structural Engineers and Steel and Rebar Manufacturers. One point of focus will be PowerPack—an innovative and result-based set of productivity tools allowing customers to maximize their use of Revit, Advance Steel, Inventor and Vault.”

This one is a combination that not only aims to sell to more clients but also to cross-sell add-on solutions they might not otherwise be aware of.

I focus a lot on the acquisitions the vendors are making because that’s crucial to users’ ability to expand what they do with these technologies. However, VAR consolidation is just as important. Scale matters as PLMish buyers are more global in their IT strategies. But they still need local support. The biggest companies are sold to by the vendor, in a direct model, but the tiers below that are often served by large VARs (often called super-VARs) who need to present a coherent impression—one reason for this consolidation.

Also, as PLMish sales shift to more customer self-service and online storefronts, the VAR sales funnel changes. It used to be that a VAR held open houses, technical days and other events to showcase their products, build interest and (they hoped) eventually, close the sale. No more. If a buyer buys online, it’s game over. All that’s left for the VAR is training, customization, other services and software add-ons like what Graitec sells. Add in the financial stresses of sales costs up-front and subscription revenue over a long tail and it’s to no one’s surprise that some VARs simply closed shop.

The VARs that chose to continue have completely reinvented themselves, focusing on services and joining forces with others, either formally as with these acquisitions or via specialization and referral networks.

The role of the VAR is not an easy one, but it is vital. The last two years have shown us that our businesses need to be more agile, that we need to figure out how to do more remotely, and that we need to collaborate globally with suppliers and partners. You could do that yourself by listening to webinars, attending virtual user conferences, reading vendor articles and blogs, and so on—or you could call your neighborhood VAR. Odds are they will be able to help you.