* The Business of Software

A former community discussing the business of software, from the smallest shareware operation to Microsoft. A part of Joel on Software.

We're closed, folks!

Links:

» Business of Software FAQ
» The Business of Software Conference (held every fall, usually in Boston)
» Forum guidelines (Please read before posting!)

Moderators:

Andy Brice
Successful Software

Doug Nebeker ("Doug")

Jonathan Matthews
Creator of DeepTrawl, CloudTrawl, and LeapDoc

Nicholas Hebb
BreezeTree Software

Bob Walsh
host, Startup Success Podcast author of The Web Startup Success Guide and Micro-ISV: From Vision To Reality

Patrick McKenzie
Bingo Card Creator

Anyone using ComponentSource, and why?

Last time I looked at their reseller's agreement, they demanded a 40% discount off your list price, they then discounted you as deeply as they could stand (thus losing you sales), and then demanded a very stiff monthly retainer regardless of sales above a very low minimum, just for the pleasure of selling your stuff.

I look at this reseller's agreement and just shake my head. Nevertheless, looking at their site shows a _huge_ number of component vendors who seem willing to bend over, grab their ankles, and say "Thank you Sir, may I have another?"

Anyone using them recently?  Your comments if so? 

We used them back when they first got started, late '90s is the timeframe and they were sending their catalog out on CD to anyone with a mailing address, after all the fees and charges our $149 component ended up netting us around $7 a copy after they sold a couple hundred copies, we finally smelled the coffee, and bailed out.

Is anyone making real money using these guys?  Any recent business experiences?
Mitch & Murray (from Downtown)
Saturday, September 04, 2004
 
 
We have a product that converts VB.Net project to C# and we don't use Componenet Source. The main reason is the steep commission (40%). It just doesn't seem to justify the value add that Component Source provides.

DevDirect ( http://www.devdirect.com ) is trying to create a reasonable lower-cost alternative to a component and developer tool directory. We are currently trying a free trial, but haven't seen great results so far.
Roger Jack Send private email
Saturday, September 04, 2004
 
 
Mitch & Murray, I should have listened to you when you mentioned in this forum that a certain reseller takes forever to pay.

I'm very negative on resellers now. Selling software (especially to developers) is the one thing where the Internet is really, really successful at disintermediation.

As far as I'm concerned, a reseller is useless for anything except marketing: getting more awareness of your product out there to people who haven't found out about it elsewhere. That's the only metric they should be evaluated on and that's how they deserve to be paid. The old school resellers who built their businesses "breaking bulk" are completely obsolete. Their catalogs are just boring computer magazines without articles: filled with ineffective ads that don't really drive sales.

Which doesn't answer your question about ComponentSource...
Joel Spolsky Send private email
Saturday, September 04, 2004
 
 
By the way, just because they're out there demanding 40% doesn't mean you have to give it to them. Their huge list of vendors might well include vendors who don't offer them any cut at all. They might be willing to take a cut of 0% from a lot of vendors just to have a more complete catalog in hopes of building up a loyal customer base. This is just speculation.

Our biggest reseller is Software Spectrum and we give them 0%. I'm not sure why they go along with that. I think they get paid by their clients, which I don't fully understand. But I love 'em. They always pay on time, sometimes they pay instantly for no apparent reason.
Joel Spolsky Send private email
Saturday, September 04, 2004
 
 
I find myself stuck in a largely dysfunctional relationship with several resellers.  In addition to direct sales, SourceGear sells through a bunch of resellers, including ComponentSource.

All of our resellers combined usually add up to around 10-15 percent of our sales.  In other words, they are not worth the trouble.

I have a love/hate relationship with ComponentSource in particular.  Several months ago, we negotiated them down from 40 points to 30, so that helped things a bit.  I still don't like their consignment model.  However, I can say three positive things about ComponentSource:

1.  They consistently pay on time, or very close.

2.  They actually do sell.  They are usually one of our top three resellers, often the #1.

3.  It's sometimes handy to refer international customers to someone who speaks languages other than English.

I usually recommend that ISVs stay away from the reseller game.  Someday I hope to take my own advice.
Eric Sink Send private email
Saturday, September 04, 2004
 
 
The Software Reseller channel is now forever broken, though in  many cases it was always so there were a few exceptions that actually added sales value to the customer (not that that directly helped the ISV any).

It was finally broken when ISVs discovered it cost them less to sell direct and they still had the support cost because the Reseller channel no longer gave any support whatsoever.

But, once the ISV sells directly the Reseller has no other margin than the discount they'll get from the ISV and the incentive for the ISV to give that margin is less and less.  If the customer is finding product by using Google rather than using a Resellers site the ISV's own site is likely to come top of the list (along with any Adwords) and so they'll get the sale anyhow.

But then there are products that need the credibility of being sold by others than the original developers (not that I'd put ComponentSource in that group).  If the only hit you see for a product is the ISV's own site then you don't really have much of a feel for how strong that product is (feel not knowledge), and you're stuck with a single price, there's no market in the product itself.

So in that sense using a Reseller channel can be a Good Thing for an ISV.  But that channel has to be managed and driven, it can't be managed by volume anymore because there isn't a physical box anymore.  It can't be treated as just a shop window because unless there's something in it for the Reseller they'll put something more gaudy that drives traffic to their window in its place as soon as something comes along.

So the relationship with the Reseller has to be continually massaged and small ISVs tend not to have the resources to put into that.  This becomes an even harder case to make when there aren't the volumes happening that instinctively the ISV feels a Reseller channel is all about.

From the Resellers point of view they'd much rather not have the ISV sell directly at all, nor give any kind of indication of price points.  They don't mind so much about exclusivity of distribution, in some ways they're happy for other Resellers to carry the same product, just so long as they feel they're getting the best margin.

ComponentSource believes that they'll get used by micro ISVs that don't have the resources to put together a web site and marketing plan that will get their product sold.  As Joel says, for the larger ISVs they'll likely reduce their margin to barely nothing just to get them in the catalogue. They know the chances are they won't sell those big names and there's no inventory charge for electrons.

So, for micro and small ISVs I'd treat the Reseller channel not as a distribution channel but as a marketing channel.  If that marketing is too expensive (and 40% is extortion, it would be cheaper to buy a mailing list and direct mail shot them), then tell them so and go talk to someone else.
Simon Lucy Send private email
Sunday, September 05, 2004
 
 
With regards to Software Spectrum, we give them 0% too and they don't care.  Note also that you don't have to accept Net terms from them - their sales people always have purchasing credit cards ready to fire.  Companies like SS exist because Big Fortune 500 Company XYZ will do all they can to cut down on the number of vendors in their Payables database and the number of checks they need to cut.  So they funnel all their software purchases through Software Spectrum, which marks everything up a negotiated percentage, and then company XYZ cuts one check a month for all their software purchases.  I assume they have similar arrangements with resellers/consolidators in other vertical markets.  We did a custom job for IBM last year and had to go through a third party for billing and payment.  Took four months to get paid ...
Mitch & Murray (from Downtown)
Sunday, September 05, 2004
 
 
Yep, this is my "favorite" reseller. I am not really happy with resellers either. Look, as I said earlier they do not add any value. The only value that I see is the catalog of all software/components but that is it.

For example, Component Source created the product comparison charts, and guess what they want customers to pay for it. Ridiculous. Again familiar theme no value added. They did not test the products, just sent out the questionnaires for vendors to answer and they collated it into the comparison chart. Again, no value added.

For Eric, the reason your products sell well with CS is because you advertise so much. If you did not have mainstream press advertisement going you would sell very, very little with CS. You could probably drop them right now and your sales would not change a bit. People that want your software will buy it from you.

In general my observation based on years of interacting with resellers is that they are NOT worth it if you do not advertise in mainstream press. Just avoid them. They are like leaches sucking your time and money... Even if you do advertise massively why give them 30%-40%?

I mean what a sweat deal, they get 40% of everything you sell for no value added. You pay for advertisement in catalog (which we found is worthless) and they list you on the web site. You have to pay to get advertised on the web site. You have to pay to come up on top when people are searching. You have to pay to have screen-shots included. You get the message...
Denis Basaric Send private email
Sunday, September 05, 2004
 
 
I have found that resellers are useless, too. They sell very little.

However, some affiliates are worth keeping. But with affiliates, you have to watch out for fraud. Some affiliates will try to buy your software with stolen credit cards in order to get a cut of the order.

So when affiliates apply, if we have the slightest doubt about them, we don't approve them. This has lowered our rate of fraud quite a lot.
Zorro
Sunday, September 05, 2004
 
 
I can see a few advantages that a reseller like ComponentSource would give to a small ISV:

1) Trust.  Who would you (as a buyer) trust your credit card number with?  Some two-man shop with a home-grown purchase system, or a large organization like C-S that has Verisign & BBB logos.

2) Escrow.  C-S offers a source escrow service.  Often, large companies don't want the source for modification purposes, but to guarantee they can continue to use the product should the small ISV go belly-up.

3) Convenience.  A larger company may already have an open PO on file with someone like C-S, and it's easy for them to add another line item to it.  Especially if it doesn't need the CFO's approval.

Would I personally go with ComponentSource to sell my product? 

Maybe. 

I'd look around at their competitors first to see which one would be a better fit for my business.
example Send private email
Monday, September 06, 2004
 
 
"two-man shop with a home-grown purchase system"

You mean like Fog Creek Software ?

I'm sure I remember Joel saying he wrote his own ecommerce implementation.
Nemesis
Monday, September 06, 2004
 
 
"example" raises a point worth mentioning.

Some customers are only allowed to purchase through a reseller.  If we had no resellers at all, there are certain customers we would not have been able to get.
Eric Sink Send private email
Monday, September 06, 2004
 
 
"Some customers are only allowed to purchase through a reseller."

Why? What's the advantage to never dealing with the actual author of the software and only ever going through a middleman? I'm sure that is the case for some, but why do they do it that way?

Monday, September 06, 2004
 
 
"Why? What's the advantage to never dealing with the actual author of the software and only ever going through a middleman? I'm sure that is the case for some, but why do they do it that way?"

I honestly can't explain it.  Corporate policies get weird sometimes.
Eric Sink Send private email
Monday, September 06, 2004
 
 
Nemesis-

I wasn't referring to Joel.  Really!

Joel has way more than 1 employee <grin>, plus Joel has an excellent reputation.  But I guess my point could be: To someone who doesn't know Joel, they might have second thoughts about giving him their credit card (nevermind that they'll hand it over to a waiter without any doubts).  Anything you can do to reassure a timid buyer about your solvency and honesty will probably help overall sales, not hurt them.

Anonymous -

Companies have a cost to maintain an accounts payable register with a supplier.  For every so many accounts, they have to pay someone to monitor the account, make sure the bills aren't (too) past due, make sure they're paying for what was really delivered, etc.  So most companies attempt to minimize the number of suppliers they deal with.

The bad news is: If your software isn't available thru one of their suppliers, as far as they're concerned, you don't exist.  A previous place of employment (may they rot in hell) wouldn't let you order anything that wasn't in their supplier's catalog.  To get something "special", you needed a Senior Executive VP's signature, and those were busy-busy fellows, not to be bothered over trivia.  Besides, he was probably the one who pushed for the single supplier in order to reduce costs.

So there's a great benefit in being listed with ComponentSource, CDW, Programmer's Paradise, etc, if your target market is the corporate developer.
example Send private email
Monday, September 06, 2004
 
 
I am certainly not fond of ComponentSource and have talked to many ISV's on this topic.  Most "break even" given the expenses or sales or see a small return.  However looking at the sales generated is not useful. You must examine the total cost (monthly, ads, program costs etc) and the net profit from the sales taking into account support, overhead etc.  For many ISVs the equation will not add up in their favor.

If you have a popular product larger clients with established relationships with resellers will tell you which resellers are worthwhile.  Ultimately you will have resellers contact you asking to purchase a product on behalf of your client, when you see a handful from one company you can contact them to offer terms.

These resellers typically ask for reseller pricing.  To avoid the troubles of getting something setup for a 1 off sale it is very useful to have discounted licenses at a specific quantity. So the reseller gets no discount if they purchase a single copy for that one client but if they wish to purchase x licenses at once you offer discount y.  As others have noted, this gets rid of the resellers that are not serious right away (If a reseller can't purchase 5 licenses at one time they likely will not yield a positive return).

In the case of the reputable resellers that come to you, (driven by customers to purchase your fantastic software) they will happily pay retail rates for the licenses required.

There seems to be a misconception that if you offer great terms to a reseller they will work hard to sell and market your software.  This is not the way that it works.  Someone comes to them to purchase the product - they are asking for the product and will buy it in any case.  Software today, particularly from small ISVs, is highly specialized.  Customers for the most part do not make a selection from 10-50 competing solutions based on the recommendation of a sales person with no developer knowledge or experience.

ComponentSource, vbextras and others are dying.  Extras will go first, the writing is on the wall there despite the protests of the owner.

The age of catalogs is over and the age of direct sales is upon us (and has been for some time).  Next to die will be print ads - already there is little to no effectiveness for ISVs but the trick is they don't know this yet...

A good topic for another thread: “Is anyone burning funds with print advertising?”  for those that answer yes, “Are you using tested adverting methods to tune your ads on a monthly basis?” and “Do you have tracking in place to prove ad effectiveness?”  Finally, “Have you done incentive based tracking or telephone surveys of new clients to determine origin of sales?

  A huge issue with ISVs is lack of sales information, they have no idea where the sales are coming from so they keep pushing money into a variety of sources when only a small subset contribute any appreciable sales and other, often free, sources are greatly underestimated.
Pete
Monday, September 06, 2004
 
 
example "Joel has way more than 1 employee"

Are you sure about that ? It has been debated here a lot, but you can tell from his Bionic Office articles.

Anyway, my point was more along the lines of even one-man companies can get your credit card details. This is easier for Joel as he does have a certain reputation.

I'm still not convinced by his idea of rolling your own ecommerce back-end, especially with his justification of improving security.

http://www.amazon.co.uk/exec/obidos/ASIN/0471453803/qid=1094543106/sr=2-1/ref=sr_2_11_1/026-9055867-8282808
Nemesis
Tuesday, September 07, 2004
 
 
At the time we started selling online, there was nothing available to do ecommerce that could handle electronic delivery/downloads. The closest thing we found was digibuy, which charged 14%, and they would not negotiate.

Michael spent a month building the ecommerce site which got our costs down from 14% to under 3%, and accelerated our payment from an average of 35 days to an average of 2 days. From a cost-benefit perspective this was a great deal: with one month of work we increased our revenues over 10% and got an extra, one time free month of money (due to the new accelerated payments there was a month where we earned double.)

If there were an off the shelf ecommerce system that did everything we need and it cost less than 1 month of programmers' salary, I would have used it.
Joel Spolsky Send private email
Tuesday, September 07, 2004
 
 
I would add to Joel's comments that if you go his way, you are completely exposed to chargebacks, and if these go above a few percent of your total sales you can lose your merchant account.  You still get hit with chargebacks in the form of refunds using a service like DigiBuy, but these do not endanger your merchant account.

The fraud angle on e-commerce is significant.  If you roll your own, be careful.  We got Digibuy to come down on their points after we bitched.  We still aren't using the cheapest ESD provider, but now that DigiBuy can pay us via an ACH credit (direct deposit) we get paid just a few days after the end of the previous sales month. 

All in all, not too shabby.
Mitch & Murray (from Downtown)
Tuesday, September 07, 2004
 
 
If you use a service like Digibuy are you still the retailer or is Digibuy the retailer?  Who is responsible for sales tax, etc.?

Tuesday, September 07, 2004
 
 
DigiBuy, or actually Digital River, is the seller.  The line item on the customer's credit card statement has DR's name, not ours.  They are responsible for collecting any taxes, VAT, etc.
Mitch & Murray (from Downtown)
Tuesday, September 07, 2004
 
 
Service providers' comparison here:-

 http://www.regshare.com/
trollop
Tuesday, September 07, 2004
 
 
Mitch & Murray is correct, you do need to be more careful about chargebacks.  But it was fairly easy to implement a system to flag potentially fraudulent orders so they didn't get processed.  After you've seen a few, it's pretty obvious how the credit card thiefs operate.  What's even stranger is that thiefs are using stolen cards to purchase bug tracking and content management software ?!?  but it happens.
Michael H. Pryor Send private email
Wednesday, September 08, 2004
 
 
One that got through the Digibuy fraud screen a while back was an order from a woman in Kansas that was using a free mail service in Kenya.  We spent a few minutes shaking our head at that one.

Wednesday, September 08, 2004
 
 
"If there were an off the shelf ecommerce system that did everything we need and it cost less than 1 month of programmers' salary, I would have used it."

So when is FogCommerce being released?  :)

Wednesday, September 08, 2004
 
 
Speaking about Digibuy, I don't think they actually verify credit card validity past the simple hash check, until some time later. So if somebody orders with an obvious fake address but "valid" credit card#, they will accept it every time and give the person the reg code, but then thirty minutes later they'll take back your money and call it "unauthorized use of credit card". Meanwhile the user gets your product, for free.

It only happens a few times a year for us (I mean "me," micro ISV), so I just brush it off, but it's really annoying.
Jimmy
Thursday, September 09, 2004
 
 
The service we use allows us to stipulate a delay before the final key is sent. The client is given access to a timelimited, fully functional version which is permanently unlocked by the delayed key once it is sent out. Gives the card service time to check the payment more thoroughly. If the transaction fails, then the key is not sent.
trollop
Friday, September 10, 2004
 
 

This topic is archived. No further replies will be accepted.

Other recent topics Other recent topics
 
Powered by FogBugz