On this page you will learn:

- About the structure of the sw market

- How a market grows

- The pecking order

- Who gets what

- What this means for you

How does it work?
The proprietary software market is structured just like any other, with producers at one end (software publishers) and you as the customer at the other.

The middle men in the software industry are the resellers or software vendors.

As buyers of software, we think you should be aware of several aspects of a market that doesn't always work in your favour.

The important thing is to understand who you are dealing with and where there might be room for negotiation.

In the beginning
When software publishers start out they will generally sell directly to customers until they get more established.

If you are purchasing directly from the publisher website there will be little opportunity for negotiation.

If your organisation is going to purchase large amounts of product then you should contact the publisher directly to set up a specific contract.

As soon as any software company has a product with a large enough market, it will look to develop a reseller community that will sell the product/s for them and so rapidly expand sales.

The software publisher will then 'support' the reseller community with training, marketing and of course the ongoing development of their product/s.

Once established
At the top of the food chain always sit the software publishers, companies such as Microsoft, Oracle and Adobe.  These companies rarely have direct contact with customers, but work through their reseller channels.

Below them they have the network of resellers (software vendors) doing the direct selling.

For much of the software your organisation will procure, you will be dealing with resellers at one level or another, unless your organisation warrants a publisher appointed account manager.

Between you and the publishers there can be anything up to 4 or even 5 resellers, all buying from the party above them on the ladder and selling to the reseller below and of course, all taking their share of the profits.

In this situation, the difference between the publisher's initial sell price and your buy price can be anything from 10% to 40%, depending on the number of steps in the chain, your reseller's position within the hierarchy and eventually your ability to negotiate.

It's a lock out
As product markets develop, the publishers will sort the reseller wheat from the chaff; a decision usually based on the quantity of sales, i.e. if a reseller sells more product they will move further up the reseller hierarchy.

The more product they sell, the more privileges they will be entitled to in terms of product discounts, marketing funds, assistance in marketing their services, training credits for their employees and so on, so status is self perpetuating.

Microsoft for example have many resellers.  To become a Microsoft licence reseller is simple, they just purchase licences from one party and sell to another.

Today in the UK however, due to the market being so developed it is pretty much impossible for a newcomer to undercut the established resellers in terms of the price at which they can sell licences to customers.

The established resellers are moving such large quantities of product and have such well developed relationships with the publishers that they enjoy the best possible pricing, in more ways than you might think. We look at The resellers' rebate next...

So what you find is resellers at the bottom of the chain selling additional services (technical advice, implementation etc) and if they are lucky licences will be part of the deal in one way or another.

What does this mean?
At the top of the tree are the established resellers.

They will have hundreds of customers that they deal with directly but they also have relationships with many resellers lower down the food chain who then sell to their customers or other resellers and so on.

You should ensure that you are dealing with resellers as high up the tree as possible or the publisher itself, otherwise you are wasting money.

We discuss this in more detail in How to do SAM and The right reseller...

Now we look at the resellers' rebate...