IT and Business Insights for SMB Solution Providers

Application Development for Fun and (Mostly) Profit

Cloud computing and other technologies have channel pros searching for new and more profitable ways to make money. Writing, maintaining, and supporting applications are promising candidates. By Megan Santosus

A FEW YEARS AGO, channel partners intent on growing their businesses were advised to expand beyond the break/fix game. Many added managed services and various flavors of cloud computing to their portfolios to combat the eroding margins that characterized the traditional services they offered. As with most things IT, what was new yesterday is a commodity today, leading channel partners to seek out new and greener pastures for growth.

Thanks to the cloud, mobile devices, and the Internet of Things, profits can be found in application development and management. Market research firm IDC says custom application development services revenue topped $17 billion in 2016, and is expected to surpass $21 billion by 2020. To extend a portfolio, application development is a logical step for many channel partners.

Yet the dollar value of application development projects is only one aspect of the opportunity. John Bleuer, vice president of global alliances at Raleigh, N.C.-based software company Red Hat Inc., says application development services provide a path for new customer and project acquisitions too.

“The great news about application development is that it complements the predictable long-term nature of managed services and infrastructure work,” he says. “The way to get into a new customer is that next-generation project.”

Cloud computing in particular is propelling application development. “The cloud helps our application development side of the business,” says Jeff Hoffman, senior vice president of software solutions at SWC Technology Partners, an IT consulting firm in Chicago. “It takes roadblocks out of the way for people who want to build applications. You don’t have to wait or pay for infrastructure.”

Sticky Customers

For channel partners who serve the SMB space, application development is a particularly good area to get into, says Hoffman. “We find in our business that customers are stickier the more you do for them,” he explains. “The midmarket especially values a single provider.”

Another reason for the appeal of software development is the changing nature of software development itself, which is far less siloed than it used to be, according to Brian Noyes, CTO of Solliance, an IT solutions and consulting company in Encinitas, Calif.

“Software development practices like continuous deployment require a mixed skill set involving deep understanding of the infrastructure that the code will be deployed on, as well as broad understanding of the software architecture, technologies employed, and the potential effects the deployment environment can have on the function and performance of those technologies,” he says. People who have a combination of expertise in infrastructure and development will be extremely marketable.

As with larger companies, SMBs are deploying many more devices and pursuing digital transformation. “The explosion of devices has increased demand for technology that works everywhere all the time,” says Bob Wilson, vice president of global channels and alliances at OutSystems, an Atlanta-based provider of a low-code platform for application development. Most antiquated software doesn’t pass this test well, he adds. This means application development and management provide channel partners with the opportunity to deliver big software upgrades and smaller software improvements for both existing customers and new clients, Wilson says.

As for specific development projects, Hoffman says the midmarket is particularly interested in applications around data—data analytics, data warehouses, and dashboards. Deploying CRM, particularly Salesforce and Microsoft Dynamics, may present more of a configuration challenge, yet data migration and report creation tend to require development. While SharePoint and Office 365 also tend to require configuration, tools like Microsoft Flow and PowerApps “enable very powerful custom solutions,” Hoffman adds.

Most industries and verticals are prime candidates for application development and management services, according to Hoffman. Wherever the cloud is pervasive and data is viewed as a valuable commodity, application development services are in demand. The two exceptions in Hoffman’s experience are hospitals and law firms; these organizations tend to have consistent processes and rely on best-of-breed solutions.

Where SMBs Fit In

SMBs are particularly good candidates for application development and management, as they “often can’t afford to hire a whole staff of developers just to knock out a new app that might serve their needs with minimal change and upkeep for the next two to five years,” Noyes says. “They are much happier finding a good consulting partner who can not only build the software for them, but keep it running in the deployed environment without needing full-time staff members to tend to it.”

For channel partners, application development can provide significant potential for profit. Hoffman notes that gross margins for software solutions at SWC Technology Partners rank second to margins in its managed services business, with infrastructure transformation services third. In general, profitability is linked tightly with both the scope and the type of project.

“From a profitability perspective, a lot is driven by the size of the project,” Hoffman says. When compared with infrastructure projects, application development affords more flexibility in staffing over the course of a three- to six-month timeframe—flexibility that often translates to higher margins.

Channel partners need to invest in resources to launch an application development practice, and that means either hiring native .NET or Java developers or seeking talent through outsourcing. Salaries for experienced professionals vary but can be expensive depending on skill set. “Application development, in particular niche consulting in cloud and big data technologies, is probably one of the most lucrative jobs in the market right now in terms of hourly rates,” says Noyes.

For Hoffman, the expense involved with application development has less to do with salary than with the ability to manage project scope effectively. “When you’re building an application, you really have to get good at defining the functional scope and what’s in and what’s out,” Hoffman says. “You have to follow a very detailed process to make sure you’re not going to get killed on change management.”

Getting into the market can be relatively easy, veterans of the process say. Start out by offering to do a fixed-bid project for an existing client, or provide augmented staff services by hiring out developers.

For the more consultative and profitable application development work, investments in staff and training are required. Vendors, Microsoft and Red Hat among them, offer app dev training and resources to partners. Then there’s the low-code application platform market that facilitates rapid delivery of business applications without significant coding. Appian, Mendix, and OutSystems are among several dozen vendors in this space.

Noyes sums up: “This is not a difficult field to get into if you enjoy learning and the puzzle-solving nature of software development.”  

READER ROI

  • CLOUD, MOBILITY, AND IOT create demand for application development services.
  • APPLICATION DEVELOPMENT provides opportunities for new customer and project acquisition.
  • CHANNEL PROS WITH EXPERTISE in infrastructure and development will be extremely marketable.

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Image source: ThinkstockPhotos

About the Author

Megan Santosus's picture

Megan Santosus is a Boston-based freelance writer and frequent contributor to The ChannelPro Network.

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