Fear of the unknown

Speaking to both software vendors and resellers on a regular basis, there still seems to be some confusion and uncertainty about what Software as a Service (SaaS) means for their businesses. In my opinion, it represents both an opportunity and a threat for the channel. An opportunity in that it instantly opens the door to a global customer base via the Internet and could dramatically reduce the cost of delivery and implementation. A threat in the sense that short-term, it could be disruptive to established sales strategies as remuneration or revenue per sale remains an unknown quantity.

Major players like Microsoft, Oracle and Google have embraced SaaS as a viable model and it is not hard to see why. Ovum conservatively estimates that SaaS delivery will account for around 20 per cent of the overall software market in the next five years.  We would anticipate this to be nearer 30 per cent, but what is certain is the channel can no longer ignore hosted versions of software.

It is going to be interesting to see which resellers emerge as the leaders and the followers in this developing marketplace. Who will wait to see how the market develops and follow their lead; and who will see it as an opportunity to steal a march on the competition and establish SaaS credentials as a USP?

Could you be cut out of the loop?

There is a chance that if the channel waits too long to create compelling SaaS offerings for independent software vendors (ISVs) it could be cut out of the loop altogether. We have experienced an increase in the number of software vendors engaging with us looking at ways to deliver SaaS to their customers directly. For a start-up ISV, the barriers to entry are tough to identify. It is possible to partner with a managed hosting provider and gain instant access to the technical infrastructure for delivery, the ISO27001 security accreditation to put customers at ease,  technology architecture expertise and support services on hand 24/7 should it be required. It’s almost plug-and-play and from a resource and investment perspective it is not flippant to say it’s a no-brainer for many ISVs.

Alarms bells should be ringing for resellers that have not considered how to add value and justify margins in a SaaS sales dynamic. As a new ISV it is easy to embrace SaaS because the business can be geared towards it from the outset. However, for established vendors with successful channel sales strategies in place, the move is a big change, so there is a real opportunity for the channel to offer a SaaS delivery mechanism as a complementary offering to their existing license-based sales expertise. This is not something that can be changed overnight and will require a significant commitment from the organisation, but if the challenges are overcome the rewards are there for the taking.

The SaaS challenge

Developing a safety net

Going to market with a web-based system is very different to selling, shipping and supporting license-based software sales – especially large enterprise implementations. In order to develop an attractive and compelling SaaS offering for software vendors, resellers must firstly ensure they have a solid web-based platform, essential in providing end-users with a system that is secure and always available when they need it. The SaaS model differs from the product delivery strategies most resellers are used to. Being entirely web-based, it can be complex and costly to support in-house, given issues such as bandwidth, scalability, security and reliability of the web infrastructure. If a reseller is going to persuade an ISV it can run its customers’ business-critical software, on-demand via a hosted platform, it has to be incredibly robust and offer the optimum levels of security and availability.

Getting sales in line with online

Once a bullet-proof Internet infrastructure has been put in place for the software, a crucial piece of the SaaS go-to-market strategy is sales:  traditional sales teams are geared towards high-value, one-off sales and are not used to sales being generated and supported almost entirely via the Internet. With hosted software versions, fees are usually charged on an ongoing monthly basis, and will have a different impact on revenues than a typical large enterprise-wide deployment. 

Flexible service and usage-based agreements make forecasting revenues more complex than the established licence-only model.  Consequently, sales commissions will need to be revised as a higher number of sales will be required in order to generate the necessary revenue to hit targets. This can create capacity issues initially and can de-motivate teams if they are held accountable to existing targets and sales quotas.

Fitting the bill

A further headache resellers will have to tackle is putting a billing model in place that can cope with the new pricing mechanism. The billing model for SaaS is substantially different and implementing a new billing system that can cope with a high number of recurring transactions can be very costly – adding substantially to the number of changes to the business model and even to the initial expenditure.

Outsourcing for success

Faced with these challenges, it is understandable many resellers are nervous about committing to the SaaS model. The investment of time and money may be prohibitive for everyone except the biggest players. The good news is there are organisations that specialise in helping companies overcome these challenges.

Engaging with an experienced managed hosting partner is an option worth considering. Such a partner should have a global, well developed hosting infrastructure in place that can be tapped into with relative ease. By doing this, resellers can essentially outsource the entire web-based platform and benefit from signing an availability and security Service Level Agreement – guaranteeing around the clock support, industry leading availability standards and optimum security and creating a very attractive package for both software vendors and end-users.

In addition to an established technology infrastructure, any managed hosting partner worth its salt will be able to offer support and consultancy during a SaaS implementation. Resellers will gain access to SaaS experts to help tailor the architecture and strategy for their solutions – from business advice and dedicated technical support services to planning for lead generation and sales online and training programmes. Some partners will even offer business development sessions – workshops designed to independently evaluate and explore possible SaaS delivery opportunities, before you have signed a partnership agreement.

Mitigating the SaaS risk

Clayton Christensen’s famous concept of a ‘disruptive’ technology applies here for resellers I think. Whilst resellers can’t afford to miss-out, it is wise to be cautious to ensure the integrity of the existing business is not jeopardised. We often advise our partners, in the spirit of Christensen, to establish separate business units to focus specifically on the SaaS offering. It enables the reseller to establish new rules, new billing mechanisms and new sales targets for the team – rather than try to change established sales strategies mid-stream. By doing this, you mitigate the risk of SaaS adoption, whilst being seen to take a leading position and proactively seek a solution to software vendor’s needs. The resellers that act like leaders now will be in a much better position to reap the rewards SaaS promises in the years to come.