Channel Tips:

SaaS and the Reseller Channel
 

By Greg Nutter

SaaS, or Software-as-a-Service, is a hot trend for new software companies – so hot, that many mature software vendors are looking to provide SaaS as an option or even migrating completely to a SaaS delivery model. While SaaS offers lots of benefits for both customers and software developers, resellers are sensing more downside. If you’re considering licensing through a SaaS model and depend on a successful reseller channel, here are some of the things to consider.

SaaS Defined:

In the late ‘90’s, Application Services Providers, or ASPs, burst on the scene with promises to deliver high functionality software without the resources and costs associated with onsite installation, integration, and support. ASPs hosted their software on remote servers and provided user access via the internet. Besides the economic downturn in 2000, the ASP model failed for two main reasons:

1)     broadband wasn’t widely available to support remote user access; and

2)     each new customer required their own separate hosted system (software and hardware) resulting in higher delivery and support costs.

Today, the ASP model has been resurrected under the name SaaS with the key difference being that the software has been designed to support multiple customers from a single instance of the software (multi-tenancy). These systems are specifically architected for SaaS and, with the widespread availability of broadband, are more stable and cost-effective which makes the model workable. Customer benefits for a SaaS based solution include faster implementation, fewer infrastructure upgrades, limited or no upfront investment, unlimited scalability, and reduced costs for maintaining and managing the system. Software vendors like the model too because it involves shorter sales cycles, faster installs, easier upgrades, and the ability to lock-in a fairly predictable revenue stream. It also allows start-ups to differentiate themselves from more mature software solutions.

SaaS and the Reseller Channel

When the software delivery model changes from an onsite to a hosted solution, a lot of the traditional services associated with installation, integration, and infrastructure upgrades disappear. In addition, since software vendors often align reseller compensation to customer payments, resellers have to adjust to receiving their software commissions spread over multiple years which can greatly stress their business model. Since the combined prospect of receiving less revenue over a longer period of time doesn’t sound like an appealing proposition, most resellers are less than enthusiastic towards SaaS.

What You Should Do:

If you don’t have an existing channel in place, it’s very important as part of your initial planning process that you give special consideration to whether your resellers will make enough money with your SaaS offering. You also need to ensure that the tools and programs you develop adequately support them towards achieving it.

If you have an existing channel, you have two primary options:

1)     Help your resellers find higher value services:

Ø       A lot of installation and infrastructure upgrade services are low margin activities. If you can show your channel how to transition to high margin enterprise integration services or even higher-end business process consulting, they’ll worry a lot less about not being able to charge for pressing the “Install” button.

2)     Revise your channel profile and recruit new partners:

Ø       There’s a wide range of resellers who have very different margin requirements so finding new partners who can operate at lower margins can be a good approach. Another option is to recruit partners where your SaaS offering can be sold as an add-on to another product or service. This reduces the partner’s cost of sales and provides them a more competitive overall solution.

In the book “Flight of the Buffalo”, authors James Belasco and Ralph Stayer point out that "Change is hard because people overestimate the value of what they have—and underestimate the value of what they may gain by giving that up”. Similarly, making a change in the channel, whether it’s developing new tools or recruiting new partners, can be particularly hard and many companies delay making these critical decisions until they have suffered a great deal of financial pain.

A few months back, I attended a SaaS seminar where a vendor panelist made the comment that “the channel hadn’t quite figured out how to deal with SaaS offerings”. My advice is that, if your business depends on a successful reseller channel, the responsibility to figure out how to make SaaS work is yours and it depends on having the right partners and programs to make the transition.

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Greg Nutter is a Principal with Soloquent Inc. (www.soloquent.com) where he helps technology companies develop go-to-market strategies, programs, and tools that increase indirect and direct selling performance. He has over 20 years experience in sales, sales management, and channel development in the HVTO industry.

Got a comment, got a question, got a problem? Send Greg a note at greg@soloquent.com