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Channel Matters Blog > February 2012 > Channel cloud computing

Channel cloud computing

by Ian Moyse
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Resellers are heard to voice, ‘show me the money’ when it comes to cloud and vendors need to do a better job of mentoring their channels as to how to monetize cloud propositions and overcome the fear of financial change. (By Ian Moyse, Cloud Industry Forum and Eurocloud Board Member) 

Cloud computing, including Software as a Service (SaaS) is here to stay and continues to become a larger piece of the IT budgets of small businesses, as well as global organizations.  Twenty one percent of companies are piloting SaaS applications, according to a recent Forrester Research Report.  Not bad in a tough economic year.  In fact, the research firm predicts growth of a similar fashion for the next few years and in 2013 Gartner is forecasting the SaaS market to reach $16 billion. "Adoption of the on-demand deployment model has grown for nearly a decade, but its popularity has increased significantly within the last five years," said Sharon Mertz, research director at Gartner.

SaaS applications today span a variety of traditional applications like Payroll or Tax to Customer Relationship Management (CRM) software as well as email and security.  More of the SaaS vendors each day expand their sales strategy to embrace the channel as a viable approach to help them cost effectively increase their reach into the market.  Although many Value-Added-Resellers (VAR’s) recognize the growth opportunity that SaaS based services could have on their business, they continue to struggle with a business model that allows them to embrace such a radical paradigm shift in their business.  And compounded with all is the stark reality that the economic conditions globally have caused many businesses to scale back on spending.  So invariably when I meet with traditional software VAR’s, I am often asked a very basic question.  Can a VAR ever hope to exploit the benefits of offering SaaS solutions to their clients without a dramatic shift in their business model?

To answer this fully, let me start by getting to the heart of some common areas of confusion about SaaS based Services.  First off, many VAR’s selling traditional software earn approximately one to three times revenue selling services to the client to implement the solution.  With SaaS, this opportunity not only does not go away, but is enhanced.  Consider a VAR that is an expert in accounting selling and implementing traditional accounting software for a client.  They understand the application and can leverage their consultative sales skills to identify the requirements and propose a customized solution for their client.  Step one, they sell the application and make a margin on that transaction (once).  They then begin the implementation process by perhaps installing a server, as well as all the supporting services like the database, and eventually the application.  In many cases they may need to set up printers, various systems drivers, etc.  Although competent at all these tasks, the true value of their expertise has yet to be exploited.  They are accounting experts and so far have spent perhaps days without yet getting to the thing that the customer needs most – a customized accounting system.  Eventually that work begins.  In contrast, the same application being offered in a SaaS model allows them to start the process with the customization and setup of the application and therefore focus on the higher value services and expertise that the VAR is bringing in this equation.

Another area of great confusion is that all SaaS services are month to month and therefore the revenue opportunity is too small to matter.  The reality is that most SaaS services offered today are sold as annual contracts or even multi-year contracts.   Since most SaaS offering have minimally an annual contract associated with them, the VAR can not only realise a higher booking value, but in most cases an annuity revenue stream.  Most of the vendor’s SaaS programs offer the reseller the opportunity to share in the margin over the customer life cycle (in many applications, this could be 5-7 years or longer).  This actually has another large benefit over the more traditional software sales model.  The valuation of the VAR’s business will be much higher if the VAR has a run rate of revenue that is predictable and consistent.   This also affords a level of smoothness to the revenue stream that allows VAR’s to more comfortably invest in their own businesses as they have a historical run rate of business that they can count on seeing.

So with that as a backdrop, answering the original question about “whether a VAR’s can ever hope to exploit the benefits of offering SaaS solutions to their clients without a dramatic shift in their business model?” becomes clearer.    There is no need to run before you walk.  The more prudent approach is to evolve the business model. VARs can start by taking on a SaaS services that are complimentary to their existing business and invest enough to get started.  They may need the vendor to provide training and some initial sales support until they can ramp the business and cost justify the growing investment that allows them to profitably scale the business.  To be successful they should focus first on their own client base and identify key prospects from that list and then conduct webinars with those clients (most vendors will support this effort) to educate them on the value of the new SaaS services they now offer. 

Resellers who wish to benefit from the SaaS opportunity start in the specific knowledge domain of their organizations and add SaaS to their existing portfolio of offerings.  The breadth of offerings and creativity of packaging them allows them to approach more opportunities on a consultative basis allowing them to solve problems for their clients in creative ways.  By adopting this approach, before you know it, your VARs will be well on their way to leveraging the adoption curve of SaaS solutions.

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