SAAS: Friend or Foe?

Is there money in it?

What actually is saas? most analysts who follow the model's evolution agree SAAS is not a new technology but, rather, a new method of delivering technology. The software being delivered as a service typically is industry-standard, off-the-shelf applications that are not customized. The software also typically is multitenant and based on one copy of code being used by multiple users and companies on a monthly or subscription basis.

Definitions aside, what has channel players most concerned about SAAS is how exactly the channel fits into the model and makes money from it. While some solution providers, such as Omega, have adopted a maintenance route, others point out that with SAAS, maintenance and administration are minimal because the software is configurable but not customizable. Lurking in the background is Salesforce.com's success in selling SAAS directly to customers.

Rich Watson, vice president of marketing for ADP Major Account Services, said his payroll solutions company has seen a massive uptake in demand from clients that want software delivered as a service. ADP hosts applications for clients and manages them online.

"About 50 percent of our customers now want our software on demand," Watson said. "It makes it easier for them to manage, and it's the fastest-growing segment of our business in the midmarket. It also provides more control to the client."

ADP's SAAS strategy is based on direct sales. "We have a large direct-sales force, and we also find that as you move upmarket in the payroll sector, it demands a face-to-face discussion, which is what we can do with our direct-sales teams," Watson said.

Gartner's Pring said SAAS is about making things simple and losing the management headaches that technology can bring. "The underlying principles of what is going on in the software market are not favorable for the channel," Pring said. "It is in this pain that suppliers make their money. The dysfunction of technology is a channel opportunity."

Pring said that while the market readies itself for change, VARs should be quick to adopt new technology to help users become more competitive.

Forrester's Speyer sees two ways in which the channel can profit from selling SAAS: sales and integration. "VARs can make money through the resale of the application, although this has very little to do with any value-add. It is just a straight resale," Speyer said. He added the model becomes more interesting for solution providers when it involves more complex software, such as CRM or ERP, since those applications require more data integration that solution providers can perform.

"Resellers can make the applications work for the customer and layer on consulting to help the customer change its business processes," Speyer said. "Because SAAS is configurable, not customizable, it is up to the firm to change its processes around the application, and so VARs can sell change management consulting."

If the SAAS software needs to integrate with other software in the customer's organization, VARs can gain revenue there as well, Speyer added.

How solution providers make money from SAAS will also depend on the market a solution provider is selling into—small businesses, midmarket companies or enterprises. There is a way for resellers to make money from selling SAAS, either on a per-seat basis or a flat rate of recurring revenue, but this varies from product to product and vendor to vendor.

Ian Cook, CEO of enterprise solution provider Logicalis, said his company is cautious, having not yet jumped into SAAS. "We have managed services already, but I remain to be convinced that the SAAS market is right for us. The market is very immature right now, and I am not sure how many enterprise-class customers would use it. However, we are most definitely watching that space."

Graham Jones, CEO at VAR Integralis, which offers security software such as unified threat management, firewalls and updates as a service, said customers lacking in-house IT resources are driving the market.

"We are not talking about mom-and-pop shops, but branch offices and midsize firms are where we are seeing the most traction," Jones said. "It is not happening in the enterprise yet, but as applications and offerings become more mature, it will happen."

Read said SAP VARs can make money on an annuity model—getting margin for initially selling the software and signing a contract with a customer that generates a fee over a period of time. "Market demand will drive partners to change their business models," Read said, adding that vendors also will be compelled to make software solutions available as a service.