SAAS: Friend or Foe?

Business-model change

Speyer agreed with read that vars must be willing to change their business models to play in the SAAS space. Revenue from project work for a solution provider adopting the SAAS model could shrink as much as 75 percent, Speyer said.

"If you take Siebel CRM systems, the channel would have previously taken months to implement the system, and have engineers on-site with billable hours," he said. "With SAAS, the time is reduced, so there are less hours to be billed for."

To begin with, they must take into account that each deal will be worth less than ever before, so it's imperative to close more sales. Solution providers also must address internal costs, since they will not need as large a highly skilled work force under a SAAS model as in a traditional approach. Finally, solution providers planning to take on business process consulting will have to hire staff with appropriate skills.

Ramsac's May said the economics of recurring revenue rather than one-off hits poses a difficult hurdle. "The challenge would be making enough profit through SAAS compared to selling on-premises software the traditional way," May said.

VARs should look to have a mix of SAAS and on-premises software if they're going to try to make any transition, according to Ready2goIT's Connor. He said as the groundswell for SAAS grows and becomes the norm, more and more customers will demand software in this way. "Traditional on-premises software is so undifferentiated and commoditized that VARs will struggle to make as much money this year as they did last year."

Integralis' Jones said VARs should take a measured, slow approach to SAAS. "We run both on-premises and SAAS delivery models, and while we could make a switch to 100 percent SAAS, the market is not ready for that yet," he said.

However, running both on-premises software and SAAS can bring financial headaches for VARs, Jones said, in that it is difficult to transition from getting a big one-off payment to spreading costs over a much longer period. "Suppliers need paying back, and there will be margin and cash-flow issues," he said.

Channel players looking to transition should first start looking at what products to build their SAAS business on and what changes in their finances they will need to make to achieve this, said analysts and channel executives.

A change for vendors

solution providers are not the only companies that must change business models. As SAP's Read pointed out, vendors must also supply the right software in the right way with the right incentives for the SAAS model to gain more traction in the channel. "They should ensure the SAAS solution provider has the right consulting skill sets and is business-smart to manage the on-premise[s] software concurrently with SAAS," he said.

It is more than likely that vendors will need to grow their channels, but they have to know how to deliver SAAS properly and avoid oversaturating the market, said analysts and channel executives.

Just as with vendors, distributors also have to change their business models to play in the SAAS space. Under the SAAS model, hardware and fulfillment take a back seat, while compliance and digital rights management, as well as aggregating vendor offerings, become central to how distributors operate.

Bob Dutkowsky, CEO at Tech Data, said the distributor is already offering services through the company's MyOpportunity Tracker and MyServices Tracker. "We are already leading this sector, and were the first distributor to help Trend Micro with its SAAS offering," Dutkowsky said. "We are in a good position to grow this market, and although the bulk of software is still on-premises, we are well-prepared to deal with both kinds of partners."

Keith Bradley, president of Ingram Micro North America, said the distributor is certainly watching the market. "There is nothing right now that you can point at and say SAAS is here today, but there will come an inflection point. Look at Google—free productivity tools, driven by adverts, but is it business-orientated?"

However, Bradley said SAAS is definitely on its way and he is confident that VARs will play a role.

Bradley said the key questions regarding SAAS revolve around the effect it will have on the channel and when the transformation will take place. Ultimately, he said, if on-premises software continues to make money for solution providers, it may fall to the users to ask for software delivered as a service, pushing the channel in that direction.