Winds of Change Take Shape in the Cloud
With vendors investing in software opportunities in the cloud, change again comes to the channel. Will partners be left behind?
By Dean Madsen
In the channel, change is constant and inevitable. And now, as we prepare for the change to a new year, cloud computing is quickly gaining momentum, and is being offered by such vendors as Google, Salesforce, HP, IBM, Microsoft, and many others.
The growth of cloud computing, aka software as a service (SaaS), is impressive. At the SaaS Economics Summit in San Francisco this past April, for example, a claim was made that there are 1,400 vendors selling SaaS. And analyst reports point to the software’s strong growth: IDC forecasts a 30 percent compound annual growth rate between 2007 and 2011. Gartner Inc. says that SaaS represented approximately 5 percent of business software revenue in 2005, and that by 2011, 25 percent of new business software will be delivered as SaaS. Deutsche Bank, for its part, has projected that the SaaS market will account for half of the application software spend by 2013.
So how do solution providers weather the change? Where do they fit in? Many vendors are grappling with these questions, even as they struggle with questions of their own, including whether or not to sell these new software solutions direct. Experienced vendors understand the power of the channel, but are unclear about its role and compensation. Newer vendors starting with SaaS technology are wondering if they need the channel at all.
The good news is that vendors either know, or are quickly realizing, that they cannot scale their direct sales efforts to effectively penetrate even the enterprise market, and they certainly can’t be successful without the support of the channel in going after the broad SMB market. Especially in these uncertain economic times, the simplicity SaaS offers–as well as its lower capital expenditure, shorter decision and implementation cycles, and overall reduced risk–makes it a compelling offer. Even so, the fact that channel partners have positioned themselves as trusted advisers to their clients means that vendors will need their support to find and close new business.
Now is a great time for solution providers to get ahead of the curve and look closely at their businesses. Over the years VARs and integrators have continually moved from products that have become commoditized to new technologies (mystery = margin). With SaaS shifting from point solutions to platform strategies and managed services converging with SaaS, the winds of change are again blowing toward margin opportunities for the channel.
So if you are migrating your business from desktop, networking, and storage sales to desktop outsourcing and managed services, consider moving your software sales to subscriptions and recurring revenues. There are many services you can offer as part of an overall SaaS solution that will greatly enhance your margins and account control. These include:
- Project management
- Configuration
- Data migration
- Integration
- Training
- Security
- Monitoring usage and performance levels
- Tracking service-level compliance
- Resolving service issues
Remember, renewals are the lifeblood of the SaaS model, so work with your vendors and clients to ensure retention, and use the renewals process to upgrade and cross sell supplementary products and services. Finally, build an ecosystem of vendors with complementary solutions as well as reseller partners that can help you grow your trusted adviser role with your customers.
DEAN MADSEN is CEO of Channel Steps, a San Jose, Calif.-based provider of consulting services that assists technology companies with partnering strategies and plans.
