In mid-December, Gartner released a report projecting software-as-a-service (SaaS) revenues within the enterprise application market would hit $9.2 billion in 2010, an increase of nearly 16 percent from 2009 when it stood at an estimated $7.9 billion, and an even greater jump from 2008 when it was $6.4 billion.

Along with its mushrooming growth, SaaS is changing certain realities for the channel as partners, posing challenges along with opportunities for VARs which are able to provide services that help clients get the most bang for their SaaS buck.

“Anyone who is in the VAR channel today…if they are not looking at cloud, managed services, software-as-a-service as an integral part of their business, they will be left behind,” said Dennis Mueller, vice president of technical services at CMT.

CMT, which was founded in 1984, partners with a number of technology companies, including Symantec and NetApp. According to Mueller, the company closed $45 million in sales of Symantec products and services during Symantec’s fiscal year. While the software-as-a-service element remains a small portion of the business, customer interest is ramping rapidly, he said.

“We’ve seen a lot greater adoption and interest of it this last year than we ever have before. The trend of moving to the cloud and turning over services to third-parties to reduce operational costs is something that we’re seeing across the board, from large enterprise down to the mom and pop shops,” Mueller told CRN.

Part of the challenge for VARs is dealing with changing opportunities as SaaS eliminates or reduces some traditional ways VARs have of making money off of on-premise solutions. The whole premise of SaaS solutions, explained industry analyst Jeff Kaplan, is that they are cheaper and easier to deploy and manage. Those factors, however, leave “a lot of the fat out of the products that the VAR or channel partner used to capitalize on,” he said.

“The VARs are still trying to understand what the SaaS solution is and where the sweet spot is for them when they used to make a living off complexity (and now) a lot of complexity is being removed from the process,” said Kaplan, managing director of THINKstrategies.

The more successful VARs and solution providers are learning to move from a sales-centric to a support-centric model, said Andrew Plato, president of Anitian Enterprise Security, an IT security consultancy based in Beaverton, Oregon. Companies are also demanding their solution providers deliver more than just a low price, and be able to provide the support to make these complex technologies work, he added.

According to Plato, his company’s entire model for SaaS is based on delivering intelligence -- leveraging SaaS solutions to help organizations get the intelligence they need to respond to problems in a timely manner.

“This is a growing market, but the real value still remains in the ability for SaaS vendors have in delivering useful intelligence,” he noted. “Merely logging everything to a big database far away in some NOC (network operation center) provides very minimal value. You need experienced security analysts to be able to spot problems and help customers resolve them.”

Next: Vendors Can Embrace SaaS Model

If VARs still have things to figure out when it comes to SaaS, then so do vendors, who need to do a better job educating VARs about the functional capabilities of their SaaS solution, Kaplan said. Vendors also need to make sure they have enough application programming interfaces (APIs) to permit channel partners to play the role of integrator in a cost-effective fashion, he said.

“Customers are demanding and will continue to demand SaaS-based offerings,” said Matt Fogelgren, director of North American Channel Sales at Sophos. “Vendors and partners need to be proactive to come out and deliver offerings that satisfy these demands. For some vendors, it will be difficult to bring to market offerings in this model and still make money, while others will find it challenging to change the way they do business. The bottom line -- some will make the shift and others will not -- it can be a good fit for both partners and vendors but not all of them will be able to succeed.

“Vendors need to realize this is a new model for many VARs and there are some that are a bit nervous as to how this change will impact their livelihood,” he continued. “For partners, they need to realize that this is the way the market is going. If they won’t or can’t adapt, they will not be around in a few years. It is an evolving model and both partners and vendors alike must recognize that they will need to operate in this new model in some way.”

At McAfee, Alex Thurber, vice president of worldwide channels, said SaaS revenue grew 14 percent for the company in 2010.

“Our larger partners bring most of the business to us,” he said. “Seventy percent of the monthly SaaS business is generated and closed entirely by the partner. The financial advantages of monthly recurring revenue are real and very powerful to a partner's bottom line. Our model of selling with the partner, and then the partner sharing either a piece or the majority of the revenue stream (depending on the level of the partner) ensures that this is a true success story for partners both large and small.”

At the end of the day, VARs cannot change the movement of the industry, said Mueller. Ultimately customers are going to make what they think is the best choice for their business, which may mean going to the cloud, he said. “If so,” he asked rhetorically, “then wouldn’t it be better to find other means of revenue by offering them services and being proactive and helping them with that? Because software-as-a-service, yeah, you get less upfront money and maybe less money overall potentially. But in the near-term there is money to be made in the services aspect of that, and you do get the annuity income from these customers going to a [Symantec] MessageLabs…where Symantec literally will pay you a monthly check for the customers as they get signed up.”