On-Demand Software: Threat Or Opportunity For VARs?

Owning the relationship with the customer or, at the very least, clearly delineating the solution-provider and vendor roles and responsibilities, is critical for channel partners. Without that, customer confusion and channel conflict can result.

"We own the relationship. That's the value we bring to our customers," Gatestone's Frazier says. While Visitar hosts its software, Gatestone works with Visitar to implement it and provide the first level of customer support. Gatestone also handles the billing and earns margins of up to 35 percent on Visitar's monthly fees, based on the number of seats it sells. Gatestone even white-labels Visitar's applications.

Zeroedin is usually the relationship-holder with its clients, but in some cases NetSuite is the primary contact. The key is that one party or another takes the lead. "At the end of the day, it's going to be very confusing for the customer not to have one point of contact," Servi says. In either situation, NetSuite handles the sales transaction and billing, and communicates with clients about such issues as planned downtime for service maintenance.

Technology consulting firm Moulton Strategic Partners integrates on-demand applications from Salesforce and Business Objects for its independent financial-planning-firm clients, and provides its own wealth-management software, report templates and technical expertise. But the relationships among Moulton, its customers and the software vendors can differ. When Business Objects' Crystalreports.com on-demand reporting application is part of an implementation project, Moulton handles the billing arrangements with the client and earns a percentage of the sales price, says vice president and principal Bruce Moulton. But Moulton's customers work directly with Salesforce to order and pay for the vendor's CRM apps, with Moulton sometimes earning a referral commission. "That's the way they work. That's their model," Moulton says of Salesforce.

There's no shortage of start-up companies offering SaaS applications, either. And that's creating more opportunities for solution providers. Vocus relies on channel partners to resell its on-demand corporate communications and public-relations applications. Likewise, Alert Logic, a supplier of on-demand network-security and vulnerability-assessment applications, has acquired about half of its 150 customers through its channel partners. In December, Alert Logic added 15 VARs and service providers to the Vanguard Partner Program it started last August.

Business Security Solutions resells Alert Logic's on-demand apps, offering it as a managed service to its customers, says president and CEO Larry Dannemiller. "We're really the front end of [Alert Logic's] sales organization, the lead gatherer," he says. Business Security Solutions earns fees based on initial contracts and renewals. "It's a nice revenue stream," he says.

Reseller Data Return white-labels Alert Logic's services, handles the customer billing, and manages the connections between the customer and Alert Logic's back-end network-activity-analysis services. "As far as our customers are concerned, they are getting their network-security monitoring through Data Return," product line manager Tony Savoy says.

Neocase Software, which offers on-demand and on-premise versions of its customer-service applications, launched a channel program last September to enlist solution providers with the ultimate goal of driving some 95 percent of its sales through channel partners, says Tara Ryan, senior vice president of global marketing. In December, the company announced it had signed up more than 20 channel partners, including some Microsoft resellers, such as ISS Group, Tribridge, Altico Advisors and Navint Consulting.

On-demand project-management-software developer eProject takes a similar tack, relying on solution providers with expertise in best-practice, project-management methodologies to help customers implement eProject's PPM6 product. Some of eProject's partners are more traditional resellers—15 to 20 percent of the company's sales are through partners—while others focus on consulting and let eProject take the sales lead.

David Blumhorst, founder and president of Effective IT Group, is an example of the latter. EProject calls Blumhorst in when customers need advice about prioritizing and executing projects and managing project resources. "It's easier to bring the business-process expertise into play with a [SaaS] tool," he says. "It frees the customer up to work on the business-process side."

The SaaS world continues to evolve. In November, Business Objects acquired Nsite Software, an on-demand application platform through which Business Objects will offer expanded on-demand data-analysis services and allow ISVs and channel partners to build add-on SaaS analytical applications, says Steve Lucas, vice president of on-demand software and services.

Also, Salesforce unveiled plans last December to create a partner-referral program to boost ISV sales through its AppExchange network and direct-sales representatives.

SaaS means more emphasis on business expertise, value-added services and nurturing ongoing relationships with subscriber customers, and less emphasis on big-bucks implementation projects. "More and more of what we do is tied to online applications and less and less to physical implementations," Moulton says.