Software As A Service Means Big Changes

When asked in the VARBusiness 2007 State of Technology Survey: Business Software about the biggest obstacles they encountered selling Software-as-a-Service applications, solution providers that sell on-demand apps pointed to worries among their customers: 55.8 percent of respondents said customers have concerns about trust and security, 53.4 percent cited client resistance to outsourcing software and 47.9 percent said clients have some resistance to the SaaS pricing model.

But some obstacles to adopting a SaaS business model may be a little closer to home, and these are likely to create internal tension throughout solution provider organizations. Adopting SaaS will mean big changes in how solution providers operate, from the types of value-added services they will be expected to provide, to the kinds of skills they will need, to how the cash flows in. "It becomes a very tough strategic decision, which I'm convinced many [solution providers] don't know how to make," says Forrester Research analyst Michael Speyer.

Nearly half of the surveyed solution providers are already involved with SaaS, hosted either by themselves or a third party, while 26.8 percent plan to offer SaaS within 12 months. Sixty percent of all respondents already involved in SaaS think that it will force them to evolve their businesses. Of those, 56.1 percent expect to add professional services and support, 49.3 percent say they will be forced to change their business model and 45.5 percent say they will offer hosted/managed software services.

Spinnaker Network Solutions, an Irvine, Calif., reseller of Microsoft Dynamics CRM apps, plans to offer the CRM Live on-demand version when it's available next year, says President Mitchell Cannady. And the changes he expects that to require for his business are major.

Cannady said he plans to create a separate division to manage that business, given that customers will likely be smaller and won't require the kind of integration and customization work that users of on-premise apps need. Cannady, in fact, sees the new division as an "incubator" for new customers that could migrate to on-premise software as they grow, and for sales and technical employees who can start out with simpler on-demand customer engagements before graduating to more complex customer deals.

But not all solution providers are as enthusiastic about Microsoft offering on-demand products. The survey found that 35.4 percent think Microsoft is the vendor most likely to take away from their businesses by offering SaaS products.