SaaS Drives Sales For Savvy VARs

New York-based Bluewolf has ridden those higher average sales to become what many consider to be the No. 1 SaaS consultant in the country. One of Salesforce.com's top partners, Bluewolf is now a $30 million SaaS star with robust net income in the 20 percent range.

Bluewolf isn't alone. On average, the respondents to the CMP Channel State of the Market Study have 19 percent of their business tied to SaaS products. What's more, 24 percent of solution provider respondents are changing their business model to cope with the transition to SaaS, according to the survey.

For his part, Eric Berridge, co-founder and principal of Bluewolf, says one of the keys to SaaS success is to keep firmly focused on customer needs. "Salesforce.com has created so much hype in this market, which is mainly a good thing," Berridge said. "That has lent credibility to this market. But the problem with hype is you have to stay focused on what pays the bills. We tell people in our organization if you are not having a dialogue with a client, you need to look yourself in the mirror and ask yourself what you are doing. I don't care what the dynamic is, a hot economy or a bad economy. The customer makes the [buying] decision."

Berridge says he and his partner jumped headlong into the SaaS business because they saw a way to help customers get to market quicker and more cost effectively with on-demand solutions. And he's betting that Bluewolf's successful SaaS run is "only the tip of the iceberg." SaaS has thrived so far because CIOs and businesses want to get out of the infrastructure/hosting business, he said. "The enterprise organizations that hire us today know they can get to market faster relying on us rather than trying to do it themselves," Berridge said.

Up Next: BPO

The next wave, says Berridge, is outsourcing more business process re-engineering to companies like Bluewolf.

That move to focus on business process outsourcing is the biggest change solution providers are making to play in the SaaS world, according to the State of the Market study.

Berridge advises VARs that, given the declining commission margins on SaaS products, the idea of giving up SaaS commissions to focus purely on business process consulting may not be as big an issue as it once was. He sees a lot of the technical work surrounding SaaS engagements going offshore over time and the high-margin, high-value work being done by companies like Bluewolf "driving high-level conversations and building consensus" while managing the business process outsourcing and SaaS engagement from initial dialogue to implementation.

The big question for 2008 is whether software vendors like SAP and Oracle will step up to make a big SaaS play.

"By the end of 2008 you could see the big enterprise vendors kind of wallowing in the mud with their SaaS strategies very diluted," he says. Old-guard software giants used to selling multimillion-dollar enterprise engagements are going to have a hard time "turning on a dime" to sell SaaS products, Berridge said.

That said, more solution providers by far are working with software giant Microsoft on SaaS than any other vendor. In fact, 44 percent of solution providers polled said they are working with Microsoft, followed by 12 percent with Symantec, 10 percent with Citrix and 9 percent with MySQL. Only 4 percent of VARs polled said they are working with Salesforce.com.

Business Model Changes

Solution providers are exploring a lot of ways to alter their business models to deliver SaaS solutions to their customers.

Mitchell Cannady, president of Spinnaker Network Solutions, an Irvine, Calif.-based Microsoft Gold partner specializing in CRM, is setting up a completely separate organization to sell Microsoft's on-demand CRM product, slated for general availability in 2008. Cannady says this represents a significant new opportunity for Spinnaker. He estimated that 30 percent of all of Spinnaker's sales prospects are looking for an on-demand CRM offering for five to 10 seats.

"Typically, we passed on those," he said, noting it just didn't make economic sense for Spinnaker to take those deals on before setting up a separate on-demand CRM organization. "They just wouldn't have been a good customer for us. We wouldn't have made money working with them. Now we have a completely separate organization with different pay structures. My personal vision is we have to have a separate mind-set of how we sell Microsoft CRM Live vs. CRM on premise. In order to do this right, we need to look at this as a completely different business."

Cannady says solution providers that try to adapt SaaS into their current business model are making a big mistake. "That is why there is so much fear and concern in the partner channel around SaaS. They don't know how to do it. That's because they are trying to fit it into the business model they have vs. reinventing the business model," he said.