How To Build A Business Around SaaS

Potential Pitfalls
While SaaS offers many benefits to the channel, things can quickly turn ugly when clients decide to change providers or switch to an in-house solution. That's why some solution providers advocate sitting down with clients prior to deployment and mapping out a migration or exit strategy; otherwise, the VAR runs the risk of being blamed for SaaS circumstances beyond their control.

This is especially true with business-critical functions such as CRM and Exchange, because of the amount of configuration involved in setting up a service and tailoring it to a specific environment, said Advantech's Williams. Williams outlined a scenario in which a small business deploys Microsoft Home Server with Hosted Exchange services, and for several months, finds that the mix of file sharing, automated backup, shadow copy, remote access and mobile synchronization more than meets their needs.

However, if the Hosted Exchange provider suffers an outage or two, and the client informs the VAR that they're looking for another provider, the VAR must take care to explain the huge amount of re-configuration that will be necessary after such a move, said Williams.

Security should also be part of that discussion, according to solution providers. While most customers aren't concerned with the security implications of having someone else host their pre-sales data for CRM as a service, hosting sensitive data for financial applications is a different story, said LS Technologies' Gallagher.

Customers are also asking more pointed questions about the physical security of the data centers in which their data is hosted. As a security VAR, Vigilar is accustomed to dealing with these types of questions. For that reason, the company decided to employ heavy physical security in its building, in addition to power backups and generators, English said.

"The crux of the SaaS model is building customer trust, because customers don't have physical ownership, but instead are buying the value that the company is delivering," English explained.

Staying On The SaaS Path
Whether you're building a SaaS business from the ground up, or adding it to an existing business, staying committed to the model is of paramount importance, said Berridge, who notes that companies like Microsoft, SAP America Inc., Newtown Square, Pa., and Oracle Corp., Redwood Shores, Calif., are positioning themselves as on-demand while also maintaining ties to their on-premise businesses.

Ken Rudin, CEO and co-founder of LucidEra Inc., a San Mateo, Calif.-based ISV that sells business intelligence SaaS applications, said it's far easier for solution providers to be successful by partnering with vendors that have focused on SaaS from the beginning, and don't have an additional on-premise focus. "It's not because of technology, it's just that the cultures between the two are so different," Rudin said. "It's almost impossible for a company to be successful in both areas: The thought processes have to be so different, and the competing business models can cause a civil war."

However, LS Technologies' Gallagher disagrees with the notion that SaaS and on-premise models are mutually exclusive within the purview of a solution provider's business. "How would they conflict? In the case of Salesforce.com, partners don't sell the licensing, they do the implementation," he said.

LS Technologies, by virtue of its partnerships with Oracle and NetSuite, has one foot in the on-demand world and the other in SaaS. Gallagher says the mix of selling products and implementing SaaS solutions is a sound business practice that isn't going away anytime soon.

"When you can say either-or, you're in the best situation. If you generate 10 leads, your success rate of close will be much greater, and it helps to be able to speak intelligently about the difference between on-site software and SaaS in the cloud," Gallagher added.

However, just as the SaaS model is disruptive to software vendors, it's equally disruptive to the partner ecosystem, and not all solution providers will be able to make the jump, according to Rudin.

"Those that do make the shift see greater efficiency: They don't have to send consultants on site; instead, they can do teleconsulting, because it's all in the cloud anyway," Rudin said. "They can also work with more than one customer at a time, multitasking from client to client from their own location."

LucidEra works with a range of solution providers and ISVs that have successfully made the shift to SaaS. These companies are known as consulting services partners, and deploy sales force automation, business intelligence and CRM solutions to companies in multiple verticals, including health care, manufacturing, and financial services.

These partners also act as a de facto channel for LucidEra, but aren't traditional VARs who make revenue from implementation, coding and changing internal data structures, said Rudin. "We work together on opportunities, or they can sell it themselves as channel partners," he said.

Berridge said the channel partners of the future will provide ongoing services to clients that allow them to take advantages of the new functionality SaaS vendors roll out on a continual basis, but which some companies are able to keep pace with.

"The next generation SaaS channel partner will act as third-party support organizations," Berridge said.