SaaS: It's Here To Stay

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It its Worldwide Partner Conference in Denver last week, Microsoft played up its "software plus services" vision, the company's take on the Software-as-a-Service market it has been edging toward for years and will cannonball into later this year with its on-demand, hosted CRM Live service. The vendor's message to partners was sharp and to the point: SaaS is here to stay, so adapt accordingly.
"This is a hard transition. It was a hard transition for us to accept a couple of years ago, and it's one that's full steam ahead at Microsoft. This is a different business model," Microsoft COO Kevin Turner said in the show's opening keynote. "My call to action for you today is: 'Look, this is going to happen. Software plus services is imminent. The customer is going to want the choice. We'll help you, we'll work with you, but this change is going to happen.' "
Several show attendees said they appreciated the clarity Redmond, Wash.-based Microsoft brought to its software-plus-services messaging, which had previously been somewhat nebulous.
"I still need to see more of the steps, but at least they've solidified it—and I give them credit because I think it's the most realistic approach I've seen in a long time," said Dave Sobel, CEO of Evolve Technologies, a Fairfax, Va.-based Microsoft Gold partner. "To actually come out and say this is a hybrid approach: it's not all one thing, or another, but it'll be somewhere in the middle. I found this to be surprisingly realistic in a very good way."
While other SaaS vendors take a wholly Web-based approach to delivering their applications, Microsoft's "S+S" vision has always focused on a melding of traditional client software and online services. That approach resonated with Sobel, who likes the idea of melding data services "in the cloud" with traditional, on-premise deployments.
"That's where I see software plus services making the most sense: being able to pick and choose, and then customize it," he said.
But as Turner warned, the transition to on-demand services delivered directly by Microsoft to customers won't be an easy one for all partners.
One solution provider noted that partners depending on revenue from installation and configuration services stand to lose out when Microsoft handles deployment directly, as it will for its CRM Live customers.
In a survey of 250 solution providers conducted in May by CMP Channel, only 22 percent of respondents said they worry that vendors' SaaS offerings will take away from their own business. The survey also found that 32 percent of respondents viewed SaaS as an opportunity, while 46 percent don't expect it to affect their business. But when asked which specific vendor, if any, they viewed as a SaaS threat, more than a third cited Microsoft, which drew more votes than all of its rivals in the top software ranks (Oracle, SAP, Sage and several SaaS vendors) combined.
One thorny issue with SaaS is that it puts vendors in the driver's seat: they bill customers directly, deploy the software, push updates out automatically and manage the installation. That methodology gives the vendors a powerful customer-facing position that some haven't been shy about exploiting., the industry's poster wunderkind, has been trying to invert the usual channel models by pushing partners to pay it referral fees, starting at 10 percent of first-year sales, on all deals the vendor influences. Launched earlier this year as a voluntary part of's AppExchange network of third-party add-on applications, the fee drew widespread grumbling among partners.
"I appreciate that it's inventive, but as an ISV, I'm simply not used to that approach," said one AppExchange participant.
"There is a lot of selling that goes on to partners. It's pretty intense. I think needs to strike a bit more of a balance, where a partner doesn't feel so much like a customer," said another.
There are signs that partners' pushback is wearing on the usually impervious company.
Two top AppExchange executives recently left, and the San Francisco-based company has scheduled a Web seminar next month to discuss its partner tiering structure. Several partners said that they expect the fee structure to be scaled back or entirely eliminated.
But amid the SaaS challenges are some bright rays of light. For one thing, solution providers say they're seeing broader recognition—among both prospects and SaaS vendors themselves—that they still have a role to play in customer deployments.
Next: SaaS Responsibility
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