Channel for SaaS

ISV’s adopting SaaS are facing challenge in creating a new business line which is different from the traditional license based revenue stream. One of the major challenge for them is to create a channel to sell their services. SMB's are too fragmented and difficult to reach even with a broad based campaigns, so creating channels is becoming a big requirement for SaaS vendors.

Today there are 3 different channels available

1. Direct sales by the ISV

2. Resellers

3. Market places

Today the resellers are primarily telco's or financial service providers or business service providers. They take the service in a bulk contract, rebrand and deliver it to their customers, example for such resellers could be XO Communication, AT&T, AMEX

The Market place provides a different model, where the buyers and sellers meet. Market place can be

• Vertical / Horizontal focussed like AppExchange, which has supplimentary applications for the CRM product from salesforce
• Demographic based like BT's market place for SaaS, which is more tagetted towards UK market
• Market place for Resellers like Jamcracker's JSDN

In future we will see more market places proliferating in the market. ISV's should build proper infrastructure to manage the reseller and market place channel, who knows some large ISV's might have thousands of resellers and participate in 10 - 20 market places in future and with out an infrastructure to manage that, it will be difficult for them .

SaaS and offshore IT Service Providers

Two of the major services provided by an offshore vendor are
1. Application development
2. Application implementation services or Professional Services on Enterprise packages.
For the top 5 Indian IT companies, these service lines makes up a significant amount of revenues (for some of them it contributes more than 50% of their revenue).

Both these service lines will be drastically impacted by SaaS, lets look at them in detail.

1. Custom application development:
This service line targets enterprises who want to build a custom software application instead of buying an out-of-box enterprise suite like SAP, there are multiple reasons why an enterprise go in for a custom application, here are a couple of reasons

a. Specialized requirements or the solutions available do not offer the whole gamut of features required
b. Cost is very high - licensing cost, Maintenance cost, cost of the application license keeps increasing for any new seats added

With SaaS, both these reasons fizzle out. Through services architecture all the services available in the web becomes integrable and a platform ecosystem enables the long tail of ISV's who have specialized expertise to build extensions to the common applications, which will address most of the specialized requirements of enterprises. SAP's move of creating Netweaver platform is a significant move in this direction.
From a cost standpoint SaaS is even more attractive than custom development - which also incurs huge upfront development cost and a substantial amount of maintenance cost.

So the bottom line could be SaaS might impact the amount of new custom apps being developed. Which will impact this particular service line of Offshore IT Service provider.

2. Application Implementation Services:

One of the core value proposition for SaaS is that you need not install the system in house and also that the customizations are easy and straight forward. Now considering these two, there is a general perception that the professional services work will not be relevant in a SaaS world, which is not true. Professional services will become more strategic rather than being associated with package implementation alone. It will be the responsibility of the professional services consultants to align the software with the business and make the usage more efficient. PSO teams should focus more on business problems like process re-engineering / change management rather than focusing on technical issues of the package implementation. This will make PSO's more valuable than they are today.

With the availability of platforms like AppExchange, Netflex, the technical aspect of implementations still exist, though in a different form. The implementation partners are responsible to build extensions to the existing applications using the platform. This would need specialized skill set trained on platforms like Apex or Connect.

So, the professional services wing would still exist but move up the value chain and provide consultancy around business process and better utilization of software assets rather than just implementation and also they would build skill sets in on-demand platforms.

Today Indian service companies like TCS, Wipro, Satyam have alliance with SFDC and companies like Accenture and Deloitte Consulting are also into strategic alliance with SFDC, which shows that the service providers are considering SaaS pretty seriously.

Looking forward, service providers should consider SaaS more seriously and plan to be successful in the software era of SaaS. We need to wait for some more time and find out on how Indian IT service providers react.

SaaS Platforms and Ecosystem

In the past week, i read couple of posts about platforms in SaaSblogs and also in Phil's blog. I just thought i would share my perception to the platform and ecosystem from a consumer angle (consumers of the platform, who are ISV's).I would classify the consumers as three types

1. Long tail of ISV's or Individual developers -- They need better support in building the application, hosting, service delivery, marketing. Its better for these companies to adopt a platform vendor who is either in an all-embracing ecosystem or Application ecosystem, for instance companies like Kieden (acquired by salesforce.com) can adopt this model where they ride on the popularity of the host's application and try to attract customer with some niche extensions.

2. ISV's with good funding and a larger application -- These ISV's would tend to create their own application offering and also try to participate in other marketplace ecosystems like Appstore or Jamcracker's JSDN or Strike Iron and in application ecosystem like Appexchange (CRM). Lot of partner application in Appexchange directory today fall under this category (companies like Xactly). Utility computing vendors would play a major role in supporting these companies. This is where most of the future native SaaS companies would fall under.The service platform ecosystem might play a major role here, i don't see the all-embracing ecosystem playing any role here as these companies have varied requirement and might have a customized or differentiated requirement, which might not be provided by the all-embracing ecosystem or common platforms like Appexchange.

3. There is a third type of companies who are existing enterprise ISV's (around 40 - 100M revenues) in the space of CRM, HRMS, Collaboration, Accounting and so on, who would migrate to SaaS to focus on new markets and increase their existing revenue. These companies need a different type of environment which would be offered by the Utility computing ecosystem vendors (i still don't think Amazon is still a player to be considered for the ISVs of this size, but a huge potential). There could be players like IBM, SUN, Microsoft and even opsource who provide this ability. We might also see an emergence of some strong India based offshore vendor playing significant role in this space in the future as most of the IT services companies have the capability required to provide this type of services today.

As more platforms / ecosystems emerge, all these ISV's will be forced to participate in multiple ecosystems / platforms and might increase complexity in maintaining the software in accordance to a large no of platforms, it will be as bad as certifying the software today (on-premise) in multiple stacks. ISV's would pray to have one or two dominant players offering the platform and others just play a role in creating a distribution ecosystem - like Jamcracker (JSDN) or StrikeIron.

Also, i think that existing SaaS companies who have their own applications and offer such ecosystems would be a huge threat to this model. The ecosystem vendor should be non-competitive to the participants. The ecosystem provider should play a neutral role and help the participating companies to grow, rather than becoming their own competitors, acquisition of Kieden by SFDC is a good example of what should not happen.

Microsoft's Multitenant CRM Offering

Recently there was a news from Microsoft on their new Multi-tenant CRM offering, which is planned to be released sometime in the middle of 2007. It is one of the most breaking news in the world of SaaS. It was considered that it would be difficult for Incumbent enterprise software vendors to break into the world of Multi-tenancy and build a solution that's scalable like a true net-native SaaS vendor. By releasing a true Multi-tenant offering Microsoft has broken the presumption. Also, the way they have opened up the software for its partner is again very interesting, it has shown a clear way of how partners can make money. We need to wait and find out how this new partner hosted deployment model would fare and how will Microsoft position Dynamics as an alternative CRM platform competing against salesforce.com's Appexchange.