Channelsales Worldwide

Single vs. Multi-tenant; its all the same for partners, Yikes! Don’t be scared!

Denis Pombriant  from CRM News has a clever article and provides insights into the true definition of SaaS. He makes a number of excellent points that from a customer perspective shines light on the distinctions between single (not true SaaS but the majority of applications out there) and multi-tenant architectures that he believes are true SaaS(SaaS Nirvana).  http://ow.ly/rP4P

For VARS, SIs and resellers, they appreciate the clearer definitions that Denis provides, but in the end they really don’t care.  Whether the vendor has a single or multi-tenant architecture is not the point, either one has the same effect:   disrupting their on-premise model.  For most traditional IT partners, SaaS is a big hurdle and these partners have a pretty tangible fear about:

1)      The Loss of commission on the deal (waning in most markets)

2)      The loss of customer ‘ownership’

3)      The loss of follow on services

Let’s talk about what’s behind the fear in each one.

The loss of commissions (more specifically, erosion on margins)

In the hardware world, commissions (that is discounts on the resell deal) have fallen.  Vendors expect partners to participate in the lower margins confronting the industry.  In reality, commissions on hardware are much lower than they used to be.  On the software side, the pressure on lower margins is there but perhaps not as bad as on hardware. Nonetheless, the glory years of earning 30 or 35% on a deal are behind us (sorry, that is The Way We Were and we’re talking about The Way Things Are).

In the SaaS world, Salesforce offers a mere 10% referral fee, Microsoft 12% and 6% on second term renewals; Google’s new reseller model is 20%.  So VARS, the difference in the margins (on-premise vs SaaS) is less than what it was and I argue that the difference will continue to narrow as the margins on resell deals decrease and SaaS players add more, reseller-like models to their programs which should provide some upward momentum from the traditional 10% referral fee.

Who owns the customer?

This is a pretty sensitive point.  Historically, resellers have ‘owned’ the customer as they ‘sold’ the deal and usually took a nice percentage to provide first level support.  Under the SaaS model, vendors are typically selling direct (aka Salesforce…but they too, have recognized the need for a true indirect  model and launched its new reseller program for qualified Force.com partners just last month).  In the Salesforce case, customer support will STILL be provided by Salesforce and not the partner; so there is lots of reasons for tension and a large degree of unhappy campers.  The debate of  Who Owns the Customers is ongoing.    I believe in the end, customer support policies will be developed around what is best for the customer and not necessarily what is best for the vendor or partner. Fancy that, focusing on the customer, hmm…isn’t that what  SaaS is supposed to do in the first place?

The loss of follow on Services

Ok, it’s true SaaS applications don’t require the upfront investment in IT discovery and business process alignment, nor the extensive integrations.  But this is changing too.  Customers still need discovery, it’s just a different kind of discovery.  Today’s IT discovery for SaaS applications, is more about what the enduser needs and less about the IT integration and customization requirements that characterized big on-premise deployments.    The business process alignment has changed too but it is still there.  SaaS customers are looking for the answer to ‘how should I optimize’ a SaaS application in lieu of ‘how do I do’ in a typical on premise world.

It’s the latter that has most VARs , SIs and resellers the most perplexed and the most worried about.  They don’t need to become an expert in all, but do need to focus master the ones they do know.  If they come from IT, there is a plethora of SaaS applications in security, storage asset management to choose  from where they can start immediately.  And for line of business SaaS applications for  HR, Finance and Sales or Marketing?  These functions don’t operate in a silo (ok some do…ok, many actually do).  But from a data standpoint companies do need to share, update and synchronize data BETWEEN functions.  This means integration services partners, yep customers require SaaS to on-premise and SaaS to SaaS integrations (yes, they’ll be different but they will be integration services).

Ok partners, can you begin to see the light?  Single or multi-tenant may not mean too much to you; but the fact that the customer wants SaaS or on-premise or a blend of both can mean a lot for you whichever way the customer wants to step up how they operate  data:  On premise, SaaS (single or multi-tenant).

In yesterday’s article, Bracing for Change, Ovum’s John Madden, thoughtfully describes the challenges that Cloud Computing impose on (threatens?)  SIs.   John cleverly proposes several steps that SIs can prepare for, even implement today, to help them bolster their Cloud business. http://tinyurl.com/ycpy9wg

I certainly agree with John’s analysis but not so sure if the SIs need ‘Bracing for’ as much as ‘Embracing of’ the Cloud.  The former implies upheaval that is both unpredictable and potentially destructive.  Indeed, for many S the Cloud is seen as less of an opportunity and more of a threat.  And in that sense SI’s do need to ‘Brace for’ a ‘Cloudy day’.

John suggests SIs should innovate (presumably like crazy) and create an ‘ecosystem’ as two important cornerstones to Cloud success.    His wise prescriptions implicitly describe this notion of ‘embracing of’.

A good analog is when swimmer encounters a rip- tide at the beach (Ok, this is one I’ve NOT experienced!)…but the sage advice goes something like this:   swim with the current until the current dissipates and then you can make your way as opposed to try and fight and it you’ll just exhaust your resources and put yourself in a more precarious situation.

While I haven’t had a life threatening rip-tide at the beach, I do have experience with clients that have encountered (more likely present tense, encountering) how to make a profitable Cloud business with the resources and expertise they have.  I’ve discovered and encourage my clients to Embrace the Cloud.  The more that SIs can embrace the Cloud (less ‘bracing of’ and certainly not in lieu of on-premise) the more likely it is that they’ll create a compelling Cloud value proposition for their clients.

Short answer:  No.

Longer Answer:

The job doesn’t go away, in fact, we are at the beginning of a transformation of the CIO which the role will align more closely with the Line of Business executives and teams (even more than they already have).

The (SaaS) CIO role will be one of anticipation, facilitation and involvement (even lead) LOBs and not operate as merely the data connector or protector.  Ultimately, SaaS applications help company’s make important data visible in a timely manner.  All of us connected to the IT industry need to see the opportunity that SaaS give us to understand the data and operate in a more timely manner.  See my blog from yesterday:  Weapons of SaaS Destruction and Neutralize the VARs’ Neutron Bomb.

Very Long Answer:

Yesterday I addressed the notion that Richard Levy (Sandhill.com) raised in his article Weapons of SaaS Destruction.  Specifically, Richard dispelled 3 myths that on-premise supporters use to discourage SaaS adoption.  Consequently, many of the on-premise supporters believe SaaS is an IT Job Killer and by implication, the traditional IT-based VAR is a dinosaur.  That is where I come in because I’m an indirect/VAR/partner guy.  I hopefully dispelled this notion as well and am hopeful I provided a concrete example of how a VAR can leverage SaaS to their advantage.  http://blog.cw2clients.com/

Similarly does SaaS spell the end of the CIO?  Is SaaS a CIO Job Killer?

Ask my colleagues and friends, they know me as the all-around-nice guy, (thanks everyone) but when something strikes me so obvious…I have to take off the nice guy image and say, ‘HELL NO’, particularly when (I think) the answer is so obvious.

The rapid and broad adoption of SaaS applications in the marketplace is disruptive (in the sense SaaS apps provide nearly immediate value at low risk for customers — this is the way life should be, non?)

But the emergence of SaaS doesn’t mean that on-premise is going way; au contraire, SaaS amounts for less than 10% of IT spend. Yes the future means there will be more SaaS applications but it doesn’t mean on-premise goes away and “oops, sorry Ms/Mr. CIO there goes your job”.

Instead what we see emerging is a type of company that has hybrid systems:  systems that are ‘intra’ and ’interconnected’:  on-premise-to-SaaS and SaaS-to-SaaS.  One might argue that SaaS introduces more complexity; I think not.  SaaS and on-premise living side-by-side is probably made easier by SaaS.  But the interplay of how (and why) SaaS and on-premise systems work together is a critical CIO leadership role.

SaaS is not a CIO Killer.

This CIO role is not going away.   The role just embraces a new voice, a new dialogue and perhaps a new persona to lead.  What excites me that most is that SaaS means the CIO role will change or transform to another level not that it will NOT go away.

The CIO in a SaaS world means the CIO must work even more closely with the Lines of Business (LOBs). The emphasis will be on a proactive role.  These new SaaS/on-premise CIOs will understand the dynamics of what the businesses must face, even more acutely than they have had to in the past.

Take for example, Social Networking.

Here the CIO has an option to lead, guide and implement company Social Networking policy (as well as the traditional roles of secure and protect data).  SN tools are mandatory (ok at least getting there) for today’s HR (recruiting), Marketing and Sales functions, whether the company has SaaS or not.

So here is a viable opportunity for the CIO to work hand-in-hand (and lead) with the LOBs to create and implement a Social Networking policy.  There may not be a roadmap to create one.  When you think about it, who really has a ‘roadmap’?  Did anyone of us a roadmap we could pull from a powerpoint when we confronted the impact of last year’s financial crash on our respective businesses?   So just like everyone else, the CIO has an opportunity to create a new roadmap and invigorate the professional as SaaS adoption gathers more steam.

Is SaaS a CIO Killer?  No, the CIO role is just at the beginning of a whole new era.

Posted by Brian Anderson, VP Partner Outcomes, Channelsales Worldwide

www.ChannelsalesWorldwide.com

There is a Fourth Weapon:  The Neutron Bomb Created by VARS and Partners

Richard Levy from Sandhill effectively addresses the 3 myths that detonate as a massive weapon against SaaS adoption:  Security, Inflexibility and Cost.  These three myths create an impenetrable blast force  encouraging companies to defer (i.e., flatly reject) adoption of SaaS for their operations. http://www.sandhill.com/opinion/editorial.php?id=271

There is a fourth offensive weapon we can call, a ‘Neutron Bomb’ and is launched strategically by the traditional IT VARS.  These partners fear (unnecessarily) the demise of the hefty discount (the same partners are loath to admit that the hefty discounts aren’t so much these days, particularly for hardware) and value added services from the on-premise world.  While it’s always awkward talking about Money Matters among friends, there is a lucrative silver lining for VARS in the SaaS world.

Levy discusses the perception held by on-premise supporters that view SaaS as IT Job Killers.  IT Job Killers and their supporters are only doing (to a degree) what their IT-based VARS are suggesting them to do behind the scenes:  define when and where to detonate the myth of the Neutron Bomb:  SaaS means no VARS as trusted advisors  and therefore, e SaaS is a VAR Killer.  The  VARs’ Neutron bomb perpetuates the 3 myths that Levy suggests and in turn, makes it that much more difficult to separate myth from fact,  when engaging in enemy fire in the SaaS vs On-premise debate. Without an effective offensive tactical ordnance,  SaaS suffers in defeat and On-premise is named the Battlefield Victor (SaaS supporters know this is just a single campaign and not the war).

The Neutron Bomb is a fourth myth created and perpetuated by partners out of fear.  There IS a robust model SAAS model for traditional IT VARs.  Let’s just look at one aspect of SaaS:  its maturation level.  SaaS is maturing AND it means that SaaS must be integrated to legacy and to other SaaS systems.  In fact, in June 2007 (2 years ago!), Bill McNee, Saugatuck Technology, confirmed that SaaS was already deep in the second of three phases of adoption, noting that (SaaS is).. increasingly integrated with on-premise application in the IT business portfolio”.  http://www.sandhill.com/opinion/editorial.php?id=141

Not only are there requirements to integrate SaaS to legacy systems, today companies require integrations between SaaS to SaaS (see the Amazon/Cast Iron announcement of just 2 weeks ago, oops time flies so quickly in the ‘flat’ is the ‘new growth’ of 2009, it was actually announced nearly a month ago, September 1^st!   http://blogs.zdnet.com/BTL/?p=23530

Voila…traditional IT-based VARS, you have a great model to build and transition your business.  The model is not so much transition to SaaS as it is creating a new hybrid model:  on-premise/on demand Levy  calls for a truce between those who support SaaS and the internal naysayers (on-premise hold outs).  Not only can companies diplomatically create a truce,  they can deploy a reconstruction policy BEFORE the destruction begins by helping partners understand SaaS is not a weapons-hugging battlefield.

SaaS is very friendly to IT-based VARs!

Channel Web reports that mid-size companies are increasingly looking to embrace SaaS applications to run their business.  So, if you are a successful IT-based VAR (and scared to death about SaaS) here are some quick and easy (but very meaningful) steps you can take to help transition your business.  http://www.crn.com/software/220100314;jsessionid=XLQRA2YXDYCQPQE1GHPSKHWATMY32J

3 Action Plans You Can Implement Today as a Trusted (SaaS )Advisor:

1)     Help the CIO refine (define, in some cases) its security policy.   Hint:  most companies are grappling with opening up employee use of social networking, citing loss of productivity concerns.  Indeed that may or may not be the case.  But CIOs are struggling with giving Marketing and Sales (and HR) access to Social Networking to run their businesses while cutting off or limiting these tools across the organization.  Help the CIO figure out the policy (and technology mix) that will help them with this seemingly impossible task.

2)     Identify and study the relevant SaaS applications that your clients have considered and rejected.  Take your client to lunch and understand why these SaaS applications were rejected and what has happened since then.  What has changes with your client since then?  What about the marketplace. Are there new vendors to discover that might meet their needs today?   Be neutral but at the same time educate, counsel and stay close.

3)     If your experience has been strictly on the IT side of life and selling (oops there is a non-IT word) SaaS applications to Marketing, Sales, HR, or Finances is not in your comfort zone, take heart.  There is a proliferation of IT-based SaaS and Managed Service applications that have come to market in the last year and it looks like we are on the launch pad for growth at nearly light speed; particularly for security related apps.  Get to know the security-based SaaS applications that your current IT vendors are talking about or promoting.  Help the CIO be a hero.

So with one or all three easy steps, you’ll find SaaS plays right up the proverbial VAR’s valley: a sustained dialogue with the CIO/CTO and technical expertise that showcases your IT skills and experience, bar none!

How do you make your partners productive in a Sales 2.0 world?

Sales 2.0 (http://sellingpower.typepad.com/gg/2009/09/the-sales-20-movement-accelerated-in-chicago-part-ii-.html) has many facets, one of which is the discipline of more science in sales, that is, there is more measurement, analysis and predictability of the sales forecast.  In addition, Sales 2.0 encourages (almost mandates) a tighter level of cooperation and participation between Marketing and Sales.  HP’s Kevin Hooper reports that Sales 2.0 in his environment means that Marketing takes 15% of his quota — Get ready Marketing for the next forecast review!

But what is happening externally with Sales 2.0?  Almost by tradition, partners are recruited and trained (and in the non-SaaS they typically pay a fee as well) and they are off and running.   They are then left on their own.  Partner metrics (if there are any) are usually one-sided (vendor only); they are rarely shared or co-developed.

What’s been the result?  Well, you can’t treasure what you measure; more often or than not, everyone is disappointed and well angry.   Partners feel deserted and see nothing for their investments.  On the flip side, the partner management team reflects their disappointed by not reaching out and instead hunts for new revenue with other NEW partners to try and make their quota.  All of that ‘feel good’ goodwill at the beginning of the partnership has faded.   No one is surprised, we (partners and vendors) just take it in stride; it’s what we always done (in the Sales 0.0 and 1.0 worlds).

Sales 2.0, however, give us a new start to address an old problem:  how do you make your partners productive, now in a Sales 2.0 world?

Although a great deal of the emphasis of Sales 2.0 is about Inside Sales; partners do and can plan a key role in joint success.  After all, part of the Sales 2.0 philosophy is building and sustaining a meaningful dialogue with the customer.  Who else knows your customers as well?   (even better?)  Who else knows the ‘gotchas’?  Who else has a finger on the pulse?

• So, first off, do you measure Partners?
• Do they know the metrics?  (Are they aware they are being measured in the first place?)
• Describe the partner’s sales roles; is this common knowledge with the partner?
• What measurements are jointly developed?
• What investments are both sides going to make to realize these goals?
• What’s the process to review the results and tack a new course?

Sales 2.0 is both a dialogue and a process (and in many cases. technologies).  There is a viable, if not critical role for partners in a Sales 2.0 world (yes, for both SaaS and On Premise).   A successful Sales 2.0 dialogue means shared metrics with partners.

Last week at Sales 2.0 several vendors described how they track and measure disqualified leads in the sales funnel.  It is an interesting concept because it implies that the company understands what a qualified lead looks and feels like in the first place.   It also hints at the growing convergence between Marketing and Sales but that is another subject.

On the channel side, how many vendors proactively qualify their partners (meaning are they actively culling partners that aren’t productive)?  This may mean a conundrum for SaaS companies, particularly those in the early stages of selling and deploying their applications.   How do you convince partners to invest time and resources when the sales model isn’t clear?

Most early SaaS companies take a more reactive approach and recruit partners with the HOPE of recurring revenue.  After a few months or maybe after the first year  of sales (multiple by 7 to get the equivalent in dog-years for premise solutions), early stage SaaS companies often find that their ecosystem is full of partners recruited because they were ‘friendly’ or ‘family’ but have demonstrated limited ‘sell through’ momentum and success.  They are left with the unfriendly and less than fun topic over the phone (not even over coffee or drinks) to politely ‘disengage’.

It is true that SaaS applications are easy to deploy and derive early value for customers.  It is certainly logical to have a low-barrier to entry from a partner model perspective.  It does, however, make some sense to at least develop the profile of the ideal partner.  Not only based on their geography or reputation but take a closer look at their business model, how they provide value to their (yours-to-be) customers and the shared domain expertise. The profile of the ideal partner is a recipe of some blend of these 3 elements.

Some up front, thoughtful work about aligning the vendors’ SaaS application, domain expertise and the partner’s capabilities will save some grief on the back end of partner ‘disqualification’.

I attended Sales 2.0 Conference last week and a mid-tier Microsoft partner explained how his company has used Twitter, Facebook and Linked to drive new revenue.  Revenue that was not only important for the VAR but ALSO led to significant incremental, new revenue for Microsoft.   This was a surprise for the VAR and Microsoft.  The Microsoft team took note and the new revenue was one of several factors that Microsoft identified why Microsoft named the VAR  Regional Partner of the Year.

Large(er) companies like Microsoft have some challenges with the speed with which they can deploy Social Networking tools by its employees for business purposes.  There are number of thorny processes and procedures that (naturally get in the way – but note, that Dell and Apple established communities of the 3 ‘majors’ of the  Social Networking Tools’).

Company privacy policies, security and the overriding need to protect the company’s brand have delayed (I wouldn’t say permanently) but definitely postponed the company’s ability to quickly leverage the value of Social Networking tools for lead generation and nurturing processes.  In this case, the VAR (albeit much smaller) was able to rapidly and deftly leverage these tools to create and nurture relationships that were not known to them before.  The relationships pushed new opportunities into the pipeline and ultimately realized revenue for the VAR and Microsoft.

So, if you are a partner with any ISV, hardware vendor, you may want to take a second look at even a modest investment of time (these solutions are free) and give some thought what it might take you down the path to be Partner of the Year.

I was meeting with a group of high powered, highly successful VPs of Sales yesterday and we were discussing the SaaS partner model (as it is).

Several colleagues have built their careers in the semiconductor business and were astounded to learn the most SaaS vendors do NOT provide any revenue to the partner in the second or third (or beyond) renewal cycles.  They were further shocked to learn that the initial compensation of a mere 10% or 12% as the partners’ referral fee covering the initial sale was astoundingly low, but felt better (somewhat) after a better understanding of SaaS business model cost structure.

In the on-premise world, VARS and resellers provide value by taking on some of the financial risk of invoicing, logistics and deployment.  They are typically compensated by a margin on the sales deal and as much as  10% additional discount, to provide 1^st level customer support.  It’s a common perception in the industry that the partners take the additional Customer Support 10% discount as additional margin and don’t invest in customer support training or tools — they just take the cash.

SaaS vendors have taken both back in house (1^st level of  support and the cash).  But vendors often struggle when it comes time for the SaaS customer to renew the contract:  Who Owns the Customer?  The vendor?  Or the partner?

The big SaaS CRM  vendors struggle with this issue and it has created quite a bit of tension between vendors and partners.  Here are some discussion points to help answer the question:

• Vendors:  vendors need to think about what life would be like when a SaaS customer is threatening not to renew and avoid asking the partner at the possible moment and as a last resort ‘ what can the partner do to save the account’?

• Partners:  In the SaaS world partners need to think about investing MORE up front in the SaaS vendor’s technology and take the high road:  vendors can benefit from the vast knowledge of best practices of what customers really need to optimize the benefits which will in turn make renewals automatic (well almost).

SaaS Renewals:   Who owns the customer?  The  vendor?  Or the partner?

I was meeting with a group of high powered, highly successful VPs of Sales yesterday and we were discussing the SaaS partner model (as it is).

Several colleagues have built their careers in the semiconductor business and were astounded to learn the most SaaS vendors do NOT provide any revenue to the partner in the second or third (or beyond) renewal cycles.  They were further shocked to learn that the initial compensation of a mere 10% or 12% as the partners’ referral fee covering the initial sale was astoundingly low, but felt better (somewhat) after a better understanding of SaaS business model cost structure.

In the on-premise world, VARS and resellers provide value by taking on some of the financial risk of invoicing, logistics and deployment.  They are typically compensated by a margin on the sales deal and as much as  10% additional discount, to provide 1^st level customer support.  It’s a common perception in the industry that the partners take the additional Customer Support 10% discount as additional margin and don’t invest in customer support training or tools — they just take the cash.

SaaS vendors have taken both back in house (1^st level of  support and the cash).  But vendors often struggle when it comes time for the SaaS customer to renew the contract:  Who Owns the Customer?  The vendor?  Or the partner?

The big SaaS CRM  vendors struggle with this issue and it has created quite a bit of tension between vendors and partners.  Here are some discussion points to help answer the question:

• Vendors:  vendors need to think about what life would be like when a SaaS customer is threatening not to renew and avoid asking the partner at the possible moment and as a last resort ‘ what can the partner do to save the account’?

• Partners:  In the SaaS world partners need to think about investing MORE up front in the SaaS vendor’s technology and take the high road:  vendors can benefit from the vast knowledge of best practices of what customers really need to optimize the benefits which will in turn make renewals automatic (well almost).