Channelsales Worldwide

ChannelSales Worldwide Says: The 10’s: Hello to a Bright Channel Future!

Last week, Time magazine published a summary of why the 00’s was such a disaster for America.  The article chronicles the unpleasantness that bookended a decade of downward spiraling: from the loss of US political and economic prestige (somewhat) to social change and weakening public infrastructure. http://tinyurl.com/y9mdt

Buried in Time’s analysis is their comment:

We (the USA) are the leaders in technological innovation. And we are still the nation that most others emulate.

Hurrah for that!  And what about innovations and the prospects for the channel?    In just the last week, several industry observers have written interesting articles on the bright future for the channel:

• Salesforce’s Force.com Development Platform Gaining Traction. http://tinyurl.com/yljwyt5
• Dell Channel Chief: Despite Q3 Declines, Company Exceeds Goals With VARs: http://bit.ly/4xf01k (ok Dell’s Channel strategy has come along away and has a long way to go)
• Tech Visionary Kim Polese: Cloud Spells Big Opportunity For The Channel. http://tinyurl.com/yef9qay
• Adobe says it will open up unprecedented reseller opportunities http://tinyurl.com/yflu28f

So, yes we can say goodbye to the 00’s and welcome the 10’s with a burst of optimism whether  SaaS, PaaS, on premise or hardware and even HaaS — hardware as a service — is becoming de rigeur.

Roman Stanek in his October 1 blog, Please Don’t Let the Cloud Ruin SaaS, http://bit.ly/wRKCD thoughtfully took issue with the emergence of so-called “SaaS” applications (notable Amazon’s AMI) that are really a throwback to the on-premise/enterprise software  heyday of develop software a little bit and let customers take on the operational risks.  Roman clearly states this is this type of Cloud computing can have a backlash effect on true SaaS-based services, and I agree.

Roman’s assessment’ brings up the subject of what to do if a customer doesn’t know what they don’t know.   And specifically, what’s the role of a traditional, on-premise SI integration partner as they try and embrace SaaS as part of their portfolio of services?

Here’s a scenario that I’ve encountered.    When a client has a need to build a SaaS-based business intelligence application, as part of their SaaS offerings, what should the SI do to help?

• Does the SI advise its customer (a SaaS vendor) to solve the subscriber’s problem for one specific project (as in the on-premise world).  Typically, even in SaaS environments, subscribers /endusers have legacy systems (and maybe to other SaaS apps) that want to integrate with. The SI knows that they can probably deliver the project but does that serve the SaaS vendor the best?  This is a single discrete project so how can the SaaS vendor scale the project and offer the solution to all of its subscribers?

• Or, does the SI tell the SaaS vendor to start small, address a discrete piece of the subscribers’ (note the plurality here) problem in the SaaS environment and build on it incrementally?  Overtime, this incremental approach expands and all SaaS customers can enjoy of this solution available to all in the SaaS application.

These are two very different approaches and can form the basis for how a SI can effectively embrace SaaS.  As you probably know, there is quite a bit of consternation out there among SIs that SaaS takes their business away.  I propose that the SI’s business doesn’t go away in a SaaS model, SaaS just adds a new flavor to what they are used to.

So for example, instead of plain chocolate ice cream (that I crave) I recently discovered Chocolate with Ancho Chili (that I had recently at San Francisco’s Humphry Slocombe ice cream shop).  The first bite was a bit unusual, I knew it was chocolate but there was something else I couldn’t quite identify and then the Ancho chili exploded (arriba!).  After a little bit, things mellowed out and the chocolate and chili seem to blend into a great flavor and so I said to myself…”hmmmm that was pretty good, I think I’ll have some more!”

The same is true in a SaaS world for SIs.

The initial dialogue the SI approaches a SaaS project is a business unusual. There is the sense of familiarity (the chocolate):  the IT setting and the customer.   So far so good.

But then there is something unusual (the chili).  Sure enough, there are other folks in the room in a SaaS environment, folks that want to talk more about the value of the data; the workflow, the domain expertise in lieu of just how the systems connect. The experience rattles the bones for the SI (that’s the chili working) but soon, the SI discovers that he/she is still a trusted advisor;  it’s just that now the conversation goes deeper than just the nuts and bolts.  The SI concludes that the experience was ok-to-pretty-good so they decide to go back for seconds. And,this time with a bit more confidence and a little bit more of that chili.

A good SI in a SaaS environment will know how to coach the customer (trusted advisor here) and can interpret what AMI and other tools can be used (and which ones should not).  This is a good example of the how the SI can bridge the gap to SaaS, steady the course for SaaS (away from enterprise software) and enjoy the chili.

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.