SaaS channels and the VAR market

On the back of my previous post on SaaS companies profitability as well as some good analysis by Smoothspan about the costs of acquiring customers i’ve been thinking about the various channel models available to SaaS companies.

The general market perception (and some GM’s too if truth be told) is that SaaS is completely sold through the online channel.  This is blatantly untrue.

From the SaaS providers point of view that would be great. If the client found, tried, bought and self served themselves online, the cost of acquisition (excluding the marketing budget), provisioning and supporting a customer would be very small.

Salesforce.com for instance has a good segmentation model in place, they then pursue the clients in each segment with the appropriate cost channel. SMB’s are done through a mixture of small partners, telephone reps and online channels. Medium enterprise and corporate channels through a direct sales model and SI/VAR (which for simplicity I will just refer to as SI). The Smoothspan analysis proves one thing, the key to a SaaS companies profitability is matching the cost of acquiring the client to the value that they bring in.

Linking back to the SI market I think it’s erroneous to make statements like SaaS will be the end of SI’s. The reasons for this are many. As pointed out by Hari Nair, the on-premise model isn’t going to disappear. I believe my post about how a passionate belief in one approach creates extreme views still holds. The market reality is that clients will adopt a more moderate (and workable) stance for their business. SaaS will continue to successfully address point solutions, will creep into other business areas over time. SaaS will continue to require someone to recommend, integrate, configure and promote business change. Given that SI’s have been doing this for decades, they’re the logical choice to continue on.

I think more critical to SaaS companies is the yet to be clearly understood value of the SI in the ME / SMB space. You won’t be able to displace the SI in this space for one vital reason. In many instances, the systems integrator is the IT department for the client. They are the trusted advisor, in many cases the only advisor that a customer will turn to. 

Unless SaaS companies win over the SI with a compelling offer and support them in selling their software / service the SI could to torpedo every sale.( Phil Wainewright’s post about MS CRM play is a classic example of a SaaS provider (MS) getting this wrong.) In fact I would take that a step further. If you come across a customer who has such a trusted SI advisor, you will in fact be selling to the SI, not the end client. So if you don’t get the proposition right to the SI, you are wasting your time.

In terms of partner channels, the right mix of upfront and ongoing commission needs to be found. The upfront is to placate the sales person who is classically coin operated. While the annuity revenue (the nirvana of all business) keeps the CEO and shareholders happy. The annuity revenue streams also gives the SI a chance to revisit the customer, which if you have a portfolio of services is extremely important, as it would be nice if the SI sold more than one core component .

None of this is new, and it’s certainly not rocket science, the channels that exist for SaaS companies are the same as any other software business. They are all viable and potentially very valuable. The mix is the important bit.  

SaaS companies too will learn that it’s simply not financially possible to sell to every client. This in turn will mean that they will have to build robust partner channels. My advice, look to how the traditional software companies did it, therein lies the gems of knowledge garnered through many skinned knees. Mistakes you could avoid …

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