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Is 2008 the year the telcos crack SaaS?

If the world is converging on The Big Switch to utility computing, then where are the telcos? You'd think they'd be at the forefront of the SaaS revolution. But they're not. The history of SaaS is littered with failed telco initiatives.
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Written by Phil Wainewright on

If the world is converging on The Big Switch to utility computing, then where are the telcos? As utility providers of the access and transmission infrastructure of the Internet, you'd think they'd be at the forefront of the SaaS revolution. But they're not. The history of software-as-a-service — especially if you go back to the era of ASPs — is littered with the costly carcasses of failed initiatives pursued by a losers' gallery of deep-pocketed telcos and ISPs.

Yet despite these prior setbacks, they bravely keep on stepping up to the breach. Just a few of the initiatives I noted last year included Verio's November launch of a SaaS suite targetting SMBs, the introduction of a partner edition of Google Apps, and the much-trumpeted launch of BT Tradespace, an online marketplace for SMBs including a special section for SaaS applications. Sadly, when I decided to check up on the SaaS area of Tradespace while writing this post, the link responded with a message that implies the demise of yet another telco SaaS initiative [Update: the error message, which was there for several hours last night, has gone now, six hours later, although the link to the former SaaS area diverts to the generic Tradespace home page. If anyone at BT can fill me in on what's going on here, can they drop me a line?]:

But as last year drew to a close, I sensed a glimmer of hope from conversations with product managers leading new initiatives at XO Communications and Telus, both of them customers of Jamcracker's platform for the SaaS channel, which I wrote about last month [see disclosure: Jamcracker is a past client]. In fact, I was originally briefed by XO back in May, when the partnership was first announced, but I decided to hold off writing about it until the initiative had proven itself with customers. By the end of November, XO had closed and implemented a number of sales and could speak with the benefit of experience about what its SMB customers were looking for.

The most common mistake telcos make when they get started on a SaaS initiative is that they assume they know what SMBs want. This leads them to assemble all the wrong applications into a package that won't sell, whch they then promote with an expensive, telco-style marketing campaign. The inevitable losses and recriminations follow as surely as night follows day.

XO has been surprised to find that its biggest seller is hosted Exchange, even among very small businesses, which are buying 7-10 seat implementations. The next most popular on-ramp application is WebEx web conferencing. The products it thought would sell first — utilities such as McAfee anti-virus — have turned out to be upsell opportunities that follow later. In retrospect, the explanation seems obvious: SMBs are motivated to sign up to get the products they don't have. Once they've signed up, it then makes sense to switch their anti-virus when the subscription comes up for renewal. This is much better than hoping to catch them as a prospect, observes Jamcracker's VP of marketing Steve Crawford observes: "the odds of hitting a business when their [anti-virus] licence is about to expire is 8% in any given month of the year."

The other factor helping XO to get its sales moving has been the engagement of its sales team. Changing the compensation plan to make it worthwhile for salespeople to sell the on-demand package was an important first step. Securing some marquee deals of several hundred seats completed the picture. One in particular grabbed attention when the SaaS offering brought in a customer that bought a package of telephony services at the same time. This was an unexpected example of SaaS leading the sale of telephony rather than the other way around.

The experience gained with XO will benefit customers of Telus, whose partnership with Jamcracker was announced last month. Telus is rolling out a suite of SaaS offerings based on the Jamcracker platform to cable companies and local phone companies (LECs) in North America. I spoke to Walter Van Norden, director of the program for Telus, at the time of the announcement, and asked him why he thought telcos will succeed with SaaS now when they had failed so often in the past. He gave me three reasons:

  • The application software is much more ready than it was in the days of the first wave of ASPs.
  • End customers are getting used to consuming services in an on-demand model.
  • Providers have made a tremendous investment in broadband infrastructure and they need more offerings that will help them monetize that investment.

Telus is making it easy for the providers to start monetizing because it is providing the SaaS offering in a service model, completely self-contained with its own credit card payment infrastructure. This speeds time-to-market and takes away a lot of the risk of getting started with SaaS. Integration with existing billing systems is also an option but it seems most customers prefer to just get started with a standalone service.

One angle that I found interesting is that the offering comprises multiple tiers of SaaS. Jamcracker is hosting the delivery infrastructure and the portal where end customers select and access services, while the services themselves are hosted and provided either from third-party providers or directly from Telus or its partners. So Jamcracker is aggregating SaaS services within its own service management infrastructure, which in turn it delivers via the SaaS model to Telus. Each Telus customer has its own branded version of the SaaS portal, which it integrates into its own website. All of this is invisible to the end customer, who simply deals with their local broadband provider, irrespective of where the services they buy are delivered from.

I hope the Telus project succeeds simply because it will make a great case study of aggregation and integration within a multi-provider SaaS infrastructure. I think Van Norden is right that the pieces are starting to fall into place. But the missing component is still the ability of the telcos to successfully sell these services. The need to monetize their broadband infrastructure investments certainly gives them an incentive to get it right, but if they are to do so they'll have to buck their industry's dismal prior track record.

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