What's the channel to market for SaaS applications? No one on either side of the Atlantic has a clue what the answer is. That means there's still a huge opportunity waiting for someone to step into the gap.
I was in Frankfurt, Germany, earlier today, attending the opening sessions of the European ISV Convention, which is organized by the folks at IT Europa. Inevitably, SaaS is a hot topic here just as it is for ISVs in the US, and one of the big unanswered questions is, what's the channel to market for SaaS applications? Having heard this morning's panel session (pictured below), I can safely say that no one on either side of the Atlantic has a clue what the answer is.
There's general agreement that the traditional solution provider channel isn't the place to start. David Hurley, managing director of Anglia Business Solutions, which provides a vertical solution to the UK food industry, summed up the nub of the problem: "The channel won't get the large turnkey projects. What they're expected to sell goes down in value. You're going to get kick back." That's not exclusively a SaaS problem, of course. All vendors these days are packaging up their applications for rapid implementation and configuration, middleware included, which eliminates much of the technology implementation work that used to be the solution provider's bread-and-butter. But SaaS compounds the problem by removing the opportunity for selling ancillary hardware, at the same time as switching from an up-front one-off licence payment to a continuing subscription model.
So ISVs are wondering who else they can work with to take their SaaS offerings to market. As in the US, many of the European ISVs I spoke to see the SaaS model as a way to introduce their applications to a new swathe of smaller businesses that couldn't previously afford specialist business software. In contrast, the medium-sized businesses they've traditionally dealt with are SaaS hold-outs — their IT buyers aren't yet ready to let go of the on-premise model — even though larger enterprises are eager to turn to outsider providers. The problem with the smaller businesses — from a channel point of view, at least — is that they're generally looking for applications that let them implement industry best practice without any configuration or learning overhead. So there's little scope for partners to add profitable services around them, and the monthly subscription doesn't yield enough on its own to make a business unless it can scale to higher volumes.
"Distribution's going to be a whole different model," said Melinda Matthews, speaking on the panel on behalf of IBM, where she is director of ISV and developer relations for EMEA. The general consensus from the speaker panel was to recommend ISVs should team up with partners that already have an existing business relationship with smaller businesses. "Who does the small business go to first?," asked Matthews. "They need a phone, they need a desk, they need a bank." Hurley noted that small businesses often turn to accountants for advice, too. I found that more convincing than Matthews' assertion that banks and telcos will become big players in the SaaS channel. As for turning to their landlords or their furniture suppliers for business applications, somehow I doubt it.
I wrote last month about the repeated failures of telcos to deliver SaaS to SMBs. Just because you have a billing relationship with a small business, that doesn't mean you can sell them software applications — even those delivered across a broadband connection. Banks are even less convincing on this score. Being good at handling money and credit isn't the same as being able to run my business operations — and I might prefer to keep those two functions separate anyway rather than hand both over to the same provider. The trouble with accountants is that many of them know even less about software than their clients do.
Personally, I think what's needed is a new channel. Progress Software's VP EMEA, Kevin Aspindle, said: "Perhaps you've got to start partnering with people that already offer business services to those companies today." I'd say people have to look beyond who already has a relationship with the SMB and ask, have those providers shown that they understand the Web? If I have difficulty doing business online with my bank and my telco (hands up anyone who doesn't, by the way) then I'm hardly likely to trust them to run my business operations online, am I?
The SaaS channel to SMBs, then will consist of companies that already offer business services to SMBs online. They'll be competent at using the Web for prospecting, selling, closing and after-sales support (all of which will help keep their costs low, which they'll need because of the lower price points and the subscription billing model). They'll also have to be good at aggregating and integrating a number of different services and products into an all-round solution.
I'm not sure that many of these paragons of virtue exist at present — which means there's still plenty of opportunity for those who want to fill the gap. Perhaps some of them will, in the end, turn out to be banks and telcos — even a few accountants. But I think many more of them will be found among the new wave of business providers that are establishing themselves online: virtual assistants, online marketing providers, employee services providers, and a large crowd of vertical market ISVs who are getting themselves established as the SaaS providers for their specific area of expertise.
That's all conjecture, of course. This is all in its early stages and who knows which way it will go. But to those ISVs taking SaaS offerings to market and wondering where their channel is, the simplest advice is, don't wait for it appear. No one knows how to sell this, least of all third parties who aren't already SaaS providers. It's up to you to establish the model. You may even end up becoming the channel to your customers for every other SaaS service out there. That may not be such a bad business model to end up with.