MicroScope - 12 May 2008

Many application vendors prefer the regular revenues generated by software as a service while users like the idea of no upfront expenditure. Davey Winder explains how the channel can ride the tide and avoid being left high and dry

There is no getting away from it: software as a service (SaaS) is here to stay. For resellers, it is a technology delivery model that just cannot be ignored.
According to Mike Morgan, chief operating officer with Foundation Network, the SaaS market was worth a staggering $3.7bn last year and is predicted to grow to $15bn over the next three years.

“Any reseller who thinks they can ignore SaaS needs to wake up," Morgan says. "They have the choice to participate in the growth of the market or try to operate outside of it!'

But the second of those options may not have much of a future.

"Resellers that do not adapt to the different service requirements of their customers in relation to SaaS solutions are likely to find themselves being squeezed by those that do," warns Alistair Forbes, CTO of HoundDog Technology.

So what does the channel need to do to raise its game on SaaS?

Grow with the flow
Before we start, let's get one thing clear: the doomsayers are wrong, and SaaS is much more an opportunity than a threat. Whenever there is a technology sea change, the channel gets a real opportunity to differentiate itself.

"Resellers can truly become a fountain of knowledge when it comes to SaaS by building up their product expertise and helping customers understand how SaaS can be applied to their needs," says Andy Dow, Dell's UK channel director.

Recognising that an opportunity has appeared is certainly a good starting point, and Microsoft argues that there is a demand from business to rent rather than own software.
"The channel can't ignore the fact that the market is changing and new echnologies and advances in connectivity make SaaS inevitable," says Simon Gautrey, goup manager of marketing at Microsoft UK. "Partners need to get
their heads round it and get involved as quickly as possible!'

Some in the industry are even more forceful in their approach to SaaS.
Donal Madden, SME channel manager at SAP, insists the channel has always been characterised by leaders and followers, "The time is now for the leaders to get on board and to help define the market," he says. 'This will require considerably more than the dipping of toes in water that is happening today. It
means putting real investment into creating a proposition and actively promoting it."

Take the plunge
So does the channel need to decide, right here and now, whether it really wants to invest in the SaaS model and the opportunities it represents?

Andrew Norman, director of global partner programs at MessageLabs, is convinced the answer is an emphatic yes. "The more the partner invests, the more they can capitalise on the opportunity that is opening up; otherwise they risk being left behind as the competition reaps the rewards readily available with a recurring margin business model.

"Some parts of the channel are still selling on feature/function/price rather than looking at what the best option is for the customer. Well-planned tactics to migrate customers from traditional delivery methods to SaaS, such as try and buy schemes, are imperative to get reluctant customers over any emotional hurdles they may have!'

Hosting horror
If only it were as simple as that, might be the response of many. The challenge for resellers has always been that hosting software in order to provide a service is notoriously complex and costly if not impossible at the smaller end of the reseller equation.

But Richard Hales, UK and Ireland country manager at F-Secure, argues that any reseller with the right training can offer managed security services right now. "Allowing the vendor to host the hardware and software in enterprise-class data centres, while allowing the reseller to manage the service provided to the user company provides not only a great value opportunity, and therefore margin, but also a credible option," he says.

However, Mickey Bharat, director of Horizon Software, is less optimistic. "SaaS is not a model that any reseller in the channel will easily be able to pick up and gain substantial benefit from," he says. "The majority of the growth will most probably not come from a reseller channel!'

The big SaaS spenders
So where is SaaS spending likely to be heaviest? Is it primarily aimed at new applications, or the fixing of broken solutions, rather than actually replacing currently working applications? If so, how can the channel persuade people to
upgrade when the 'if it ain't broke, don't fix it' argument plays so strongly?

"The question is, does your customer want to go down the capital expenditure or
operational expenditure route?"
Nick Rowley, Oceanus

"Some parts of the channel are still selling on feature/function/price rather than looking at what is best for the customer"
Andrew Norman, MessageLabs

Dow reckons that the early SaaS adopters are likely to be in the midmarket -mid-sized businesses-but that this, over time, will expand in both directions. In fact, he doesn't see SaaS spending being limited to market sectors at all.

"Many businesses may initially approach SaaS as a way to fix or improve existing solutions," he says "but with time, I expect to see a migration across all platforms and applications!'

What the channel needs to do is seize on the acute business drivers for change -namely, increased performance and security -while at the same time lowering costs to encourage and accelerate SaaS adoption.

On the other hand, Nick Rowley, managing director at Oceanus, argues strongly that it all comes down to choice rather than persuasion. "The question is, does your customer want to go down the capital expenditure or operational expenditure route?" he points out.

"Paying an ongoing maintenance charge is just one option. What is essential is to get people to examine all the elements of the total cost of ownership and make decisions accordingly. So ifs not a question of 'if it ain't broke', more that
SaaS offers a different way of paying for it!'

Licensed to sell
And, of course, a different way of licensing it. Yet many would argue that service level agreements (SLAs) remain a sticking point in the
SaaS sales pitch.


SaaS's strong points
Linda Hatfield, vice president of product management at IDeaS, highlights the main selling points of software as a service:

On-demand access
Data is available to customers 2417 regardless of time zones and geographical
locations, giving them round-the-clock access to data, training, controls and reports.

Cost-effective alternative
Paying for software on the basis of an annual subscription Is cheaper than the traditional capital expenditure model.

Seamless integration
SaaS interfaces seamlessly for easy plug and play, with complementary solutions to reduce manual input, save time and Increase accuracy.

Secure data centre
SaaS relieves companies of any concerns about the ongoing backups of critical data.

Single-handed deployment
Product updates and new features are automatically rolled out out of business hours. No on-site Installations are required and there is no interruption of service.

Reduced risk
Subscription terms and conditions mean no long-term write-off of licence fees or long implementation process is required. If business needs dictate a change in course, then subscriptions to a particular SaaS offering can be ended.

"It depends on the SaaS providers' approach to SLAs," says Phil Clark, business development manager at Pasporte. "Most SaaS models are able to offer decent SLAs for the availability of applications because of their robust infrastructure. The potential for basing other SLAs on application response times, etc, would be difficult to live up to as the service could vary when gaining a critical mass!'

Hales agrees that strong SLAs need to be in place, but argues that by working with vendors who host the solutions this responsibility is largely removed from the reseller.

"SLA for response to calls, enquiries or reporting lies with the reseller and is entirely within their control," he admits. "The charge made for the service is defined by the reseller, not the vendor. The strength of the SLA required
by the end-user can be proportional to the charges made by the reseller.

"Done properly, vendor-hosted, reseller managed services offer the best of choices for the end-user and the reseller; low risk, high value, high satisfaction."

Doom or boom?
The big question for resellers is, is SaaS their future, their death knell, or just another niche to be exploited to turn a profit?
Hales acknowledges that the credit crunch has hit the channel hard. Purely selling products is not sufficient in today's competitive market.

"Software as a service provides an ideal revenue model for the channel as it gives them the opportunity to add value to their customers, "Hales says. "The reseller needs to have only what they have always sold: expertise."

Mike Chambers, managing director at PCWare, also appears optimistic, quoting recent IDC figures that suggest more than one in three IT decision-makers will use SaaS to replace or supplement their enterprise resource planning systems in the next two years.

"This figure is likely to increase in coming months as organisations look to reduce spend on IT and avoid rolling out unnecessary projects,"
Chambers says.

At Microsoft, Gautrey is convinced that SaaS represents "another niche for the channel to exploit". He says that there is no doubt in Microsoft's mind about the reseller role. "Partners have a crucial role to play in delivering software plus services and we see them reselling it in the same way as any other product."

But the niche argument seems to annoy some, such as David Mitton, business development director at Syscap, who argues that while SaaS is not a death knell it could certainly be "much more than a niche if resellers get their offering right. SaaS is absolutely recognised as a mechanism to drive more sales through an alternative sales model, which results in the creation of more creative SaaS propositions!'

Morgan agrees that reports of the death of the reseller have been exaggerated for years and say; that SaaS will not be a killer blow. But he does sound a warning. 'There is no doubt that if resellers want to play in this game, they will need to adapt once more,' he says. "There's little room for intermediaries to
peddle user fees and manage licence renewals. They will have to add tangible value."

'Done properly, vendor-hosted, reseller-managed services offer the best of choices for the end-user and the reseller: low risk, high value, high satisfaction"
Richard Hales, F-Secure

Working together to survive SaaS
And there lies the rub. The problem is that many of the providers delivering applications on the SaaS model are simply not channel-friendly organisations.

Simon Stammer, sales director at Formscan, includes that for the channel to survive SaaS in l meaningful way co-operation will be required from the dark side: the application providers.

"The challenge for the providers is to recognise the opportunity of increasing service revenue by enabling partners to deliver in markets where their own costs would simply be too high," he says.

"Once you create the SaaS infrastructure, adding more clients or users or applications is simple, and having a network of channel partners selling your service creates better value for the channel as a whole."


Crimeware as a service
Application developers, service providers and the channel are not the only ones to have adopted a software as a service model. So have cyber-criminals. Fraudsters and hackers have started to use online cybercrime services In preference to managing their own applications and servers.
All the arguments for choosing SaaS remain the same, it is just the end game that is different.

"Currently, we see the rise of the crimeware as a service business model in the crimeware toolkit market," says Finjan CTO Yuval Ben-ltzhak.

"Cybercriminals and criminal organisations are getting better and better at protecting themselves from law enforcement agencies by using crimeware services, especially since the operator does not necessarily conduct the criminal activities related to the data that Is being compromised but only provides the infrastructure for It." As with mainstream software providers, the creators and owners of crimeware toolkits provide their customer base with update mechanisms while tooling them with sophisticated, anti-forensic attack techniques, and the ability to manage and monitor malicious code affiliation networks.