Sinclair Schuller, over at SaaSBlogs posted a fairly brief article regarding SaaS and VARs/The Channel that sparked a great discussion late last week.

Working with VARs, IT Consultants, SIs, and Managed Service Providers of all types and sizes, I thought I’d chime in with regards to how I believe SaaS and The Channel should mix, in order to provide a win-win relationship for both parties.

Many people have looked at SaaS as a threat to the channel, because generally SaaS application are sold the same way they are delivered, via the web. So at first glance this hinders to some extent, the ability for VARs to be as easily involved in the process of software procurement as they were in the past. It also in most cases, completely removes the hardware component of the sale.

Also, most SaaS applications are priced on a per month basis, which again, at first glance would lead one to believe that the return on investment for the effort involved on the VAR’s part will be small, at least initially.

Its All About The Relationship

However, what this says to me is that both ISVs and VARs need to come up with more creative ways to leverage one another’s strengths and the value each one brings to the table for the other. It’s all about the relationship.

In my opinion, SaaS can and should create healthier relationships all around.

It should force ISVs and VARs to form more of a true partnership relationship, as opposed to a supplier-reseller relationship. This is also a win-win for the end user, because both parties are motivated to keep them happy and successful for the long term, so that they continue paying/using the software.

What ISV’s Should Do

ISVs should structure their compensation in a way that incents VARs enough to bring them business, but forces VARs to maintain the customer relationship in order to continue to receive further compensation. Of course, the ISV will want to support the VAR, and enable them to do the best possible job in maintaining that relationship, because they are also making their money on the longevity of the customer relationship.

What VARs Should Do

VARs should look for ISVs that provide them with the ability to differentiate themselves, by offering them tools to easily build custom extensions, mashups and integrations with other applications - both 3rd party applications and home grown solutions. They should also look for ISV’s that provide them with creative ways to offer additional services to their clients.

Another great point that Sinclair made is that VARs should consider spreading out into more endpoint hardware devices that interface with SaaS applications. This is an area where there will be lots of room for creativity, as more and more ISVs with specialty niche offerings embrace the SaaS model.

Deeper Partnerships

This brings me to another point regarding SaaS ISVs and the channel. VARs are a huge asset to ISVs targeting more niche/specialty markets with SaaS offerings, especially new ISVs that are just starting up. For instance, if I wanted to create a SaaS offering targeting a very “long tail” specialty type market that had previously not been cost effective for traditional ISVs to target, there are almost definitely VARs who are currently servicing those customers. Those VARs have keen insight into the needs of that market and become EXTREMELY valuable to me. Valuable from the standpoint of helping me build the best product, as well as providing me with in roads to those customers.

I were planning on starting up a software company focused on a very niche market, I would seek out as many VARs that specialize in servicing those companies in my target market as possible and form very strong partnerships with them from the start.

Future of SaaS and The Channel?

Here’s an idea I’d love to hear some feedback on.

What if ISV’s simply developed their SaaS offerings, and deployed them to a decentralized network of managed service providers, that host, sell, and manage the ISV’s software?

The ISV has no data center, no end user support team, no sales reps, they simply develop the software, and deploy it to the channel. Then, it becomes the managed service providers’ responsibility to differentiate. End users can be brought on by the managed service providers themselves, or through the ISV’s website. If they are brought on through the ISV’s website, they have the choice of choosing multiple packages which include the many specialized/customized versions of the application, mashups, etc, which are offered by the multiple managed services providers in the ISVs network.

I think that the Managed Service Providers that are building their own data centers/NOCs would be uniquely positioned for something like this.

Again, I’d love to hear some thoughts and comments on this concept

Tags: isv, IT Services, Managed Services, MSP, SaaS, saasblogs, Sinclair Schuller, VAR

This entry was posted on Thursday, August 9th, 2007 at 3:51 pm and is filed under Business, SaaS. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.