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Serving up SaaS
SaaS is being touted as the next big opportunity for the channels. But there are challenges that vendors and channel partners will have to overcome before it becomes a lucrative business proposition to the channels
By K R Nambiar & Faiz Askari
Software as a Service (SaaS) is a concept that is fast getting recognized as one of the most desirable delivery models for deploying software solutions by both large enterprises and small and medium businesses (SME) globally. Market researcher Gartner predicted that the size of the SaaS market will grow from $6.3 billion in 2007, to a whopping $19.3 billion by 2011. A report by Springboard Research values the Indian market at $27 million in 2007 which is expected to grow to $165 million by 2011.
The drivers for SaaS adoption, according to the Springboard report, include a buoyant economy, aggressive domestic consumption and ease-of-use and manageability among other things. However, the most important factor that will drive SaaS adoption will be the availability of better broadband infrastructure and higher adoption of the Internet by Indian SMEs.
While at this point of time a majority of SaaS deals in the country are directly between the vendors and end users, the Springboard report points out that there is an emerging channel for SaaS solutions.
“It is imperative that SaaS vendors have a channel policy if they have to address the Indian market. We believe that the real benefit of SaaS will be for the SME market, and that is huge in the country and is spread across the geography. Without a sound channel strategy it will be difficult for any SaaS vendor to address the market,” observes M Lakshmi Narayan Rao, Associate Director (Marketing), Jamcracker India, a SaaS player which is all set to launch a channel oriented sales strategy.
Balaka Baruah Aggarwal, senior market analyst- Emerging Software at Springboard Research too believes that channels are critical in driving SaaS. “A partner or an ISV providing a SaaS offering can provide full customization to the customer. This becomes a great advantage for the customer, who opts for the SaaS model. Also, most importantly, while getting the SaaS application a customer can get assured service,” she says.
In the emerging scenario, there are some primary revenue models for channel partners considering SaaS. These include:
Pre-Sales Consultancy and migration
SaaS is all about quick deployment. Most solutions in the market are available on a subscription basis and can be deployed in a matter of a few hours. However, migrating from a home grown system or an in house deployed third party solution to a SaaS model has its own pain points. “This sometimes requires a partner to hand hold the customer, though vendors like us are also equipped to handle it,” says Rao of Jamcracker. While migrating to a simple email/collaboration system might be seen as easy, a complex CRM system or an ERP does require a pre-sales consultant, and that is an opportunity that channel partners cannot ignore.
Commissions and margins
Almost all vendors in the SaaS business have a commission payout model for partners signing the account. The model differs from vendor to vendor, but in most cases it is a standard commission that comes in as a recurring payment on a monthly basis.
Post Deployment Services
In many cases customers are likely to look at SaaS as an interim solution. They are likely to bet on a software package if they are convinced that it fits their immediate needs, and will look at upgradation only post deployment. “The advantage we extend is that customers can also move the application on-premise over a period of time. Therefore, partners are very keen to start the relationship through a hosted option. Partners can make some margins on the monthly charges and additionally can charge for services such as configurations, report writing and training,” says Thomas Abraham, Managing Director, Sage Software India. Sage has a SaaS option for its popular sales automation product.
Customization
Aggarwal of Springboard highlights another critical element. “While doing customization of the application at the customer level, the partners also have a great opportunity to earn better margins. Apart from this, they have other opportunities in terms of making sure of the optimum usage of the application through customization” says Agrawal.
Training
“Whether as a service or as a license most software are complex enough, and there is always an opportunity for partners to offer training,” feels Subramanya Joise of Compusol, a Bangalore-based Microsoft Solutions partner. Compusol is planning to launch a subscription based software service shortly.
Lack of education
Most partners we spoke to feel that since the market in India is nascent, vendors have not yet done their bit in educating partners and the customers. “With piracy rampant in the country, SaaS can be a potential tool for many vendors to legitimize some of their existing pirated base. It will be cheaper to collect a monthly subscription fee on SQL Server rather than asking a customer to pay up the entire license fee,” points out Joise of Compusol.
To provide SaaS one needs to possess two fundamental capabilities-one is the expertise in the software being offered as a service and the other is the ability to host the software. “Partners will have to compliment each demand. Ideally partners can play a key role in advisory of the customer. Apart from any other thing, there has to be a transparency in the revenue sharing between partner and vendor,” says Shankar Krishnamoorthy, CTO Aspire Systems.
Apart from these capabilities SaaS players are looking at partners who have a thorough understanding of their customers. vCustomer which is in the hosted CRM business, for instance, is being picky on its partners. “We will be looking at having relationships with VARs. Those who have similar experience will always be welcomed. SIs will also be among our priority. The idea is to get those VARs and SIs who understand their customers,” says Sanjay Kumar of vCustomer.
Incidentally, at present the biggest market for SaaS both globally and in India is in the CRM and sales automation systems space. According to the Springboard Research report, 45 percent of the SaaS market in India will be for CRM. Other potential markets that are opening up include email and collaboration, information security and marketing tools (managed EDM).
Challenges
While the potential opportunities SaaS presents for the channel may look rosy, there are some grey areas that need to be revisited. Ranjan Chopra, Managing Director, Team Computers observes, “Apart from so much of brand creation, the SaaS model still needs to clearly convey its business value to the partners. I am observing that the partners who have forayed into this business are operating on a low margin. I think there has to be at least a 25 percent margin for the partner. This is because a partner who is selling the hosted model of solution has to sell the concept to the IT manager, so a lot of pre-sales efforts are required.” However, Chopra emphasizes that the market is also yet to become seriously enthusiastic about this business model. “I don’t see any readymade answers for the adoption of SaaS as we are still in the early days of this model of business. We only have success stories in the US regarding the hosted solutions market.”
Some of the partners are also scared that vendors will take away their customers and the partners will lose control over them. Chopra adds, “It is also true that through this model vendors will also try to take full control of their business.”
It is clear that the road to selling SaaS solutions is not going to be a smooth one for channel partners. At the same time the way the opportunity is being projected, it is too big for the channels to ignore. As the Indian IT industry matures and evolves, the growth of SaaS depends on the channel and its ability to adopt the emerging trend. |