Service provider takeaway: Value-added resellers who want a piece of the Software as a Service (SaaS) market should make fundamental changes to their software sales strategy to appeal to business unit decision makers.
With demand for SaaS continuing to grow, one of the biggest changes that many value-added resellers (VARs) will face is the fact that there's a new decision maker in the mix. In the past, the IT department called the shots for most software and systems sales, no matter who used the product. In the new Software as a Service marketplace, on the other hand, the business unit end user is king; VARs can't afford to ignore this shift.
Inherent in the SaaS value proposition is the fact that customers no longer have to worry about the technical concerns of deploying complex applications or the systems that support them. Instead, today's leading SaaS vendors have designed their on-demand solutions to appeal to business end users. They've built them to replicate common business processes and workflows. They've given them intuitive user interfaces and encouraged individual users to try them for free without having to get IT approval. In fact, many Software as a Service vendors have based their entire go-to-market strategies on circumventing the IT department!
In the case of many collaboration- and productivity-oriented SaaS solutions, business units can easily subscribe to SaaS tools without involving the IT department. (In my next column, I'll discuss what dynamics are in play around IT management tools, where end users are members of the IT department.) They don't have to worry about operating system compatibility, processing power, database structures or storage. Instead, they only worry about the Web-based application's functional capabilities. In some cases, business units might ask the IT department to evaluate a SaaS solution's scalability and security features as a final step before making a purchase decision.
As the Software as a Service market matures, many of the technical concerns will fade, making IT's role in many purchase decisions even less important. Instead of the technical requirements of the software application driving the buying process as it did in the past, the primary concern of corporate buyers will be the business implications of the application. In fact, given the rapid adoption of SaaS and slow growth of legacy applications, Thinkstrategies believes that on-demand SaaS solutions could overtake traditional, on-premise applications in the next five years.
How to prepare for the changing SaaS market
This fundamental change has enormous implications for VARs. Instead of convincing an IT manager or application development team that a software package will fit within their IT or application architecture, channel salespeople will need to demonstrate how their SaaS solutions will fit within the workflow of a business unit and appeal to end users.
VARs will also need shift their sales and marketing efforts carefully to ensure that they don't offend their traditional IT customers. In many cases, the business unit decision maker may be looking at the Software as a Service market because he or she is frustrated with the lack of response they've received from the IT department. And while VARs need to build a closer working relationship with business decision makers, they may have to convince their IT customers that they are not trying to circumvent them.
To demonstrate the suitability of a system to a company's workflow, VARs should focus on the ease of use of the SaaS solution and how it can be configured to support a company's business processes.
They should also help business decision makers determine the potential value of the SaaS solution from a corporate perspective. This doesn't just mean measuring return on investment (ROI), but also helping the business decision maker understand the lower total cost of ownership (TCO) of the SaaS solution. Many business and IT decision makers underestimate the staff and systems costs associated with deploying and supporting legacy on-premise applications and don't fully appreciate the cost savings of subscribing to a SaaS solution. Despite the fact that SaaS-based applications will overtake traditionally delivered software in the coming years, channel salespeople must help these decision makers accurately estimate their current application management TCO versus adopting a SaaS solution.
Channel salespeople must also be wary of business and IT decision makers who equate subscribing to a SaaS solution to leasing a car. These decision makers tend to view SaaS as unprofitable after three years, because they believe they would have fully amortized an on-premise application within the three-year timeframe. But this equation doesn't take into account the additional staff, system and consulting costs of deploying and supporting the on-premise application. It also doesn't recognize that SaaS solutions are being continuously enhanced by the SaaS provider, giving it greater value over time, unlike leased vehicles that depreciate over the three-year life of the lease. The cost savings and business value of SaaS solutions will depend on the current state of a company's legacy applications, as well as the specific types of SaaS solutions it is implementing.
Many traditional channel salespeople will not be able to adjust to the higher volume and lower commission structure of the Software as a Service market. But others will see it as a way to reduce long sales cycles and more quickly penetrate new accounts. These salespeople will also recognize that they must focus on a different buyer and communicate different value propositions to be successful. In many cases, this may result in recruiting a new type of salesperson who is expert in selling business services rather than software products.
About the author
Jeffrey M. Kaplan is the managing director of Thinkstrategies, a strategic consulting company based in Wellesley, Mass., and the founder of SaaS Showplace, a vendor-independent online directory of SaaS solutions and best practices information.
This was first published in March 2008