SaaS Entrepreneur: The Definitive Guide
to Succeeding in Your Cloud Application Business
When the SaaS comeback began in the 2004/2005 timeframe, the place of channels was hotly debated. Among some, it still is. After all, no shipping or installation of products is required in SaaS. All customers share a common set of capabilities and services. Customer recruitment, sign up and services are administered and carried out at a common portal, or portals, managed by the SaaS provider. The on-demand model seems particularly well-suited to a direct sales model.
Also, in SaaS the balance of power shifts in key areas from the channel to the vendor. Providers enjoy the following:
- No prospect of disintermediation from the customer. The on-demand model inherently provides the SaaS vendor with complete access to all users of its system. By contrast, with on-premise software, companies frequently wrestle with their resellers over access to customers; there have even been cases when software publishers have been contractually prevented from identifying or contacting a reseller’s clients.
- The ability to aggregate, package, and potentially resell data and insights on best practices and trends across the full spectrum of a company’s subscribers and its resellers’ subscribers, regardless of their market or geographic location.
- Much tighter control over service levels, billing cycles and payments. This is another inherent part of the SaaS model. There will be far fewer cases where a reseller does not pay their bills on time, as the SaaS provider controls the underlying application platform.
- Decreased channel support and services overhead. With on-premise products, the two-tier reseller model introduces, by necessity, more complexity and overhead into customer and technical service, as the software publisher must learn about and support a vast array of reseller hardware and software environments. SaaS aggregates all environments into a single platform updated and managed by the SaaS provider.
The Future of the Channel
But despite the jostling, questions, and shifts in how much money changes hands over time, for many SaaS firms channel development makes sense. And as we saw in the case of DonorCommunity in the Marketing chapter of the book, the SaaS model opens up new channel opportunities unavailable to on-premise software firms. But in addition to new opportunities, SaaS companies have also discovered that the traditional reasons to implement a channel still apply. These are:
- The ability to reach new market segments outside the reseller’s core expertise and sales bandwidth. In markets such as document management, compliance, nonprofit management, small business marketing and sales portals, CMS and many others, SaaS firms are continually discovering that channels bring new market segments and revenues into reach faster than if the SaaS provider attempted to build a direct sales force to address the myriad of potential niches and market sectors. This also applies to international markets and opportunities. And channels are still powerful qualifiers. If there are no resellers present in a market, it can mean there is no market there.
- The amplifier effect provided by a channel. This is of particular value to companies selling lower end and broadly horizontal products. In project management, E-commerce, website templating and creation, etc., SaaS firms have learned that an expanding channel both increases revenues and helps fend off the competition, a lesson the desktop software market learned in the 1980s. (Fortunately for SaaS firms, they don’t have to endure the legendary levels of piracy that companies such as Lotus, Microsoft, Ashton-Tate and others suffered as their products fought for market supremacy.)
- The network effect created by channels. SaaS products open up new channel opportunities not normally accessible to on-premise products. In DonorCommunity’s case, the company discovered it could build a channel via large corporate givers who purchased subscriptions to the product on behalf of their donees. Similar instances of this effect have been found in government and the supply chain markets. In the case of supply chain products, larger retailers and distributors have been either encouraging or insisting that their vendors purchase SaaS-based software in order to integrate their entire supply networks into integrated purchasing and inventory management entities. In some cases, larger retailers and discounters have been able to purchase subscriptions for their providers at attractive discounts from the SaaS vendor, thus encouraging quick adoption of the product and speeding the integration process.
- The operational ease and speed of the SaaS model. With SaaS, time-consuming installation and setup processes and delays do not exist, nor, as noted, do resellers have to worry in most cases about adjusting the system to conform to a customer’s computing environment. This does not mean, however, that providing reseller training programs is not an important component of a SaaS reseller program — it is. It does mean, however, that such programs must focus more on teaching reseller customers best practices in using the system and assisting them in providing professional services such as data integration and advanced product training.
Read the rest of this chapter in SaaS Entrepreneur: The Definitive Guide to Succeeding in Your Cloud Application Business, 2nd Edition