SmoothSpan Blog

There’s some interesting commentary over on Apprenda’s SaaS Blogs about creating vital roles for VARS and hardware vendors in the SaaS world.  The discussion started out particular on the impacts SaaS might have on hardware vendors.  General agreement was reached pretty quickly that SaaS leads to further consolidation of data centers and increasing server utilization.  I want to talk mostly about the more software related end of the discussion, but before doing so, there’s one comment I had about the hardware piece.

Companies like HP have realized that increasing centralization is inevitable, and they’re making acquisitions and adjusting their strategy to position themselves for the change.  A great example is HP’s M&A activity around software related to managing complex data centers.  OpsWare was the latest acquired component of HP’s strategy in this space, and a canny move on HP’s part to cash in on centralization and the ever increasing complexity of managing such data centers.  The big storage vendors such as EMC are already well positioned, and it is interesting to note EMC also had the foresight to target virtualization—another helpful component in the brave new world of increasing centralization.  For the right product/market mix, virtualization can stand in for true multi-tenancy, at least for a little while.

Returning to the software piece, one of the more interesting observations was that SaaS mashups are an opportunity for VARs to add value.  The focus in this case was integration mashups.  To the extent the VAR can become an expert at creating such mashups, it’s a great starting point.  The SaaS customers already have to deliver their data to the cloud, so the job of transforming and preprocessing it so it is useful feedstock to a particular SaaS application can also be performed in the cloud and it can be done by a different vendor.  VARs frequently deal with this sort of data massaging in the perpetual world anyway, so they clearly have the expertise.  Astadia, currently the leading Salesforce.com partner, has partnered with Pervasive to do exactly this kind of thing.  It’s no coincidence they’re showing this kind of forward thinking and are the number one partner for arguably the number one SaaS vendor.

Beyond Mashups, there are almost always opportunities to create additional modules in the ecosystem surrounding the immediate niche the SaaS “parent” lives in.  This is ideal for VARs for several reasons:

–  It creates distinctive IP they can call their own, which has a higher valuation that just being a body shop.  All good VARs know their space as well as the ISV, sometimes better.  Being able to package some of that expertise as a new module is the best possible outcome.

–  Creating the module in the SaaS form factor, leads to a win-win for VAR and customer.  The VAR gets recurring revenue from its IP, and the customer gets all the advantages of SaaS.

The best VARs have been creating add-on modules since the software game began.  There are a couple of challenges to be overcome.  First, writing software is often difficult for services companies.  The gestation period can result in a lot of non-billable time from their very best consultants.  The traditional solution is to get a customer to pay for the development for their own use and leave the VAR with the IP for resale.  That’s still workable here, but the point is that the economics and costs of software development do not favor the VAR’s normal tendencies.  SaaS makes this worse as it is harder to write SaaS software than on-premise software. 

Second, the SaaS world itself is still in its infancy, particularly with respect to connectivity and platforms.  These two are related, but the overlap is not 100% because connectivity is only one of the services a platform may provide.  Just as the Web 2.0 world is in the process of evolving platforms, so too is the SaaS world.  There are even some similarities between the initial entrants: Facebook for Web 2.0 and Salesforce’s App Exchange for SaaS.  Neither is a particularly effective platform for all purposes: they have many disadvantages for their users.  Both are a great leap ahead from no platform whatsoever. 

We haven’t seen the last of this by any means, and platforms for both worlds will evolve for a number of years before stabilizing.  It’s worthwhile in the meantime to follow both worlds closely.  I believe Web 2.0 and SaaS will eventually enjoy far greater overlap than they do today, and this will be to the good of all concerned.  The lack of overlap continues to show that the SaaS world has yet to leverage the collaborative community aspects of the Web that should give them an even greater advantage over old-school on premises software.

For the VARs out there, getting some IP in the SaaS game seems a critical differentiator.  Companies will be trying to lock up various niches, and it becomes important that one’s competitors don’t steal too much of a lead lest it become insurmountable.  Now is the time for VARs to be experimenting and gaining expertise in these areas!

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