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IDC Says Software as a Service Threatens Partner Revenue and Profit Streams

Posted by Bob Warfield on September 25, 2007

Welcome to the party, IDCI’ve been saying that SaaS is toxic to old school ISV partners for some time now.

The problem is threefold.  First, reselling SaaS is problematic–the partner would receive only a small portion of the monthly revenue streams which is much less than they’re used to when they resell perpetual licenses.  To make matters worse, SaaS already has a difficult time making a profit in many cases so there isn’t a lot extra to go around for partner/resellers.  Second, the Services piece of the pie is increasingly bundled into SaaS.  In fact SaaS without Service is just hosted software, an entirely different and much less successful beast.  Third, SaaS vendors have largely made it difficult for partners to create value added IP around their offerings.  Most SaaS offerings have no way to tie other software into them, and the SaaS vendor has worked hard to eliminate as much customization as possible.  What’s a poor partner to do?

For starters, partners should be working with SaaS ISV’s in their space to hammer out areas they can add value.  And the ISV’s should be listening.  These same partners are frequently going to be in customer accounts attempting to sway the customer one way or the other.  If you’ve totally alienated the key partners in your vertical, they’re not going to be pushing hard for your solution.

What sort of discussion can be had between would-be partners and SaaS ISV’s at one of these sit downs?  The key question is to identify what the distinctive IP for the partner is going to be and how they can participate and gain access to the SaaS vendor’s customer base.  Distinctive IP can follow a variety of forms:

–  Best practices within the space.  These partners often know as much or more than the ISV itself about the best practices.  The SaaS vendor can facilitate the partner’s ability to peddle those wares by providing access to the vendor’s community.

–  Adjacent modules.  Inevitably, some of these the SaaS vendor will have earmarked for themselves.  But others are things the SaaS vendor will never get to.  Having a discussion about how to deliver such functionality can lead to API’s on the SaaS product that benefit everyone.  These API’s need not be complex.  SOA is the watchword for SaaS.

–  Integration with other vendor’s software.  Inevitably, there are interesting integrations to be performed.  Once again, the SaaS vendor can play a role in opening up their system to make it easier for their partners to perform such integrations.

In addition to enabling, partners need the usual care and feeding they’ve always been after.  They want to feel like they occupy a special position with the ISV.  They want briefings and training and sales leads.  Put yourself in their position; this is all pretty basic stuff to you, but it’s life or death in many cases for a services partner. 

In exchange for supporting their partner’s activities in building new businesses, the SaaS vendor can be rewarded with a vibrant ecosystem around their product.  They pick up more advocates out in the world and hopefully the partners will be helpful in delivering more sales leads as well as helping to close the leads that are already out there.

A SaaS vendor that doesn’t provide a viable ecosystem for their space’s partners runs the risk that someone else will.  Remember too that most people operate tit-for-tat in partnerships.  Start out treating them well, and they treat you well.  Do them wrong and they stop treating you well immediately.

Thanks to the excellent SaaSWeek blog for bringing this IDC story to my attention.

2 Responses to “IDC Says Software as a Service Threatens Partner Revenue and Profit Streams”

  1. bunreasonable said

    Nice, was going to do something myself but you got there first.

    Answer me this, if ever there was a chance to create some ‘blue ocean’ in a very red ocean business isn’t it SaaS?

    Who had heard of bluewolf 4 years ago?

  2. smoothspan said

    I think it’s very hard for the partners unless they get help from the SaaS vendors. Yes, there is Bluewolf, but it’s a drop in the huge partner ocean. Is it really a blue ocean play, or is it just better than many of the others at getting press? I honestly don’t know, but I’d want to understand what’s unique about it other than that it services SaaS and what it’s barriers to entry are.

    Nevertheless, Blue Ocean is the right question to ask. The Partner World has to reinvent itself.



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