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SaaS Partnerships: New Horizons, Old Hurdles

Software as a Service (SaaS) will create plenty of business opportunities in the next decade, but partners will grapple with some familiar headaches as well, according to a white paper from the Software & Information Industry Association (SIIA).

Just how much opportunity SaaS will generate is spelled out in the white paper, "Channels for the New SaaS Industry." The 14-page report predicts that SaaS will involve more than 200,000 partner companies over the next five to 10 years. Those partners will serve 10 million companies worldwide, the Washington-based trade association estimates.

The report suggests that partners delivering solutions via SaaS will most likely focus on business-process alignment and integration. As the report puts it, SaaS partners will serve as "catalysts" rather than as resellers. They will need to thoroughly understand their customers' business needs and become specialists in their vertical markets.

While that description may sound a little vague, the SIIA report cites some existing examples. Among them: SS&G Financial Services Inc., an Ohio accounting firm, uses Web-based financial applications from Intacct Corp. of Los Gatos, Calif., to manage the books of major restaurant chains. In addition, San Francisco-based Salesforce.com Inc. works with more than 100 partners to provide customer relationship management (CRM) solutions over the Internet.

Familiar Headaches
But traditional partnership challenges won't simply disappear in the SaaS world. Chief among them: compensation issues. Setting the right expectations for compensation among partners may become even more difficult under the SaaS model, according to the report, which also recommends some compensation best practices.

One suggested approach is for solution vendors to pay partners a 15 percent referral fee for the first year's recurring revenue to compensate them for promoting solutions. Also, with SaaS, it's more important for partners to identify new customers than to renew existing contracts, according to the report. So compensation to partners for contract renewals might be lower, perhaps about 8 percent.

Finally, the SIIA report also suggests that SaaS vendors could create a marketing fund of about 3 percent to help partners participate in local events that would lead to identifying new customers. That 3 percent would be based on the revenue the partner generated for the vendor.

Under the SaaS model, vendors shouldn't make the old-world mistake of charging partners for training, according to the report. Training should focus on business process and usability issues because that's where SaaS partners will deliver value to their clients.

The degree to which SaaS differs from the traditional enterprise software partnership model is largely a matter of perspective. Microsoft's efforts include incorporating a SaaS delivery option into "Titan," the forthcoming new version of Microsoft Dynamics CRM (see "Clash of the Titans," March 2007).

Jeff Kaplan, founder and managing director of the Wellesley, Mass.-based consulting firm THINKstrategies Inc., predicts SaaS will cause plenty of rethinking by ISVs and their partners about ways of bringing value to the customer. "The SaaS business is challenging the established ISVs to change their DNA," Kaplan says. "The same is true with the channel partners. Currently, many software vendors are selling their applications to the customer via channel partners, who often add value via technology integration or customization. With a SaaS model, the software vendors will be delivering their applications directly to the customers and the channel partners will have to determine where they can add value."

An obvious difference for partners implementing SaaS solutions will be an absence of physical infrastructure to maintain. There are no upfront licensing fees or hardware requirements, Kaplan says. Also, the nature of the customer-vendor relationship shifts from a channel-centric one to a more direct relationship with the vendor.

The SIIA white paper is available only to SIIA members, but other information is available at www.siia.net.

About the Author

Kurt Mackie is senior news producer for the 1105 Enterprise Computing Group.

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