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Why the channel is slow to transition to SaaS

Senior analyst pinpoints the main reasons why solution providers are struggling with SaaS

San Francisco – “Everyone must change!” Those were the first words uttered by Brian Sommer, CEO of TechVentive, a strategy consultancy servicing high tech vendors based in Batavia, Ill.

At the SuiteCloud channel conference, held here, Sommer, who is also a research analyst with Vital Analysis and 18-year veteran of Accenture, was advising channel partners that Software-as-a-Service is your business wake up call.

He said the new economics are currently driving change in customer preferences that will put channel ecosystem fundamentals in flux. “The shift is definitely on and there are no other options. New rules are needed for you to succeed,” he said.

Today’s economic reality has altered software buying behaviour and channel partners have to learn new sales and go-to-market approaches if they want to survive.

Those channel partners who believe that SaaS is currently in the early adopter phase are incorrect, Sommer pointed out from his research. “We are into the early majority of SaaS and this poses a really big new market for the channel,” he said.

Here is the business problem for the channel as Sommer’s see it. Those solution providers who are tied to on-premise software vendors such as Microsoft, SAP, Sage, Infor and others are dealing with companies who are struggling progressing to SaaS, while current SaaS-only vendors have a ten year lead.

Also the ERP market is in a mess, he added. “On-premise vendors are stuck amid the leader board and don’t want to change because these old-school folks do not want to lose the customer nor the maintenance money. These new business models would give them a financial hit,” Sommer said.

Vendors such as Microsoft, SAP, and Sage buy innovation because it’s cheaper, while SaaS innovators already have features such as multi-tenancy and the maintenance money offers them no real value to go after.

One of the more sobering slides Sommer put up during his presentation was a list of software vendors who were leaders in the industry two decades ago. The list included vendors such as McCormack & Dodge, CA, SAP, J.D. Edwards, Walker, Ross Systems and Mgmt Science America. “Does anyone remember McCormack & Dodge or Mgmt Science America,” Sommer asked?

In the client server arena, the list included again J.D. Edwards, which was acquired by PeopleSoft.

PeopleSoft was also on the list and it was acquired by Oracle. Baan was there. Baan was first acquired by SSA Global which later was acquired by Infor. Only SAP remains from that leaders list.

A recent study by TechVentive found that SaaS solutions offered one-third to half of total cost of ownership savings compared to on-premise solutions.

The single largest cost is internal IT maintenance costs for on-premise products.

But one of the key findings Sommer said was that buyers no longer believe integration and security are concerns with SaaS. If true this belief removes one of the barriers for SaaS to grow in the market place.

Also from the report, TechVentive found that customers have gone through consolidation and rid themselves of redundant applications. Because of this system integrators in particular, are hungry for work and are looking for opportunities and are following the money in on-demand software.

Customers are no longer interesting or have the ability to pay upfront for software licenses and more of them are pushing back on maintenance charges for basic updates.

Sommer strongly advises that the channel should go through a strategic planning exercise. “Imagine what the software industry will look like in the next four to six to 10 years. And, then ask yourself how big do I want to be,” he said.

Sommer added that solution providers should determine revenue needs and then source out the best SaaS partners in the market, while finding out if they have vertical niche expertise.

“Go for the cloud,” he said. “The on-premise world is over saturated and will start to tapper off. New customers are coming to market and they are not dumb. They do not want to buy a license and be tied to maintenance payments. It’s like buying a 1952 Ford Fairlane instead of a car that is designed for today or something that is designed for the Internet instead of one that is not.”