THINK IT Services

Last month I discussed new alliances that are accelerating the market penetration of Software-as-a-Service (SaaS). I’ve also talked at length in this space about the struggles managed service providers (MSPs) have experienced keeping pace with their SaaS counterparts when it comes to gaining customer acceptance and adoption.

A new alliance between NetSuite and CompUSA not only reinforces my views about how creative partnerships are driving the SaaS market, but it also can serve as a model for MSPs who are seeking new channels to market for their solutions.

NetSuite is making its on-demand business software applications available to small- and mid-size businesses (SMBs) through CompUSA Business Services’ 250 stores across the U.S. Under this agreement, customers will receive sales, training and service support from CompUSA’s 1100 staff.

While NetSuite’s applications will not be bundled into CompUSA’s desktop and server solutions, the retailer’s staff will be able to help customers register and get started on the apps. THINKstrategies believes that the next step for retailers and PC/server manufacturers will be to preconfigure SaaS applications into the hardware platforms.

This agreement demonstrates that SaaS doesn’t necessarily ‘disintermediate’ the channel by permitting ISVs to sell their on-demand solutions directly online. Instead, the alliance gives NetSuite greater visibility in the SMB market and access to SMB buyers. It also gives CompUSA an opportunity to broaden its portfolio of services to better differentiate it in a highly competitive market.

This alliance should not only serve as a precedent for other SaaS providers to establish similar arrangements with other retail outlets, but it should also serve as a model for MSPs who need to develop new ways to appeal to SMBs.

Why couldn’t Symantec or MacAfee, for instance, team with Best Buy and its Geek Squad to add their managed security services to the retailer’s PCs? Or, why couldn’t a variety of managed email, back-up, storage or voice-over-IP (VoIP) service providers sell their solutions through SMB-oriented retail channels like Kinko’s, Staples, Office Depot, etc?

As Software-as-a-Service (SaaS) rapidly gains mainstream interest and adoption, various SaaS providers are repositioning themselves to expand their sphere of influence in the market by morphing their core products into integration and development platforms.

Just as the SaaS movement has been spearheaded by Salesforce.com, the shift toward a platform orientation has been sparked by the broadbased acceptance of the company’s AppExchange within the SaaS industry and among user organizations.

For the unindoctrinated, AppExchange is Salesforce.com’s integration and development platform based on the tremendous success of its CRM and SFA applications. The AppExchange enables third-party software developers and independent software vendors (ISVs) to more easily build SaaS solutions, and integrate their applications and tools to Salesforce.com’s core applications and those of its vast partner network.

The AppExchange includes a set of application protocol interfaces (APIs), design specifications, service provisioning and support requirements, and co-branding and marketing expectations which participants must meet.

AppExchange certification not only permits interoperability with Salesforce.com and over 250 third-party applications, AppExchange participants also gain the validation and marketing muscle of the SaaS industry’s 800 pound guerilla.

By encouraging a wide array of ISVs to link their applications to the AppExchange, Salesforce.com helps itself and its partners overcome user concerns about the ease of integration between the burgeoning SaaS solutions. Salesforce.com also gains a stronger position in the market by positioning its application interface as a pivotal component of the on-demand ‘ecosystem’. The AppExchange also enables Salesforce.com to extend its reach and generate new revenue streams beyond its core application suite by becoming a key channel to market for a rapidly increasing assortment of third-party SaaS solutions.

With all these virtues in mind, a growing number of SaaS players are trying to emulate the AppExchange platform model in their own corners of the SaaS industry. Here are a few examples,

• NetSuite’s NetFlex
• Nsite’s 6.0 Application Center and The Nsite Application Builder
• Employease Extend
• Reardon Commerce
• Informatica

I expect to see more of these platform plays going forward as various SaaS providers attempt to gain a stronger position in the rapidly evolving market. And, beyond the platforms offered by specific SaaS providers will be broader enablement and distribution channel structures provided by the Internet powerhouses Google, Yahoo, and eBay.

Google’s new, web-based Spreadsheet is being viewed as a major challenge to Microsoft’s Excel and the dominance of its Office suite. From my perspective, it is also a significant endorsement and will be another catalyst in the movement toward Software-as-a-Service (SaaS).

Google’s move isn’t a big surprise to anyone who follows the software industry and the escalating tensions between Google and Microsoft. But, it is still a milestone in the evolution of SaaS.

While the number of web-based alternatives to Microsoft Word, Excel, Powerpoint and Project has grown–check out THINKstrategies’ SaaS Showplace for some examples–none had gained mass market attention and acceptance. Instead, they’ve been the playthings of Marc Benioff of Salesforce.com and techies who love to imagine a world without Microsoft.

Google’s Spreadsheet has made news in the popular and business press, elevating the stature of SaaS and giving it greater credibility across a larger cross-section of potential customers, including corporate executives.

This will accelerate Microsoft’s SaaS development and acquisition efforts. (See my previous blog.) It will also fuel a surge in venture funding of nascent SaaS developers, and intensify the efforts of eBay, Yahoo, AOL and other Internet companies seeking to position themselves as SaaS providers.

As I mentioned in my previous post, I’ve been traveling to a variety of software conferences where the discussion was focused on the implications of Software-as-a-Service (SaaS) and when this market will become fertile grounds for mergers and acquisitions.

Another aspect of the discussion has been a debate about how the major, established ISVs–Microsoft, Oracle and SAP in particular–will respond to the SaaS movement.

A recent acquisition by Microsoft has been relatively overlooked despite the fact that it offers some insight into Microsoft’s plans in the SaaS market.

On May 22, Microsoft announced that it is acquiring Softricity, a company which “transforms corporate computing by changing applications into network services that no longer need to be installed. The result is a highly scalable software environment that is securely deployed, managed and immediately available anywhere in the world.”

Sounds like SaaS to me!

Microsoft unveiled its acquisition at its the15th annual Microsoft Windows Hardware Engineering Conference (WinHEC), and suggested it will be an important piece of its virtualization strategy and future product roadmap. As a result of the timing and positioning of the announcement, it was seen as a virtualization play only aimed at combatting the escalating competition from VMware and others.

My guess is that it will also be an important piece of Microsoft’s SaaS plans as well.

Softricity was founded in 1999, and attracted a total of $63 million in VC funding including a $15 million round in 2005. The company reported that it employed 104 workers in February. At that same time, Softricity’s founding chief executive, Harry Ruda, was replaced by Art Matin who was previously the executive vice president of worldwide sales for Veritas Software when it was acquired by security giant, Symantec, in July 2005.

Although others are not paying much attention to Microsoft’s move from a SaaS perspective, I expect the Softricity acquisition to accelerate and broaden Microsoft’s entry into the SaaS market.