THINK IT Services

If 2008 is remembered as the year that a new generation of on-demand services, including Software-as-a-Service (SaaS) and cloud computing, gained widespread acceptance and accelerated adoption, then I think 2009 will be the time when winning channel partners will become more critical to the on-demand service providers.

Until now, SaaS and cloud computing vendors have been focusing on building reliable and scalable service solutions and demonstrating the viability of their on-demand alternatives to customers.

Now, that they have generally achieved this objective, their next challenge is to build an effective indirect go-to-market strategy and set of strong channel relationships, so they can rapidly and profitably extend their market reach and satisfy the needs of specific market segments.

The need to build a successful channel strategy has become even more essential as a result of the current economic crisis which is placing greater financial constraints on many on-demand vendors’ direct sales capabilities and making customers even more hesitant to do business with new suppliers. Instead, companies will try to reduce the number of vendors they rely upon and will prefer to turn to their existing suppliers, including their local resellers.

This means SaaS and cloud computing vendors will need to align themselves with established resellers and other companies who have access to customers, especially IT/business decision-makers.

Until recently, many SaaS and cloud computing vendors confused third-party ecosystems with effective channel programs. While encouraging third-party developers to design their applications to interoperate with SaaS solutions via application protocol interfaces (APIs) and web services can also enable them to resell the SaaS solutions, it doesn’t satisfy all of customers’ requirements or all of the business-level concerns of potential partners, such as revenue/profit sharing, joint marketing, etc.

Some SaaS vendors are already making enroutes into various third-party channels. Intacct has built a successful channel program, as has Intuit’s QuickBase unit. NetSuite has also been pushing vertical market approach that is highly reliant on channel partners for success.

It is for these reasons I believe developing a successful channel marketing program and creating successful channel relationships will be a key priority for most SaaS vendors in 2009.

Since Michael Dell returned to the helm of his company, he has been dramatically reshaping its channel and services strategies. He is also putting the IT industry on notice that the way hardware companies define and deliver services is changing.

The old guard of the IT industry recognized in the 1980s and 1990s that tech support, professional services and outsourcing could generate lucrative revenues and create greater lock-in opportunities in an increasingly commoditized hardware business. Lou Gerstner saved IBM by turning it into a services company.

Dell bucked this trend by investing in sophisticated supply-chain, fulfillment and customer service processes which enabled it to succeed as a low-cost, high-margin manufacturer.

HP stole a page from Dell’s book and usurped its price advantage. Without a strong services story to serve as a safety-net, Dell was vulnerable to customer defections. It is now seeking to regain its competitive advantage by redefining how services are delivered. In the old world, services were a people-intensive business and highly customized. Dell plans to automate and simplify the way services are delivered.

After acquiring SilverBack Technologies and Everdream in 2007, Dell acquired MessageOne this past week. MessageOne is a leading provider of Software-as-a-Service (SaaS) enabled enterprise-class e-mail business continuity, compliance, archiving and disaster recovery services. MessageOne is in the same business as Postini, which Google acquired last year to fortify its Gmail capabilities and recently rolled out as an enterprise-class email archival service.

What makes Dell’s acquisition intriguing is the fact that it doesn’t offer an email service. But, that isn’t stopping Dell from adding this functionality to its rapidly growing portfolio of SaaS capabilities that now include remote desktop, server, security and helpdesk management services.

Dell has promised to deliver these SaaS capabilities via its growing array of channel partners to support their managed service offerings, but has also admitted that it will utilize them to support some of its customers directly. This direct service capability and a history of ignoring resellers has led to rising concerns among channel companies that Dell is going to commoditize their traditional on-site support business.

Dell isn’t just SaaSifying its services business.

Dell also unveiled this week a new Storage Simplification Assessment program which Dell promises will simplify the process of evaluating and selecting storage, backup, recovery and archiving solutions. Dell will offer these assessments directly and through its channel partners.

Dell has also restructured its customer support portfolio, consolidating its previous offerings into two simple options,

1. ProSupport for IT
2. ProSupport for End-Users

At Ziff-Davis’ recent Channel Summit, Dell’s channel czar in the Americas–Greg Davis–was asked if Dell intends to commoditize services the way it commoditized the hardware business. He said no, it planned to simplify the way services are packaged and priced.

If Dell’s moves are successful, they will encourage customers to set new standards for how services are sold and delivered. This will force other technology companies to restructure their service portfolios and streamline their delivery mechanisms in order to compete. It will also force channel companies to re-think how they package, price and position their services.