THINK IT Services

One of the most vexing questions in the Software-as-a-Service (SaaS) market, and broader on-demand services industry, is what role traditional channel companies will play in this brave, new world.

While Salesforce.com and other SaaS vendors are touting the enormous advantages of leveraging the ‘cloud’, there are still plenty of companies on Main Street who are just beginning to become familiar with today’s online services. Many of these small- and mid-size businesses (SMBs), and even large-scale enterprises, have relied on their local value-added reseller (VAR) and system integrator (SI) as not only their primary technology supplier but also their ‘trusted advisor’ for their technologies strategies.

These VARs and SIs have been uncertain about the impact of SaaS solutions and on-demand services on their businesses. In fact, many feel down right threatened by these services.

There is no question that SaaS solutions and on-demand services eliminate much of the upfront planning and design, installation and integration, and ongoing support requirements which have been the bread and butter of VARs and SIs’ revenue streams, not to mention the margins they made on hardware and software product sales.

However, there is still plenty of opportunities for channel companies to add value to SaaS and on-demand services across the entire lifecycle of customer requirements from needs assessment through the deployment and management processes. Appirio, Astadia, Bluewolf, SaaSpoint and Sofia Works are living proof of these new market opportunities.

Today, HP and NetSuite announced they are partnering to offer SaaS business applications to SMBs via HP’s vast channel community of 15,000 VARs in the U.S.

Under this agreement, HP and NetSuite will initiate a referral-based program for HP channel partners that will encourage them to recommend NetSuite’s solutions to their customers. They will also offer new value-added implementation and management services as part of the HP Total Care support program.

NetSuite will provide dedicated resources to support the HP resellers, along with a toll-free hotline for channel sales support and a self-service portal for channel partners to access sales tools and online training resources.

This agreement is significant on a number of levels.

First, it gives NetSuite a vast new channel to market to a broad cross-section of SMBs.

Second, it gives a wide array of VARs/SIs an opportunity to jump onto the on-demand services bandwagon with the help of HP.

Third, it gives HP a SaaS solution to sell to SMBs through its channel partners.

And fourth, it gives SMBs an opportunity to obtain a SaaS solution from their existing technology suppliers who they trust.

This agreement is a strong endorsement for NetSuite at just the right time. The company has been trying, without luck, to keep pace with Salesforce.com which continues to command the attention of the on-demand/cloud computing industry because of its brilliant marketing efforts and robust sales growth. Meanwhile, NetSuite has never been a strong marketing company and has seen its stock value severely impacted by failing to meet Wall Street expectations which hasn’t helped its standing in the SaaS industry.

Teaming with HP can be a timely shot in the arm for NetSuite. As a result of its acquisition of EDS, HP is now the largest vendor in the IT industry. HP has spent years building a strong channel network. Its willingness to expose the HP channel partners’ to NetSuite’s solution shows that HP believes it is a good fit for their customers. Otherwise, HP wouldn’t waste its time promoting NetSuite’s solution or jeopardize its channel relationships.

This agreement is also a way for HP to gain entry into the SaaS market where they have lacked a presence. In fact, I’ve been told by HP insiders that the company’s own SaaS initiatives have been slowed by their EDS acquisition. Who knows, HP might become a potential acquirer of NetSuite as a result of this relationship rather than Oracle who has been the most natural candidate in the past. On a more tactical level, the alliance also gives HP to opportunity to sell and promote more of its ProLiant servers and StorageWorks Modular Smart Arrays which are a key component of NetSuite’s service delivery infrastructure.

Ultimately, this alliance has the potential to be a win-win-win-win for all four parties—NetSuite, HP, channel companies and customers.

However, making this agreement a success won’t be easy. It will take time to train the channel companies and devise the right pricing and promotional programs to encourage them to sell NetSuite’s solutions. Even when the channel companies become comfortable with NetSuite and convinced that they can make money in this program, it will still take time to sell a enough NetSuite subscriptions to have an impact on everyone’s financial results.

Nonetheless, the evolution of this alliance will be an important indicator of how traditional channel companies will participate in the SaaS/on-demand services market. While the hoopla at last week’s Dreamforce was squarely focused on the new world of the ‘cloud’, today’s announcement may help to define the role of traditional channel companies in the SaaS market of the future.

HP’s decision to acquire EDS cannot be faulted when measured against all the standard metrics for doing a mega-deal in the traditional technology world. It gives both companies greater scale and access to more corporate customers without a lot of overlap.

The problem is that we are in the midst of a fundamental change in the way customers acquire technology and the way they perceive their vendors. The HP/EDS combination doesn’t fit this new world order.

There is no question that EDS strengthens HP’s hand when it comes to building and managing complex enterprise data centers. The acquisition also gives EDS ready access to HP’s installed base of customers.

Wherever there are big systems integration and ongoing management projects to be won, HP/EDS will be in a better position to compete with IBM and the off-shoring companies than they were a day ago as two separate companies.

However, many corporations are looking for new ways to leverage technology that permit them to be less dependent on traditional data centers. This no longer means simply outsourcing their data centers to the IBM’s and EDS’s of the world, but transforming where and how they obtain computing power.

Check the market stats of the leading research firms who follow the outsourcing business and you’ll see the number and size of traditional IT outsourcing (ITO) deals has been declining for the past few years.

Corporations are fed up with the hassles of managing their own IT operations, but they are equally dissatisfied with the poor track record of traditional ITO deals.

The ineffectiveness of legacy systems and software combined with the inflexibility of traditional ITO arrangements has driven a growing number of companies of all sizes to evaluate and adopt a widening array of on-demand Software-as-a-Service (SaaS) and managed services.

This is a shift I first identified in 2006. Gartner finally recognized this trend two years later when it proclaimed in January,

“…the outsourcing market has reached a tipping point with regard to utility delivery models, and that change and innovation will take hold and accelerate in this area through 2008 and beyond. More providers are developing utility-based offerings across infrastructure, application and business process domains. The trend toward software-as-a-service (SaaS) is gaining the most traction…”

Unfortunately, EDS brings nothing to the table when it comes to SaaS, managed services or other utility-based offerings. Instead, it saddles HP with lots of aging people, facilities and business ideas that haven’t kept pace with today’s realities.

Since HP has also failed to establish any thought-leadership or demonstrate any market leading capabilities in the SaaS or managed services markets, it isn’t likely that it will be a catalyst for change within EDS’ calcified operations.

So, the question is how long will it take for the EDS acquisition to bring HP down or can the combined entities wake up in time to respond to the changing marketplace?

For years, I’ve been advocating that hardware and software vendors along with their channel partners and telecommunications carriers have the opportunity to leverage Software-as-a-Service (SaaS) solutions and managed services models to generate powerful benchmark statistics and produce valuable best practice studies that can enhance their customer relationships and strengthen their position in the market.

Today, TriActive and THINKstrategies published the first of a series of benchmark studies which clearly demonstrates this unique capability.

The study examines end-user software utilization patterns across over 125,000 endpoints in 460 companies managed by TriActive’s Asset Management Suite™. The study found many companies where Microsoft Office installations are underutilized or not used at all. This means that many companies have more software licenses than necessary or have purchased higher than necessary versions of the software to meet their needs.

Based on this actual software utilization data, the study found that many companies can save 50% or more on their Microsoft Office software licensing costs by better matching their purchases to actual useage levels.

Ironically, many of the companies studied had deployed TriActive’s Asset Management Suite via managed service providers (MSPs) and value-added resellers (VARs) because they were concerned that they may have illegal copies of Microsoft software in their businesses and expected to have to ‘true-up’ to ensure they were in compliance. Rather than pay more, many of these companies will actually experience significant cost-savings as a result of TriActive’s Asset Management capabilities and findings of this study.

The TriActive-THINKstrategies study illustrates the power of today’s SaaS-based managed services not just as a more economical method of managing IT operations and tracking real software utilization, but also as a means of delivering a new level of value to customers.

Having helped launch META Group’s (remember them?) benchmarking practice in the 1990s, I’ve had first-hand experience grappling with the costs and complexities of traditional benchmark methodologies which too often failed to generate meaningful information or insight.

In contrast, today’s SaaS solutions permit service providers (xSPs) and channel companies to obtain actual useage statistics that can provide actionable data for individual companies and powerful perspective for a broader community of customers.

While I was running International Network Services’ (INS) strategic marketing group in the late 1990s, we launched an industry research program which generating survey findings and gave us tremendous visibility in the market that catapulted INS to the top of Yankee Group and UpSide Magazine’s leading IT consulting company list in 1999–above Anderson Consulting, CSC, EDS, HP and IBM. That designation led to INS being acquired by Lucent for 12 times revenues or $3.7 billion, the most ever paid for an IT services company and surpassing what IBM paid for PWC Consulting. (INS is still doing its industry surveys as a part of BT today.)

Innovative SaaS and managed service providers can achieve even greater thought-leadership and win greater mindshare today by capturing and compiling valuable activity data through their ongoing interaction with customers. They can utilize this data and analysis to better serve their customers and better position themselves in the market.

I look forward to working with more companies who recognize this exciting opportunity. Contact me if you want to discuss this opportunity further.