THINK IT Services

I’ve just returned from my last business trip of the year. This time I was in Washington, DC, hosting the Software-as-a-Service (SaaS), cloud computing and managed services track of NetworkWorld’s IT Roadmap event.

The keynote speaker at the event was Bechtel Corporation’s CIO, Geir Ramleth, who gave a fascinating talk about how his IT team is transforming the way Bechtel leverages technology and business applications by modeling their operations on YouTube, Google, Amazon.com and Salesforce.com, rather than traditional enterprise organizations.

Ramleth has recognized that these on-demand service providers are delivering high-value solutions in an amazingly low cost fashion, making them the envy of CIOs at many of the greatest companies in the world.

Although Ramleth’s team has decided that today’s commercially available SaaS and cloud computing solutions don’t meet their corporate requirements, they still felt the operating model of today’s on-demand service providers is worth imitating.

Ramleth’s presentation echoed many of the ideas which THINKstrategies has been advocating for the past seven years. His team recognized the ease of use and operating efficiencies of consumer-oriented web-services and SaaS vendors, and decided to benchmark their internal operations based on these successful models. As a result, they have not only increased end-user productivity, but dramatically reduced their operating costs.

Click here to read more about Bechtel’s transformation process.

Today’s deepening economic crisis is testing the mettle of IT/business decision-makers, IT solution providers and technology investors alike.

IT and business decision-makers in nearly every industry must make cuts to their capital and operating budgets in order to offset rapid declines in business and tightening credit markets. In many cases, this is forcing them to fundamentally reevaluate the way that they acquire and utilize technology and business applications, and leading them to seriously consider various on-demand service alternatives such as Software-as-a-Service (SaaS), cloud computing, and managed services.

I have recently suggested in commentaries in Datamation and the Business Technology Roundtable that any IT/business decision-maker who isn’t seriously considering these on-demand alternatives is doing their organization a disservice and could be jeopardizing their jobs.

THINKstrategies’ latest customer survey in conjunction with Cutter Consortium clearly shows that organizations of all sizes are adopting SaaS solutions to reap the economic and functional benefits of these on-demand services.

However, many of my clients are also reporting that they are putting a hold on all spending until they get a clearer picture of the state of the economy in 2009. In addition, many are also issuing requests for information (RFIs) to their current suppliers, including SaaS companies they are already using, to obtain additional financial data that can help them determine which vendors are most likely to survive a worsening economy. This is the first step of a broader initiative being undertaken by many of these companies to weed out those suppliers who may fail in the coming months.

Proving their long-term financial viability will become a key challenge for many SaaS, cloud computing and managed service providers (MSPs). Compounding this problem is the growing anxieties within the venture capital (VC) community which is facing severe pressures from their limited partners (LPs)–financial institutions, universities and others–who have been seriously impacted by the economic meltdown. With many of these LPs threatening to renege on their original commitments, the VCs are carefully scrutinizing and setting higher standards for their current and prospective portfolio companies alike.

As a consequence, many of the SaaS, cloud computing and managed service companies who were hoping to capitalize on the current crisis by increasing their sales and marketing efforts to promote their business benefits in a down economy are being forced to go slow or even cut back their spending instead. Many of these on-demand service companies are also facing longer sales cycles as customers delay their purchase decisions and demand more information about the providers’ operations and financial status as a part of their due diligence process.

Given that THINKstrategies’ SaaS Showplace already has over 900 companies from around the world offering over 4500 SaaS solutions organized into 80 Application, Industry and Enabling Technology categories and there may be twice that many companies actually offering on-demand services, an industry shakeout is inevitable and likely to happen sooner than expected.

These trends were the focal point of the recent Software Business and SIIA On-Demand conferences I participated in over the past few weeks. While Salesforce.com’s Dreamforce user conference was a celebration of the accelerating capabilities of cloud computing and SaaS, the Software Business and SIIA On-Demand conferences where more somber industry events were concerns about today’s economic environment were the center of attention.

I think the reality is somewhere between the euphoria and despair these two events. The measurable benefits and growing number of customer success stories that on-demand service providers can boast give them a clear long-term advantage over traditional, on-premise software and systems. However, these companies will face stiffer challenges from incumbent players and conservative decision-makers.

An indication of the competitive challenges facing SaaS and cloud computing vendors was provided by Anthony Lye, the Senior Vice President of Oracle’s customer relationship management (CRM) division, at the SIIA On-Demand conference. Lye spent about 30 minutes of what was supposed to be a “Point/Counter-Point” keynote session challenging the fundamental benefits of on-demand solutions and questioning the long-term viability of the on-demand services model, despite the fact that he is responsible for running Oracle’s on-demand CRM solution which has experienced significant growth over the past year.

Lye’s tough-minded presentation was an example of the same kind of subtefuge which his boss, Larry Ellison, the Chairman/CEO of Oracle, has been conducting for the past year with his own statements aimed at discrediting the on-demand services market despite the fact that Oracle is one of the largest suppliers of databases and middleware for SaaS and cloud computing vendors. (Click here to read THINKstrategies’ profile of Oracle’s SaaS enablement platform strategies and solutions.)

On-demand service providers will have to do a better job than Zach Nelson, the CEO of NetSuite, did at the SIIA conference. Nelson was supposed to offer a SaaS industry response to Lye’s incumbent software vendor (iSV) arguments, but he chose to side with Lye instead and distance NetSuite from the rest of the SaaS community. Rather than dispute any of Lye’s contentions and misrepresentations of the SaaS model, Nelson decided to take only 15 minutes of his portion of the keynote session “debate” to promote NetSuite’s integrated software and new focus on the service industry based on its acquisition of OpenAir.

Anyone who wasn’t aware that NetSuite offers SaaS solutions would have thought it was a traditional software vendor based on Nelson’s presentation. It was a disappointing performance which will do little to endear NetSuite to the rest of the SaaS industry. Instead, it only reinforced the impression that NetSuite and Oracle have a mutual understanding about how they will complement rather than compete with one another.

So, the on-demand services movement will continue to be led by Salesforce.com, Google, Amazon, Facebook and other innovators. It will also be led by bold, new leaders. Although Marc Benioff of Salesforce.com is the figurehead of the movement and Treb Ryan of OpSource is another important evangelist. Josh James of Omniture has emerged as an important spokesperson as well. James delivered a captivating presentation at the SIIA On-Demand conference which elaborated on a similar talk which gave at OpSource’s SaaS Summit last February regarding the key management metric for measuring SaaS sales effectiveness–the ‘magic number’.

It will take bold ideas and actions to succeed in the on-demand services market going forward. The winning on-demand service companies will be those who can convey a compelling message regarding the fundamental business benefits of their SaaS, cloud computing and managed service solutions, and deliver these tangible results in a cost-effective manner.

Like the well known line from Charles Dickens’ book “Tale of Two Cities” goes, these will be the best of times and the worst of times for the on-demand services movement.

I had the privilege of being a columnist for the Web Hosting Industry Review (WHIR) for nearly three years from its inception in 2004 to mid-2007. (Click here to read these columns.) During that time only a handful of hosting companies saw the potential of the rapidly evolving Software-as-a-Service (SaaS).

The majority of those hosting companies who saw the SaaS market opportunity primarily focused on pushing their managed services and co-location capabilities. OpSource was the first to recognize a broader set of business opportunities and became a thought-leader in the industry offering a wider array of services, augmented by set of third-party technologies.

Other hosting companies may have been generating greater revenues from independent software vendors (ISVs), but didn’t pursue the broader array of business opportunities associated with SaaS. As a result, OpSource won the lion share of industry attention and ‘mindshare’.

Now that the SaaS and wider ‘cloud computing’ movement is accelerating, a growing number of hosting companies are focusing their attention on this market. Their escalating efforts to prove that they are viable suppliers of SaaS enablement services is not only being driven by the exponential growth of the SaaS/cloud computing market. It is also being driven by the emergence of various ‘platform’ vendors who are promising a similar set of hosting and service infrastructure capabilities.

SAVVIS unveiled a new SaaS enablement program yesterday and it has come with a new twist. In addition to offering a set of Core Infrastructure Services and full range of Lifecycle Services, SAVVIS is seeking to differentiate itself in an increasingly commoditized hosting industry with a new “Marketplace” which promises to give ISVs access to its larger population of enterprise and ISV customers. In essence, SAVVIS is offering to be a channel to market for its SaaS ISV customers in addition to being their enablement partner.

The marketplace idea can also benefit SAVVIS’ enterprise customers who can gain access to an assortment of SaaS solutions which can help them address specific business requirements and achieve their corporate objectives.

I’ve been suggesting this idea to a number of hosting companies over the past year and will be interested in seeing how well SAVVIS is able to deliver this new level of value to its customers.

I’ve just returned from my fourth trip to Las Vegas in four months where I spent three days attending my second annual Symantec Vision user conference and worldwide industry analyst briefing. The event offered a number of important insights regarding the state of the Software-as-a-Service (SaaS), as well as the managed services market.

I’ve stated in this blog numerous times, we are entering a pivotal new stage in the evolution of the SaaS market in which IT professionals are starting to view on-demand services as a powerful means of addressing many of their age-old management challenges, rather than a threat to their operations.

The Symantec executives who spoke at the conference and shared their candid views with me during the event confirmed my perspective by reporting that they are seeing rising receptivity toward SaaS ‘out-tasking’ alternatives to traditional management products among the company’s existing IT customers, as well as prospects of all sizes.

They suggested that this change in the IT department’s attitude is being driving by a number of trends,

• Escalating complexity due to the proliferation of new technologies and business challenges.
• Ecological concerns, escalating energy costs, and ‘green’ initiatives.
• Consumerization of IT as the result of end-users introducing their own technology devices into the corporate environment.

Generational changes among new employees demanding a wide array of Web 2.0 and social networking tools to perform their jobs.

The latter two trends are blurring the lines between the corporate and consumer worlds. Symantec’s prominence and brand equity in both worlds gives it a competitive advantage addressing the convergence of these two IT environments.

Symantec first started to talk about its SaaS intentions in 2006 and rolled out its initial SaaS solution aimed at online backup and storage services under the Symantec Protection Network brand name in 2007. However, the company encountered a series of internal operational problems dealing with service provisioning issues and external challenges responding to channel conflict concerns that slowed the rollout process.

Despite the bumpy start, Symantec’s resolve to deliver a full portfolio of SaaS solutions was made clear throughout this week’s conference. The first indication was during the kickoff keynote address by John Thompson, Symantec’s Chairman/CEO, who alluded to the company’s SaaS initiatives in his opening remarks.

The seriousness of Symantec’s focus on SaaS was even more strongly stated during an analyst briefing by the company’s new Chief Strategy Officer, Greg Hughes. Hughes previously ran Symantec’s service business, including everything from support and professional services to SaaS and managed services.

Hughes admitted that his service background has shaped his views regarding Symantec’s future direction. As a result, he revealed that the company’s top three emerging market priorities and new incubator focus areas are SaaS, cloud computing and virtualization. The company views SaaS as business oriented on-demand solutions and cloud computing as its consumer oriented services. Although I see this as an artificial distinction, the heavy emphasis on the overall development of on-demand solutions is the most important message.

The SaaS theme even permeates Symantec’s virtualization strategy. An example is the company’s new SaaS oriented Veritas Storage and Availability Management Operations Service aimed at large-scale enterprises. This service automates numerous virtualization management tasks and provides a web-based repository of management best practices to service subscribers. Over 1000 customers have participated in the Beta version of the service, creating a massive ‘ecosystem effect’ via social networking model.

Symantec isn’t planning to abandon its traditional, packaged product business, but is beginning to formulate a strategy for building an integrated set of complementary on-premise and on-demand solutions across all of its IT management competency areas and product families to satisfy the diversity of customer needs.

Demonstrating this point, SaaS was a part of every presentation during the analyst briefing.

Enrique Salem, Symantec’s new Chief Operating Officer (COO), also referred to SaaS as a ‘game changing’ trend during his brief talk with the analysts. He said that one of his goals is to simplify Symantec’s product/service portfolio to make it easier for customers to identify the right solution to meet their IT/business and make it easier for Symantec and its channel partners to sell these solutions.

Part of this effort includes an internal reorganization to consolidate related products and services into integrated business units. For instance, the company has merged its NetBackup and Backup Exec product teams, and integrated their capabilities. Symantec has also aligned these product groups with the company’s SaaS Symantec Protection Network (SPN) SaaS platform.

Enrique also stated that Symantec is now measuring its success on three criteria, including Net Promoter Scorecards based on customer loyalty. This customer satisfaction metric is now a key variable in employee compensation and recognizes that offering SaaS solutions is essential to enhancing the customer experience and to Symantec’s long-term success.

The company is also making acquisitions to fortify its SaaS capabilities. It announced the acquisition of SwapDrive which gives it added storage service resources which have been used to power Dell’s storage services.

The company executives I met with on a one-on-one basis said they are not only gratified with the positive response their new SaaS solutions have received from customers, but are also pleased with the dramatic change in attitude among Symantec’s product management and sales teams toward the company’s SaaS strategies. They admitted that a year ago, these internal groups viewed Symantec’s SaaS initiatives as a cannibalistic threat to their traditional products and sales efforts. Today, they recognize that SaaS can produce net-new revenue opportunities and want to jump on board the bandwagon.

Symantec is not likely to be the first to market with its SaaS solutions because of the myriad of internal and external challenges it faces. However, it could become one of the most prominent players in the IT management segment of the SaaS market over the longhaul as customers seek strategic sources to meet their needs. Along the way Symantec will have to overcome the ‘me too’ look and feel of its SaaS solutions.

In addition to attacking the overt market opportunities in the consumer and corporate worlds, the executives I met with during this week’s conference also suggested a long-term vision of Symantec become a key SaaS platform supplier for a wide array of Internet service providers (ISPs), leading telecommunications carriers and business service vendors. For instance, the company is planning to rollout a new Symantec Secure Scalable Storage (S4) cloud-based platform later this year.

While all of these developments represent a strong endorsement of the SaaS movement, the user conference attendance was noticeably smaller than a year ago raising questions about Symantec’s overall standing in the market. The decline could be a reflection of the recessionary times. However, other analysts attending the conference reported that they had seen attendance growing at other vendor user conferences this year.

Nonetheless, Symantec’s SaaS strategies and solutions are an important indicator of the rapid evolution of the on-demand services market.

One of the benefits of being in the middle of the Software-as-a-Service (SaaS) market is getting exposed to a variety of interesting resources and research projects.

For instance, at last week’s Software 2008 conference in Las Vegas I was able to attend the kickoff presentation by Abhijit Dubey of McKinsey & Company which summarized the firm’s latest SaaS research regarding the evolution of on-demand platforms. Dubey and McKinsey have produced a series of research reports which have verified THINKstrategies’ SaaS survey studies regarding the accelerated adoption of SaaS. Even more importantly, their research clearly shows the total cost of ownership (TCO) and return on investment (ROI) advantages of SaaS for enterprise customers and on-demand platforms for software vendors.

THINKstrategies’ SaaS Showplace has also attracted plenty of attention as a resource for a variety of other research initiatives. For instance, THINKstrategies is supporting a financial benchmark study of the SaaS industry being conducted by OPEXEngine. OPEXEngine’s benchmarking survey is aimed at B2B software companies with 2007 revenues between $10M-$250 million offering SaaS solutions. Participants in this study will receive a confidential Company Performance Report and a detailed Industry Report that will cover key financial performance metrics. Click here for more information. Tell them THINKstrategies and Jeff Kaplan referred you.

THINKstrategies is also happy to support the research efforts of Professor Stéphane Gagnon of the Department of Sciences Administratives at the Université du Québec en Outaouais in Gatineau, Québec, Canada. The purpose of his study is to identify factors explaining the relative success of software components commercialized as XML Web Services, a sub-category of the SaaS market. This survey contains 11 questions with 60 data items. All the survey participants’ responses will remain confidential, and all data gathered will be published strictly in aggregate formats. The survey questions are available at http://www.gagnontech.com/saas.

And kudos to Peter Laird, an Architect at BEA/Oracle, who converted the contents of THINKstrategies’ SaaS Showplace into a terrific visual map of the rapidly changing industry landscape. I highly encourage you to visit his blog and give him feedback regarding his visualization of the SaaS marketplace.

Contact me if you’re conducting or have found interesting research or analysis of the SaaS (or managed services ) market.

As I’ve suggested multiple times, the major hardware and software vendors are aggressively pursuing the tremendous business opportunities in the managed services market.

Now, the key questions are how will they bring these offerings to market and what role will their channel partners play in provisioning these new services?

The two most recent examples are IBM’s new Express Advantage security-as-a-service offerings and Dell’s April 24 closing of its MessageOne acquisition.

IBM’s security-as-a-service solutions are its first on-demand offerings based on its acquisition of Internet Security Systems in August 2006. The new solutions will primarily serve small and midsize businesses (SMBs). They include Express Penetration Testing Services; Express PCI Assessments; Express Multi-Function Security Bundle, which includes protection against worms, spyware, anti-virus and spam in a unified threat management offering; and Express Managed Protection Services for Servers.

These solutions have been historically been offered as on-premises offerings, but Peter Evans, director at IBM ISS, is quoted in eWeek as saying,

“Spending on security is rising 6 percent a year… But spending on the labor needed to manage that security is rising 11 percent a year; therefore we need to help SMBs remove some of the cost by offering solutions as fully managed services.”

IBM will sell these services to SMBs through its ISS channels, but you can bet it will also offer them directly to some of its larger, key accounts.

Meanwhile, in its announcement of the completion of its $155 million acquisition of MessageOne, the company said:

“With its acquisition of SilverBack Technologies, Inc., Everdream Corp., ASAP Software Express, Inc. and now MessageOne, Dell is architecting an integrated service delivery platform of SaaS applications that will enable it to remotely monitor, maintain, troubleshoot and address the majority of routine IT infrastructure issues that challenge businesses of all sizes. The company anticipates that services such as patch management, anti-virus, online backup and recovery, asset tracking, software license management and e-mail continuity delivered and managed over the Internet will reduce the cost of infrastructure management and free budget for the IT driven innovation that grows business.”

This statement makes more explicit the strategic implications which I outlined earlier this year.

Dell’s President of Global Services, Steve Schuckenbrock, goes on to say that Dell is “building a services supply chain” that will give customers greater flexibility regarding how they support their IT environments.

Again, Dell is offering these services to its growing array of channel partners but is also expecting to deliver these services directly to its key accounts.

So, channel organizations must determine how to fully leverage these offerings while at the same time effectively differentiating themselves from others, including the vendors, who will be offering the same managed services.

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.

Microsoft’s proposed acquisition of Yahoo has gained plenty of attention because of its blockbuster pricetag and obvious attempt to blunt Google’s success in the online search advertising business.

However, I think the acquisition also has significant implications for the future of on-demand services. Yahoo’s popular portal will certainly be a great new channel to market for Microsoft’s on-demand games and Zune entertainment initiatives.

I’ve also been saying for the past two years that Yahoo and other major online outlets will become the new channels to market for Software-as-a-Service (SaaS) solutions and managed services. This is because many corporate customers are gaining confidence in SaaS and managed services as a viable alternative to traditional on-premise products result of their overall comfort with consumer-oriented on-demand services like Amazon, eBay, YouTube and iTunes. This consumer to corporate buyer crossover makes Yahoo an appealling outlet for on-demand business services.

Yahoo has been offering services to small businesses for a number of years that help them “Get Online”, “Sell Online” and “Market Online”. While these services only include simple hosting and email today, they could easily be expanded to include a broad array of SaaS business applications and a broader set of managed services powered by Microsoft and its ISV partners.

Leveraging the Yahoo portal as a channel to market for Microsoft’s “software plus services” solutions and partner offerings built on Microsoft’s platform would give them greater visibility to a broader audience of potential customers.

However, this assumes two things:

1. Microsoft has to successfully acquire and integrate Yahoo into its corporate structure and culture. Although no definitive data exists, most studies suggest that 50-80% of corporate acquisitions and mergers fail to achieve their original business objectives. This is especially true with mega-deals that place big bets on producing a strategic impact for the companies involved and more often create a major disruption in their operations.
2. Microsoft has to convert its “software plus services” strategy into a real portfolio of competitive offerings. Although Microsoft can make a compelling case for customers extending the functionality of its current products via web-oriented extensions, a growing proportion of businesses are looking for true web-based solutions that eliminate the hassles and inherent shortcomings of premised-based applications. Microsoft’s current strategies and solutions do not recognize these changing attitudes or satisfy customers raising expectations.

Unless Microsoft can overcome these challenges, it will not be able to fully capitalize on the Yahoo acquisition.

I recently had the privilege of conducting a podcast with Nick Lippis of the Lippis Report regarding the evolution of the managed services market. Specifically, we discussed how the market is entering a new era, which I refer to as Managed Services 3.0.

Why 3.0?

Having been a part of the managed services market for the past 25 years, I divide its history into three stages.

In the 1980s, the newly emancipated Regional Bell Operating Companies (RBOCs) formed as a result of the AT&T divestiture were the primary providers of managed services. While they called their offerings managed services, they were really outsourcing arrangements aimed at their largest corporate customers. These highly customized services were part of a larger portfolio of carrier services.

In the 1990s, a new breed of independent service providers emerged offering a new generation of specialized managed services to small- and mid-size businesses (SMBs). These standalone managed service providers (MSPs) leveraged third-party tools and their own homegrown systems to deliver highly standardized ‘point’ services aimed at addressing their customers’ desktop, network, storage, security and other ongoing management needs.

Despite plenty of hype about the managed services market opportunity, few of the MSPs founded in the 1990s survived the demise of the dot.com era. We can spend hours dissecting all the reasons why managed services failed at that point, but they can be summarized into three areas,

• Immature enabling technologies
• Immature marketing strategies
• Immature management skills

Improvements in each of these areas, plus an economic climate which is driving companies of all sizes to seek ‘out-tasking’ alternatives to managing their own IT operations, has produced a new opportunity for managed services to flourish.

Managed Services 3.0 represents the confluence of three important forces,

• More powerful and cost-effective enabling technologies
• More compelling marketing messages and effective marketing tactics
• More committed leadership and sophisticated management

MSPs are learning how to leverage SaaS-empowered enabling technologies to build and deliver their services. They are learning how to sell the right solution to the right IT/business buyer. And, MSP executives are learning about the operational and organizational requirements for building a successful managed services business.

Combine these with the growing receptivity among IT/business decision-makers within companies of all sizes to accept and adopt third-party services to better manage their IT operations, and you have a fertile market opportunity for MSPs.

Click here to hear my conversation with Nick Lippis regarding Managed Services 3.0. Visit THINKstrategies’ Managed Services Showplace to find more insights about these trends and information about the growing array of companies offering managed services.

If you are interested in keeping pace with the rapid changes in the IP networking and unified communications market, I highly recommend you subscribe to the Lippis Report.

Anyone who follows this blog or the broader on-demand services market is well-aware of the disruptive impact Software-as-a-Service (SaaS) is having on the software industry. Now, software and systems vendors are offering SaaS solutions that could have an equally profound affect on the way organizations acquire and manage technology, as well as transform the way vendors and channel companies sell and support technology.

While the managed services has grown steadily, many channel companies have experienced limited success migrating to a managed services model. As I’ve stated in previous blog entries and my other writings, part of the problem is that executives within established channel companies don’t fully understand what it takes to transform their businesses. But, another barrier to success has been the lack of cost-effective tools.

Until recently, many channel companies were unable to successfully transition to a managed services model because it required considerable investment in IT management tools and skills. Few of these companies could afford the upfront license fee for traditional management software packages, especially given the incremental revenue streams that come with managed service agreements. They often lacked the requisite skills to implement and maintain these management platforms.

Today’s SaaS-based management solutions can be acquired on a pay-as-you-go basis, and are easier to deploy and administer, making them perfectly suited to help channel companies transform themselves into viable managed service providers (MSPs).

These attributes led Dell to acquire SilverBack Technologies and Everdream, which now serve as the cornerstones of its new SaaS-empowered managed service offerings aimed at channel companies.

Cisco’s acquisition of WebEx was also partially driven by its SaaS-empowered remote management capabilities, as well as its collaboration applications. Cisco is now aggressively promoting a Managed Services 3.0 initiative aimed at helping channel companies and service providers more effectively develop and deliver managed services. (You can hear my views about Cisco’s initiative on a recent Lippis Report podcast.)

The most recent example of this phenomena is EMC’s new SaaS initiative, announced yesterday, that kicks off with MozyEnterprise™ powered by EMC Fortress™, an online backup service for desktops, laptops and remote Windows servers based on the service delivery capabilities it acquired from Berkeley Data Systems.

Not all systems and software vendors are buying their way into the SaaS-empowered managed service enablement business.

Symantec unveiled an internally developed SaaS platform nearly a year ago. While the Beta program that was a part of its initial SaaS launch generated mixed reviews, Symantec is committed to delivering a full-suite of SaaS solutions for its channel partners that will span its traditional management capabilities. The company’s channel partners will be able to leverage these SaaS offerings to build or enhance their their managed service capabilities.

This trend demonstrates that managed services and SaaS is gaining widespread acceptance at both the end-user and vendor levels. Approximately 40% of the companies surveyed by THINKstrategies and Business Communications Review a year ago were already utilizing a managed service. Over a third of the respondents to THINKstrategies’ most recent user survey in conjunction with Cutter Consortium are currently using a SaaS solution and another 37% are considering SaaS.

While many SaaS startups are trying to establish channel relationships to expand their market penetration, many established systems and software vendors are acquiring SaaS companies or adopting SaaS strategies to help channel companies migrate to a managed services model.