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.

Despite the economy, election and lingering questions about whether Software-as-a-Service (SaaS) is enterprise-ready, this week’s Salesforce.com Dreamforce conference drew nearly ten thousand energnetic attendees and exhibitors to celebrate the power of the ‘cloud’.

The event not only dispelled any questions about whether the SaaS movement can withstand today’s economy, it also helped to resolve the needless debate over whether there is a difference between SaaS and cloud computing.

Salesforce.com succeeded in dissolving any line of demarcation which may have existed between the SaaS and cloud computing worlds by:

• Using the terms interchangeably throughout its keynote and breakout sessions
• Unveiling a new round of cloud-based applications and platform capabilities
• Expanding its strategic alliances to include two more pivotal ‘cloud’ players

Salesforce.com’s two most significant announcements were its move into website hosting services, and new alliances with Amazon and Facebook.

The website hosting services add another layer to the company’s capabilities and extend its reach across the value-chain of customer/partner facing interactions. This new layer of services provides a clear ‘use-case’ for Salesforce.com’s VisualForce web design capabilities and fortifies Salesforce.com’s positioning as a strategic source for customers and ISV partners.

The new alliances with Amazon and Facebook are a natural extension of its rapidly growing allegiance with Google. Amazon gives Force.com users added storage and computing power capabilities to enhance and expand their SaaS solutions. The Facebook relationship could finally enable business users to effectively leverage the popular social networking site for more than simple advertising and promotional purposes.

Most importantly from Salesforce.com’s perspective, these new alliances puts the company squarely at the center of the cloud computing world just as Microsoft is beginning to describe how it will deliver its own vendor-centric cloud platform.

Salesforce.com has succeeded in pulling together the key cloud computing players who stretch across the four corners of this rapidly expanding marketplace. I expect these alliances to accelerate new mash-ups and more substantial cloud-based solutions. This foursome of cloud computing players could be viewed as the “Four Horsemen”.

Between the keynote sessions I had two days of back-to-back meetings on the show floor with a mix of SaaS vendors, customers and investors facilitated by the SaaS appointment maker solution, TimeTrade.

The exhibitors were nearly all extremely pleased with the volume of quality leads they generated during the event. As always, I also learned about a variety of subplots among the various vendors in attendance.

All of the people I met were upbeat about the overall SaaS/cloud computing market outlook long-term, but concerned about the short-term impact of the economy on deals already in their sales pipeline. Corporate indecision or company edics to put a hold on all new spending will probably delay many SaaS deals through the end of 2008.

I think this delay in sales, combined with a tightening of VC and other financing, will accelerate a shakeout in the SaaS/cloud computing industry. The most vulnerable players will be those who only offer point products with ‘nice to have’ features rather than ‘must have’ business benefits. The survivors will be those who can demonstrate their strategic value, along with their financial viability in a tough economic climate.

Despite these potential storm clouds, the prospects are still far brighter for the overall SaaS and cloud computing market than traditional, on-premise, legacy software vendors. The energy and enthusiasm of Salesforce.com’s customers at Dreamforce served as a solid confirmation of this very exciting market opportunity.

One of the myths about the Software-as-a-Service (SaaS) market which has continuously frustrated me is the misconception that this movement is best suited for the ‘simple’ needs of small- and mid-sized businesses (SMBs) and not robust enough to satisfy the complex requirements of large-scale enterprises.

While SaaS certainly levels the playing field for SMBs, I’ve written, consulted and spoken extensively about the widespread interest and adoption of SaaS which THINKstrategies has seen over the past 3-4 years. Despite my efforts, many of the industry analyst firms and trade publications are still debating whether enterprises should consider and deploy SaaS.

This week, GE lent its name to the SaaS movement by announcing that it has deployed an on-demand Supplier Information Management (SIM) provided by Aravo Solutions, Inc. GE’s deployment of Aravo SIM(TM) was driven by its need to transform its supplier information management processes across all of its business units worldwide.

GE relies on one of the world’s largest and most complex supplier networks of over 500,000 suppliers across thousands of business units in more than 100 countries. Gaining greater control over the complexity of this supplier network is essential in today’s increasingly tough economic environment.

Aravo’s web-based, SIM platform will enable GE to automate and streamline its supplier information-related business processes, improve the quality of its supplier data, and reduce costs. The improved business processes and supplier data quality can also help GE satisfy its corporate compliance requirements.

GE also expects the new SaaS SIM platform to make it easier for its suppliers as well. Aravo’s solution includes a self-service interface to initiate and maintain their information, which reduces the time and expense of these administrative tasks.

GE’s implementation of Aravo’s SIM platform began in March 2008, and is now deployed worldwide. The completion of the first phase of this SIM platform deployment announced this week supports GE’s corporate supplier management organization. GE will deploy the SIM platform to all its business units by year end, and plans to expand its use of the platform in 2009.

This deployment may be the largest to date in the SaaS market. (Let me know if you know of any larger.) It is not only an important validation of the enterprise readiness of SaaS, but also clearly shows that enterprise SaaS still requires significant planning to be implemented successfully.

Winning GE as a customer is not only a major milestone for Aravo, but also a landmark endorsement for the overall SaaS movement. Of even greater value is GE’s willingness to talk publicly about its choice of a SaaS solution and confidence in the business benefits of this decision. In this week’s press release, GE’s senior vice president and CIO, Gary Reiner, stated:

“We evaluated a number of alternatives for managing our suppliers and their information, but Aravo SIM(TM) was the best commercially-available solution capable of meeting our complex, global needs. We expect that Aravo SIM will deliver significant cost savings, while improving data accuracy, compliance and productivity.”

Tom Hattier, GE’s Corporate Initiatives Group – Shared Sourcing Services Manager, added:

“Our sourcing and compliance strategies require our employees to see 500,000 vendors with a common view across hundreds of global systems. Coordination requires strong vendor management discipline, both lean and simple, backed up by a global platform that can lock in the process. Aravo SIM met these requirements extremely well. The service allows us to syndicate the information to our various purchasing, accounts payable, and other systems so that we can have one consolidated view of what’s going on with all of our suppliers.”

Anyone who has tried to get a major corporation to participate in a press release of this nature knows that it nearly impossible. Therefore, this announcement is a clear testiment to business benefits GE is already generating from the Aravo solution.

The announcement should serve as a wake-up call for legacy software vendors who have refused to believe that enterprises would accept SaaS for their mission-critical operational needs. It should give SaaS vendors targeting enterprises greater encouragement. And, it should give IT/business decision-makers within large-scale enterprises greater confidence that SaaS is a viable alternative to legacy, on-premise software.

One of the primary concerns of IT and business decision-makers regarding Software-as-a-Service (SaaS) applications is security.

Although most SaaS vendors have been able to demonstrate that their cloud-based applications are secure from an operational point-of-view, there are still access control issues which enterprises need to address to ensure their corporate data is fully secure from an end-user perspective.

It is becoming particularly important to address these issues because SaaS applications are gaining popularity in today’s increasingly challenging economic climate.

The economy is also producing a new round of layoffs which means businesses need to be especially vigilant about how they manage user access to their SaaS applications to be sure laid off employees do not inadvertently or intentionally compromise sensitive or proprietary corporate data.

I’ve had the privilege of participating in two recent webcasts regarding these issues hosted by OutProtect and Symplified. These companies, and others such as Conformity, Ping Identity and Tricipher, are offering varying approaches to single sign-on (SSO) access control, usage tracking and centralized management of multiple SaaS applications.

Although on-demand SaaS has proven to be more secure than most on-premise applications, these SaaS security and management solutions are still worthwhile because cost-effective, end-user management and security will become even more essential as the SaaS market experiences accelerated growth due to the current economic crisis.

One of the topics which leading Software-as-a-Service (SaaS) vendors and industry analysts are most vehement about is that software vendors cannot survive and succeed supporting a ‘hybrid’ model.

This issue arises every time an incumbent software vendor–my definition of a “ISV”–rolls out a SaaS solution while also trying to sustain its legacy, on-premise application. There are plenty of impediments to success in this balancing act across the entire lifecycle of a product extending from software development and delivery to sales and support. These technological and organizational challenges are major obstacles to success for ISVs trying to keep pace with the SaaS movement.

However, despite growing interest and adoption of SaaS as well as other ‘cloud’ computing alternatives among organizations of all sizes, many IT and business decision-makers continue to feel that they must make an ‘either/or’ judgement when it comes to on-premise versus on-demand solutions. This often confronts with an unnecessarily polarized set of options rather than giving customers a variety of complementary choices that enable them to locate their applications wherever they like.

I believe that this no longer needs to be the case. Instead, I think SaaS and cloud computing vendors should adopt a different attitude toward the hybrid model to better respond to their customers’ preferences. If vendors adopt this new approach, it could remove one of the last barriers to broad-based acceptance of SaaS and cloud computing among small- and mid-size businesses (SMBs), as well as large-scale enterprises.

As I’ve written, and many others have stated elsewhere, building and selling a traditional software product is fundamentally different than delivering and supporting a SaaS solution. Supporting these two differing models creates internal redundancies and external conflicts which are costly, inefficient and doomed to failure in most cases.

Having said that, I’m becoming convinced that some ISVs can survive and will succeed by offering customers the choice of an on-premise and on-demand solution. In fact, I think it will be necessary to do so in order to satisfy the demands of those customers who are not comfortable with relying on a ‘cloud’-based solution to meet their IT or business needs.

While customer concerns about where a software solution, or even the application data, resides may not be entirely rational at times, it may not be necessary in the future for ISVs to have to convince them to part with their data or depend on an application hosted in an unknown location.

Instead, a variety of players in the SaaS and cloud computing market are leveraging an ‘appliance’ approach which permits customers to deploy the vendor’s on-demand solution behind the firewall where it is regularly updated and upgraded via a synchronization process similar to that which has become acceptable in a variety of other situations, such as managed storage, back-up and security services. It is also becoming possible with Google Docs offline and Adobe Air.

This idea is already being demonstrated by companies like Cast Iron Systems in the data integration arena; NTRglobal in the remote support management services business; and St. Bernard in the security solutions realm.

Although none of these companies are delivering major enterprise applications, they are all offering customers the choice of deploying their equally important solutions in the ‘cloud’ or behind the firewall.

And, if Google, IBM, Microsoft and others can modularize their data center capabilities into ‘pods’ which can be deployed anywhere, what is to prevent Salesforce.com or other enterprise SaaS vendors from doing the same thing with their applications.

(I’ve been hearing rumors for a while that Salesforce.com is already allowing some of its largest customers to host its applications behind the firewall.)

Now, it is important to note that this approach still requires an ISV to evolve its software design to sit on a single multi-tenant style architecture and code base in order to be operationally feasible and cost-effective.

But, the enabling technologies are quickly evolving to satisfy these requirements. And, customer demand definitely exists to make this approach readily acceptable and profitable.

Let me know if you think I’m crazy or if you know of other examples which support my argument.

Once again Gartner has demonstrated why it is viewed as a lagging indicator of meaningful market trends. Check out a new article in CIO Magazine entitled, “Gartner: Four Disruptions That Will Transform the Software Industry.”

In this article, Gartner analyst Yvonne Genovese identifies the following “disruptive” software industry trends that will take shape by 2010-2015,

• Rise in New Technologies and Convergence of Existing Technologies
• Change in Software User and Support Demographics
• Revolutionary Changes in Software and How it is Consumed
• Software Market Moves to Megavendors Supporting Large Ecosystems

To call any of these trends potentially disruptive in 2010 or 2015 is to ignore the significant impact each of them is already having on the software industry today.

Web mash-ups became the play things of the Facebook crowd over a year ago and are already being used by a wide array of companies of all sizes today.

That same Facebook generation has already brought their social networks into the corporate environment, making Gartner’s suggestion that “By 2015, no company will be able to build or sustain a competitive advantage unless it capitalizes on the combined power of individualized behaviors, social dynamics and collaboration”, ludicrous.

“Revolutionary Changes in Software and How it is Consumed” are already well underway and will be yesterday’s news by 2010. Software-as-a-Service (SaaS) and cloud computing are gaining mainstream and Main Street acceptance and adoption.

Gartner may be right that the “Software Market Moves to Megavendors Supporting Large Ecosystems” but it won’t be yesterday’s leading vendors. Instead, it will be Google, Amazon and Salesforce.com leading a new generation of SaaS and cloud computing providers.

Gartner’s forecast would be laughable if it wasn’t so sad how many companies spend millions of dollars to obtain this type of ‘insight’.

This is especially disappointing at a time when most companies are in desperate need of practical help and advice to overcome the unprecedented realities of today’s turbulent business climate, as opposed to the hypothetical world of the future as seen by a market research firm.

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.

Although the Software-as-a-Service (SaaS) business applications and cloud computing development environments are getting the lion’s share of the attention in the press today, the most prevalent form of on-demand services continues to be hosted email and security services.

Email and security management are escalating challenges for IT and business decision-makers facing greater demands for real-time communications from their end-users, coupled with growing concerns about viruses, hackers, compliance and litigation.

As a result, an increasing proportion of companies and non-profit institutions are choosing to ‘out-task’ their email and security management to third-party hosting companies and managed service providers (MSPs).

However, enterprises and on-demand service providers alike are also recognizing that email, security, storage, archival, e-discovery, business continuity and disaster recovery are all intertwined. Therefore, IT/business decision-makers are seeking providers who can service as a strategic source for these services and providers are seeking to build service portfolios which can satisfy these requirements.

It is for these reasons that Symantec announced its acquisition of MessageLabs yesterday. Symantec has made it clear that it recognizes the growing demand for SaaS alternatives to traditional software products and is committed to providing on-demand solutions which respond to its customers’ rapidly changing needs. However, the company has also discovered that there are a myriad of internal and external challenges fulfilling this promise.

The acquisition of MessageLabs gives Symantec a proven set of on-demand services and experienced business executives who can help the software vendor overcome the obstacles which have prevented it from rolling out its offerings more quickly.

MessageLabs’ hosted email and security services can complement Symantec’s storage services. In addition, MessageLabs has a solid installed base of customers and strong channel partners, an aspect of the on-demand services puzzle which Symantec has been trying to assemble. Symantec has its own vast base of customers and channels to market for its traditional products and services, along with the service delivery infrastructure and provisioning engine it has built for the Symantec Protection Network (SPN).

Because of MessageLabs’ track record of success, the company’s leadership team will assume responsibility for Symantec’s entire on-demand services portfolio and go-to-market strategy. The infusion of this new leadership, along with their indepth understanding of the business requirements for delivering scalable on-demand services, should enable Symantec to accelerate its efforts to become a major player in the SaaS marketplace.

This isn’t the first acquisition of this nature. Google bought Postini and Dell acquired MessageOne in response to the same market trends. Now, Symantec is in a better position to respond to its customers’ needs and keep pace with the competition for these services.

I’ve been saying for months that the Software-as-a-Service (SaaS) movement will gain momentum as the threat of a recession intensifies.

Now that the prospect of a recession has turned into a full-fledged financial crisis and escalating fuel costs are fanning the flames further, the economic justification for adopting SaaS has become even clearer to a broader cross-section of business decision-makers.

The latest reinforcement of this point came yesterday from one of the most visible personalities in the business press today–Jim Cramer, the host of CNBC’s “Mad Money”.

Love him or hate him, Cramer has become one of the most influential stock market commentators in the U.S., if not worldwide. And while many can criticize his ability to pick stocks or ridicule his crazy antics, Cramer does deserve credit for helping to educate people on Main Street about the nuances of Wall Street. And in the process, he has also made his viewers aware of many of the fundamental principles of business, as well as the critical success factors for market winners.

Therefore, I was pleasantly surprised to stumble across a segment of Cramer’s show last night–between the various post-mortems regarding the latest presidential debate–that included an interview with Salesforce.com’s CEO Marc Benioff and a strong endorsement of the SaaS model by Cramer, albeit while still cautioning his viewers to hold back on buying Salesforce.com shares because of its current valuation.

Despite Cramer’s hesitancy to recommend Salesforce.com’s stock, he strongly endorses the SaaS and cloud computing business models which he describes as not only recession-proof, but perfectly suited for today’s turbulent economic environment. (It is always nice to have a popular figure like Cramer echo the mantra I’ve been preaching for the past year.)

Cynics might discount the significance of Cramer’s endorsement, but I believe it is an important milestone in the evolution of the SaaS and broader cloud computing markets.

Click here to find a summary of the Mad Money segment and see the video interview with Marc Benioff.

Sometimes, even a free trial isn’t good enough to convince potential customers to buy a Software-as-a-Service (SaaS) solution.

A case in point is LucidEra’s on-demand business intelligence (BI) solution. Even though the company is undoubtedly the thought-leader in this segment of the SaaS market and has experienced some success selling its solutions, the company has discovered that it takes more than the standard ‘try and buy’ sales approach to get customers to take advantage of its capabilities.

This is because LucidEra is aiming its on-demand BI solution at small- and mid-size businesses (SMBs), as well as those large-scale enterprises, which have not deployed BI products in the past because of their costs and complexities. Therefore, these prospective customers have little experience using a BI solution and need some hand-holding to fully understand how to utilize even a relatively easy solution like LucidEra’s.

To remedy this issue, LucidEra unveiled a new Pipeline Healthcheck Service today which is based on a beta version which was tested over the summer. The Pipeline Healthcheck Service is a free consulting engagement in which LucidEra uses its on-demand BI solution to quickly analyze a prospective customer’s Salesforce.com sales data to identify ways they can generate better sales results and decrease potential sales risks.

While some SaaS vendors and VCs might cringe at the idea of giving away free consulting services in order to sell subscription services, LucidEra has seen a substantial increase in customer ‘take’ rates along with shorter sales cycles during the beta trial of the Pipeline Healthcheck Service. The net result has been greater sales productivity despite the appearance of a more labor intensive sales process. And, LucidEra’s executives are convinced they can automate and streamline the Pipeline Healthcheck Service delivery process to reduce its costs and increase its scalability.

This is a perfect example of the creative sales techniques which a growing number of SaaS companies are going to have to adopt in order to convince prospective customers to adopt their SaaS solutions.