How Old and New Worlds Collide

I’m having a lot of conversations these days about understanding the SaaS market, SaaS channels and SaaS Marketplaces. How much uptake is there? What is the mix of reseller or referral? How relevant is Marketplace? A lot of conversation but few hard facts.

This area is developing and I’d be interested in thoughts and insights from others too. As this conversation develops I’ll share more insights around topics like on-premise versus cloud share, programs and best-practices, as well as Marketplace today and future.

The New World

We read discussions on the percent of software sold through the channel being much smaller with SaaS than traditional on-premises software. According to some sources 35%-45% of SaaS revenue comes from the channel, as contrasted with 60%-70% of on-premises software. And 25% of B2B SaaS vendors have SaaS channel programs, while 80% of on-premise software vendors have channel programs.

The primary reasons for the current lower use of channels by SaaS vendors include:

• No need for a channel partner for basic fulfilment, installation and upgrade – functions traditionally performed by VAR’s.

• Basic configurations are mostly done by the customer of a SaaS vendor rather than requiring a channel partner.

• Many new SaaS companies have fewer international sales where the use of channel partners is more prevalent.

• Many SaaS companies are young, or an offshoot of an on-premise legacy vendor, and don’t usually initiate SaaS channel programs until their direct sales approaches are fully developed. So they just “haven’t gotten to” building a channel program.

My experience of working with a mix of legacy on-premise clients on the new world journey to SaaS is the above generally holds true. There is some, but not a preponderance of SaaS revenue in the overall channel today. We could argue whether it is 15% or 30% but it depends on the style and age of the vendor.

Right Behaviours

It’s also interesting to look at what the needs are for SaaS channel, how to encourage the right behaviours, and drive appropriate programs.

One size doesn’t fit all. Some SaaS implementations will need more implementation than just ‘plugging in’ and some vendors don’t have reach and range in small or dispersed markets. So partner dependence is still there.

And what is always true is that the channel program needed for SaaS is different from a ‘traditional’ program: lighter, simpler, with refer and resell. So a legacy company moving to SaaS has to re-engineer or build a new channel program. This might be seen by the legacy company as something they might get round to. In reality it needs visionaries in their organisation to drive sooner rather than later.

Old World New Challenges

It’s also interesting to consider what’s happening in on premise, which isn’t dead. However, some of the sales models, partner relationships and programs are changing here too. The expectations of today’s (let’s call them ‘millennial’?) partners is for smarter slicker programs more aligned to their sales motions and market needs, either SaaS or on-premise, or both. There are fewer partners as ready to accept the clunky approaches of old world on-premise programs. The new world is about ‘the partner experience’.

I see vendors wanting and struggling to enhance their on-premise programs to be more consistent and compelling. From deal-registration to program operation and benefits, to partner engagement and experience. Especially partner experience, this has greater value and needs more focus in the old and new world.

Marketplaces

This is interesting and unexplored country in many ways. There is a lot of talk about Marketplaces, all the major vendors have them and are investing in them. Suspicions are they are not big revenue generators today but are still seen as a needed play. Especially with ISV integration and application footprint expansion.

Marketplaces are ones to watch and maybe experience because they capture ISV’s and apps today, for revenue tomorrow. This is what Microsoft are doing and investing in, what HPE’s engagement with Cloud 28+ is about, what IBM’s Marketplace is for.

Some Conclusions

Coming at it from the customer point of view – especially in SMB markets – SaaS and Marketplaces will become ever more relevant in the next five years. But on-premise will still be there. Hybrid models will be needed from all but pure SaaS play vendors. Making that mix of different worlds, programs and expectations work well and effectively is the challenge for many today.

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