Let’s get SaaSy – or maybe not

At the recent IT Alliance conference held in Palm Springs California there were quite a few sessions on Software As A Service (aka SaaS).

SaaS is loosely defined as running an application on a remote server that someone else managed. To access the application all that’s typically required is a web connected computer. Often the power of the computer is irrelevant since the processing power has been offloaded to the remote server.

The concept of offloading local processing and data storage isn’t new. Remember the days of mainframes and timesharing?

Part of the reason companies moved to desktop computers was speed. Just 30 years ago remote connections were slow and costly. Today those same connections approach local network speed and the cost has been minimized.

Now that connections are cheap — and the labor to maintain and constantly upgrade multiple desktop computers is expensive – the pendulum is swinging back toward remote computer processing or SaaS.

So the million dollar question most consultants are asking is where they fit within such a SaaS model. If the publisher is selling the application and collecting a monthly maintenance fee then where does the VAR fit in. What’s the model that allows the VAR to earn a fair recurring revenue stream from their installed client base.

Ask ten different people and you’ll get ten different answers. Read on for how I’d tackle SaaS.

If I were to start fresh in this business I think that I would pick up a SaaS product but only if I could customize each implementation with my own “special sauce” (scripting or code or other enhancement) that integrated a decent amount of the customer’s processes online to their local applications or to other online apps.

In other words if there was no place for me other than making the initial sale then I don’t think that I’d risk running down the same path as MAS90 has evolved.

Granted it took MAS90 23 years to top out — and my guess is that SaaS (should it ever get a REAL start with mainstream companies) will probably take half that time – figure a mature market in 8 to 10 years.

I do not feel there is a market for consultants to play in any vanilla SaaS applications — or if there is one now that the margins that the SaaS companies pay to vars will be short lived.

At some point in every application lifespan there comes a time, usually when new sales dry up, that the publisher needs to keep more of the revenues for themself.

My model for how I’d market these services would be “Jon Reiter 101”  (Jon’s one of the DSD Business Systems parters) — meaning you charge appropriately for a well documented project and during discussions with the client have no problem providing them straight answers even if it means the project doesn’t move forward.

In my opinion supporting anything vanilla is a low paying dead end no matter whether it’s a SaaS or on-premise application.

Image via Flickr

2 Replies to “Let’s get SaaSy – or maybe not”

  1. Hi Wayne,

    I agree with your premise that VARs need to add value to applcations, whether Saas or on-premise.

    At least with Intacct, not only can you customize the applications and deploy vertical extensions and even build your own add-on applications you can also template all of this so you can deploy them over and over again.

    And as a VAR, you share in a significant portion of customer billings (you actually own the customer contracts, you pay us a revenue share rather than the other way around) for the lifetime of the customer. This is one thing a VAR should look for – does the publisher own the contract with the client or does the VAR own the contract with the client.

    I get it you are suspicious that SaaS vendors may change their revenue sharing model over time. Next time we are in person, let spend some time going through the SaaS vendor economic model- I think once you understand SaaS vendor cost of customer acquisition (relatively high) vs. ongoing operating costs (relatively low) you’ll see why SaaS vendors are happy to share revenue over the long term with VARs who bring them new customers.

  2. I think in SaaS, VABS (Value adding business associates) can drive the business and replace the traditional consultants, especially for small business. In the absence of VABS, cost of customer acquisition as well as retention cost towards customer can be high.

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