This emerging model, known as SAAS (Software as a Service), holds significant new market opportunities, but some channel vendors are still contemplating what it means for their businesses.

Many are opting to work with partners, leveraging their combined strength to meet the technical challenges and shifting customer expectations of this new computing model.

Based on pay-by-usage pricing, SAAS eliminates the need for business customers to buy, build, manage or maintain the software applications they use to run their companies.

The advantages to customers are evident: reduced operational costs, lower maintenance expenses, rapid implementation and increased profits. The idea is to reduce buyers' work and worry concerning technology, so they can focus instead on running their businesses.

The advantages make SAAS one of the hottest high-tech trends, attracting significant venture capital investment and leading industry analysts to predict continued rapid growth. The success of Google and eBay helps to illustrate the extent of the market potential.

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IDC, based in Framingham, Mass., said it expects the market to grow at an annual compound rate of 21 percent, reaching $10.7 billion within three years. In a recent survey, IDC found 79 percent of companies use or are considering using SAAS. Pacific Crest Securities, in Portland, Ore., projects the growth rate in the hosted software market at 25 percent a year.

The opportunity is great, but it requires tech vendors and application providers to do the heavy lifting, so their customers can reap the benefits of a computing model in which service is king.

The transformation within the software industry needed to deliver the SAAS model is as extensive and far-reaching as anything we have seen in the industry in 20 years.

As a result, channel vendors are opting to partner with one another, with larger vendors and application providers. They are recognizing that an ecosystem of partners is the best way to deliver this model to the market faster, and to meet customers' expectations, which are much higher when they entrust such a large part of their IT operations to their vendors.

Many vendors work with partners not only to boost the technical expertise needed to leverage a services model, but also to deliver security and reliability at the data centers hosting the applications.

IBM is working to recruit partners and ISVs to the software-as-a-service model. Click here to read more.

Complementary partners, both large and small, are helping channel vendors to make major shifts in business operations, sales and marketing, and software architectures, all of which are required to be successful as SAAS goes mainstream.

The majority of technology partners I talk with on a daily basis say they are seeking out additional business expertise, technology and service offerings in order to serve a variety of industries and business functions.

With an increased focus on information on demand, software applications now extend beyond basic ERP (enterprise resource planning) and CRM (customer relationship management) applications and encompass specialized areas, such as HR, accounting and compliance management.

Few vendors are able to go it alone if they want to offer such a wide breadth of services and meet diverse customer requirements.

Security may be an issue for software as a service. Read more here.

Always a good strategy for success within the software industry, partnering is taking on increased significance, as the industry itself needs to chart a transition to an Internet-delivery model, while overcoming the complex technical challenges posed by the older client/server model.

Revenue streams, IT architecture, sales and marketing, and even the industry culture are being retooled. The heavy service orientation puts increased demands—24/7—on the channel vendor and all players in the industry.

Ultimately, however, SAAS will prove as successful a model for vendors and for the industry as a whole as it will be for customers, creating new growth, new opportunity and increased profits.

The transformation won't be an easy one for our industry, and some players may not have as successful a transition as others. However, the large and small channel vendors, application providers, and software vendors who are able to forge effective partnerships and deliver the SAAS model to a broad spectrum of customers will be the big winners.

Buell Duncan is general manager of the IBM ISV and Developer Relations, Software Group. He is responsible for IBM's worldwide relationship with ISVs and corporate developers.