Viewing the software-as-a-service market as a major new-growth industry, IBM is offering a package of services and incentives to help software companies and channel partners deploy their products as hosted applications.
Software developers that want to deliver their applications as on-demand services can obtain access to IBM technical architects, take online training courses and obtain sales incentives to make the transition to SAAS.
IBM contends it has been out of the application software business since 1999, and that puts it in a prime position to partner with many different ISVs that want to deploy their products as services, said Scott Hebner, IBM's vice president for software strategy and strategic partners.
SAAS is a major opportunity for IBM because "we are not only a provider of hardware and software, but we are also the world's biggest provider of hosted capabilities," Hebner said. Both enterprise business customers and the software providers themselves want to outsource business processes and the IT resources required to deliver them, he noted.
Hebner also contends that, by now, most companies are already comfortable with the basic concept of IT outsourcing. "A majority of customers have outsourced some of the more straightforward services like payroll. And companies like ADP [Automatic Data Processing] have made a big business out of helping customers manage their payroll, and the customers have outsourced it to them," Hebner noted.
Today, ISVs are willing to work with IBM because the company doesn't compete with them in the applications market, unlike other major platform partners, including Microsoft, Oracle and SAP, which are growing competitors in the applications market, Hebner noted.
That is why IBM expects its SAAS business will grow rapidly over the next several years. IBM has about 100 SAAS partners, double what the company had last year, he said. "I would expect it to double again this year. And probably double again next year," Hebner said.
Pacific Crest Securities estimates that the SAAS market will grow about 25 percent a year to generate $10 billion in annual revenue by 2009.
The kind of support services IBM is offering will likely be attractive to software-as-a-service providers of all types and sizes, said Amy Wohl, president of Wohl Associates, in Narbeth, Pa.
Click here to read why analysts think on-demand software services will go mainstream in 2006.
"I think it will be a mix of companies. … Every company that you have ever heard of with a few exceptions" could potentially use IBM SAAS services, Wohl said. She noted that Siebel Systems was one of the larger companies that used IBM's hosting services as the foundation its Siebel On-Demand customer relationship management service before Oracle acquired Siebel in January.
But it will be especially important for smaller providers, she said. "Customers are more comfortable when they are buying from a relatively small service provider" when they know that the data center support is coming from a company as solid as IBM, she said.
SAAS companies will go to IBM first because it has the technical expertise to support it and because it is providing marketing services, which is available from few other partners, she noted.
The ISVs can certainly be confident that there will be good data center technology behind IBM's service. "But the truth be known, there are probably equivalent data centers available out there," Wohl said. That is why it is particularly interesting that "they're going to provide marketing assistance and help these folks figure out the right way to approach the marketplace," she said.
Under its sales incentives program, IBM will give channel partners a 10 percent referral fee for submitting an SAAS lead that results in closed business. IBM is also offering hosted Web seminars to promote customer awareness of SAAS and is offering discounted advertising programs for ISVs.
