SAAS Projects Mean Less Cash for VARsBy Jessica Davis | Posted 2007-11-08 Email Print
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The implementations pay VARs less than traditional on-premises software projects do, necessitating a change to their traditional business models.VARs will need to alter their business models to take advantage of the growing software-as-a-service market because projects will pay less than traditional on-premises solution integrations.
A new report from Forrester Research has found that SAAS is restructuring software channel managers' relationships with their channel partners because of the difference in what those projects pay.
That means that VARs will need to close more deals with clients to make the same amount of money, representing a big shift for many systems integrators, according to Michael Speyer, an analyst at Forrester Research and the primary author of the report.
This is not the only skill shift that VARs will need to consider.
"The consulting skills that become valuable now are business process skills," Speyer said. "Partners will need to find consultants skilled in business process management. They will need the person who can build consensus among many different parties, but they don't need to have very high-paid IT skill sets. Much of the configuration can take place with lower-paid skill sets."
Does that mean VARs should let their technology certifications expire and pursue business process educational opportunities instead? Not yet, according to Speyer.
"That will be directly proportional to how much SAAS actually replaces on-premises software," he said. "But it won't adversely affect people's careers."
VARs should also consider that vendors are offering different payment methods for SAAS services. Some are paying partners just a one-time referral fee for deals, while others are offering recurring payments depending upon the life of the contracts.
Percentages vary as well. Speyer said one-time referral fees are typically 10 percent of the contract value while the recurring payment models often pay 10 to 30 percent of the contract value on a monthly basis.
The next 24 to 36 months will be a critical period in terms of the growth or acceptance of SAAS in the market, according to Speyer.
"During this period we will see the business model transformations start to happen," he said. And since it is still so early in the technology curve, no one has established best practices for SAAS solution providers.
"For those who have been in the business of on-premises software and see a significant demand to develop SAAS practices, they will need to manage that carefully," Speyer said. "It almost behooves them to run separate businesses with separate business models for each one because they have such different requirements."