SAAS: Channel Friend or Foe?

The software-as-a-service model is likely to be tough terrain for solution providers to navigate, according to Gartner.

At the market research company’s IT ChannelVision event in Palm Springs, Calif., Oct. 20-24, Ben Pring, research vice president of IT services, said, “The underlying principals of what is going on in the software market are not favorable for the channel.”

The model is about making things simple, losing the management pain and headaches that technology can bring, he said.

“It is in this pain that suppliers make their money. The dysfunction of technology is a channel opportunity,” he added.

While he admitted that SAAS does not solve all technology problems, he said it is likely to dilute some of the channel opportunity in the software market.

“It is a tricky issue for solution providers; there is no easy answer,” he said. “Vendors and the channel are caught in a dilemma. They are all trying to be positive about it, but at the end of the day they would all rather it went away.”

However, he said there are underlying opportunities for the channel in SAAS, too.

“Ultimately it is still a Barbara Streisand model. People need people, and the channel will find its new value add in SAAS,” he said. “The market is going through an impasse right now while this change happens and trying to find out what the next wave of value-add is, and there is opportunity in that.”

One VAR already running a SAAS model is ZSL.

“Our customers were driven by the underutilization of their software,” said Shiv Kumar, executive vice president of the Edison, N.J.-based company. “We go in, do some asset management for them and then host the software they need as a service. Our focus is the SMB [small and midsize business] market and there has been a positive reaction to SAAS from heads of certain departments, such as procurement.”

Egan Christensen, senior director of professional services at asset management provider Everdream, of Fremont, Calif., said his VARs are also adopting a SAAS approach and driving revenue thought it.

“Solution providers are reselling our SAAS service and earning 20 to 30 percent margin on it,” he said. “Most organizations do not know what they have, so asset management via a SAAS model tells them what they need, and solution providers get the up-sell opportunities.

“The channel is absolutely ready for SAAS. CIOs cannot bear infrastructure costs anymore so over the next few years, now that the technology is available, this market will increase,” he added.

Gartner is forecasting the SAAS market to grow at a compound annual rate of 22.1 percent through 2011 for the aggregate enterprise application software markets, more than double the growth rate of total enterprise software.