SAAS Good for Resellers, Not so Good for SIs

A declining economy is likely to mean more traction for software as a service, particularly in vertical industries with the tightest budgets such as financial services.

That’s according to John Loftus, executive vice president and managing director of the technology group at Safeguard Scientifics, a publicly-held investment firm that gives a leg up to growth-stage technology companies.

And with the rise of SAAS in these vertical industries this year, some solution providers will be able to reap the benefits, while others will correctly view the new model as a threat.

The opportunity is there for resellers looking to get into reselling SAAS as a way to gain recurring monthly revenue. Those who may lose out, however, are the systems integrators. That’s because SAAS is designed to be easy to implement, and already hosted on the back-end. There’s really no need for an IT person, according to Loftus.

"How does Accenture or IBM make money if they are not hosting this and they are not configuring this on the fly," asked Loftus. "There are not a lot of Salesforce.com system integrator players."

For those resellers looking for the emerging areas, Loftus believes that vertical industries currently under the most pressure, financial services and energy, represent the greatest opportunity for SAAS sales. With that in mind, his company is targeting investments in growing companies that create SAAS applications for these vertical industries.

Vendors and resellers that offer SAAS generally target the business user rather than the IT organization. And implementation takes days or weeks instead of several months. While this may shut out system-integrator-type partners, it opens the door for service resellers.

The opportunity for those resellers will continue to grow, particularly as the SAAS market, which is still emerging, matures. Just as traditional companies go through an early stage of selling direct and then look to the channel when they want to expand, so will the SAAS companies.

The time is ripe, according to Loftus.

"SAAS offers an alternative to the perpetual licensing model," he said. "I liken it to what happened with offshoring to India with tech services. Folks realized how much value you could get offshore in 2002 and accelerated that move. Now with high oil prices and a potential recession, there’s more pressure on companies to do things faster and better."