Dave R Taylor, CMO at Impartner, looks at how the forward-thinking channel players and ISVs are embracing the new cloud model.
The rapid growth in the SaaS/cloud market has in part been driven by the IT services channel accelerating its own change, adoption and service creation around SaaS/cloud solutions. This trend looks like continuing at pace through 2018 as channel companies tool up their business models to embrace SaaS/cloud to meet growing demand from their enterprise and SMB customers.
While there will always be IT service providers resistant to change, the channel comprises many engaged, growth-minded business-leaders and entrepreneurs who thrive on driving growth through agility.
As IT applications and infrastructure move to the cloud, SaaS is enabling a new service provider business, both from the traditional IT services channel such as retail VARs or managed cloud services providers, or from non-traditional companies, ranging from business consultants to marketing and accountancy firms. SaaS applications offer a new revenue stream and present an opportunity for ISVs who know how to support these established and new entrants.
The recent CompTIA study, 'Software-as-a-Service in Today's Channel', reveals several insights on the future of SaaS. Three quarters of the channel respondents in the study said that their cloud-based sales included SaaS-related activities; and the number one reason channel partners say they have added SaaS to their portfolio is customer demand. Partners report most of their SaaS-related revenue is coming from customisation and integration services.
Add in the services opportunities and it is clear why SaaS is creating a stir in the channel.
The biggest trend and potential threat moving forward is verticalisation. Many SaaS applications are built around broad vertical categories, like retail, medical or financial. But most SaaS vendors are specialised within a subset of these sectors. Take healthcare and the specialist field of long-term care facilities as an example. Many service providers who've been used to selling managed services across several markets in the past, struggle with honing their services and marketing messaging to the sub-verticals, where SaaS can really differentiate itself.
With new SaaS products being launched daily, the ISV market also becomes more competitive. Can an ISV afford to go head-to-head with each competitor simply by growing its in-house sales team? As many ISVs may not have the cash to grow own their teams or avoid attrition rates. And even if they have, the process of recruiting and hiring enterprise sales professionals is becoming even more challenging. In a recent Impartner survey of over 200 international companies, 9 out of 10 hiring managers said that they are finding it difficult to recruit direct sales professionals. Furthermore, 57 percent reported that the problem has got worse over the past 18 months, while almost three-quarters of respondents said it was directly preventing their companies from reaching revenue goals.
An ISV might think it has the best product on the market, but it really doesn't matter. What matters is how they can scale and how fast they can capture a sufficient revenue stream to grow to the next stage and outpace the competition. ISVs utilising and managing the channel properly will have a competitive advantage and, eventually, a lower acquisition cost.
Here are some points to consider:
- ISVs utilising a channel and keeping a channel involved in the renewal process typically have a 60-70% higher client retention rate.
- The channel is where SMB clients go to get their products and services and will find a product they can sell, install/integrate and manage to meet a demand. ISVs without a channel or those that are poor at managing their channels, will compromise market opportunities.
- The channel can provide competitive advantage and will make SaaS offerings more appealing. Many channel partners will want to bundle SaaS applications to provide customers with more comprehensive solutions. They are very good at this, and this activity should be encouraged.
As the move towards SaaS verticalisation gains momentum, the channel itself can benefit from SaaS products and tools to take full advantage of the market opportunities.
When it comes to 'ChanTech', SaaS solutions such as Partner Relationship Management (PRM) and marketing automation can provide a critical foundation of the technology stack for vendors, SaaS or any other type of company, selling through the channel.