Customer-centric Growth by Lincoln Murphy

SaaS Distribution: Time to Change the Channel

Do SaaS products require, or can they benefit from, distribution through a 3rd party?

I’ve written in the past about SaaS channels and how most people are doing it wrong, and there seems to be renewed interest in this topic. Unfortunately, things haven’t changed much.

Since this is “software” as-a-service, people cannot get away from looking at things from a legacy software channel point of view.

The recent heat-up seems have been pushed over the edge by the announcement earlier this month by of their partnership with VMWare (and their subsequent acquisition of Gemstone) to introduce VMForce.

This partnership will supposedly provide the ability to run native Java server applications on the platform, in addition to apps written in SFDC’s proprietary Apex language.

This seems to be similar to other PaaS offerings, like Heroku, that use “open” languages and technologies, but have proprietary functions, data stores, and services to interact with.

Just to be clear, I’m not talking about integration by one SaaS application with other SaaS or On-Premises applications through open APIs and custom code or via 3rd party services such as Boomi or connectors like Cazoomi Snaps.

This type of integration is absolutely critical if the vendor wants to become an integral part of the ecosystem its customer-base is building.

Lack of integration options by SaaS vendors will be their downfall as companies move to “the cloud” and want one version of the truth, single-sign-on, etc. But integration is not a channel issue or a SaaS issue; it’s just an issue.

This is why IBM just bought Cast Iron Systems. But I digress…

The thing that has analysts and pundits excited by things like VMForce is that now the “channel has something to do”… as if the only reason for a channel is to build on or extend a platform. Extending an application, and essentially building a platform, a la SFDC’s and AppExchange can be a fantastic opportunity for the core vendor and the surrounding ecosystem; but its exactly that – an ecosystem.

This has very little correlation to traditional channels and more closely resembles developer programs in legacy software companies, but that analog doesn’t do it justice. Further, the notion of a true ecosystem is an opportunity quite unique to SaaS or other single-instance, multi-tenant “cloud” applications or platforms.

Celebrating that technology VARs finally might be able to add value to SaaS or Cloud apps is not progress. In fact, its a rerun from legacy software and an attempt to justify the existence of VARs.

There has always been a HUGE opportunity for SaaS and the channel that only a few companies are really taking advantage of. The reason? Other than the lack of industry support and promotion of these opportunities, it requires the SaaS or Cloud (or whatever) company to stop thinking like a “software” company and start understanding just what they have at their fingertips.

They are service companies who can provide tremendous value not only to the end-customer but to intermediaries that help the SaaS vendor reach those customers. In some cases, its possible to directly monetize the relationship the SaaS vendor has with the intermediary.

Of course, progress isn’t helped along by the traditional channel consultants or former VP Channes at XYZ Legacy Software Corp who wants to get into SaaS or “Cloud” trying to force their traditional channel management best practices square peg into the round hole that is SaaS.

There is so much Legacy Baggage  coming into SaaS and Cloud (due to bandwagon-jumping) that it is really bogging down the substantial progress that seemed to be happening in terms of next-generation channels, network effect, ecosystem, etc. Announcements like VMForce that are actually quite revolutionary unfortunately don’t help because they can so easily be twisted to fit nicely into that legacy baggage being drug along by “industry insiders”

At Sixteen Ventures, we have always looked at SaaS as something far beyond “software” delivered over the web. Whether its SaaS or Web Apps, if there is multi-tenancy and you’re solving a business problem, the opportunities for channels, specifically distribution via Trusted Advisors, is significant.

Forget traditional VARs, the real opportunities are in understanding who the end-customer is, who they trust, and giving tools to everyone that sits between the vendor and the end-customer so that all involved can add, and extract, value. If there is a third party involved at the “technology level”, they aren’t a traditional VAR; likely they’re an integrator using the services or tools from above. Think of the relationship between SaaS vendor, intermediaries, and end-customers as a value-chain or value-network.

Look at a company like Xero, with their SaaS accounting package, and how ~50% of their business is via channels; specifically CPA and Accounting firms. They work through the trusted advisors to get to the end-customers they want to use their products. But Xero isn’t just giving spiffs or a cut of revenue to those professional firms; that would be misaligned with the business of their channel partners.

Xero actually helps the trusted advisors do more of their CORE business by giving them tools, insight, visibility, etc. into their end-customers’ activity, data, and operations. This is far more valuable to Xero’s partners than some cut of monthly revenue and much more aligned with the business model of their partners.

Would CPAs or Accounting firms want to touch installed software? Some have in the past, including affiliations with products like QuickBooks, Great Plains, etc. because it made sense on paper; they shared the same end-customer.

But the logistics didn’t work. Few non-technical companies want to get involved in “software;” so Xero simply provides a service. And everyone in the value-chain wins.

It is great that VARs finally have something to do with “the Cloud,” but for SaaS vendors, the message being sent by the “industry” is still off-point. Just because you don’t have some technical layer that will allow you to engage technology VARs doesn’t mean that channels are not available to you.

On the contrary.

There are likely far more lucrative channels out there if you understand how to find them; look for Trusted Advisors that share the same end-customer with you and figure out how to help them do more of their CORE business while also helping the end-customer.

Let’s Grow Your SaaS Company

For immediate consultation and advice on effective growth strategies and tactics for your SaaS company, schedule a 60-minute meeting with me via Clarity. If you feel a more involved engagement is required for me to help you, email me with the specifics of your situation (as much detail as you’re comfortable giving) and we’ll setup a meeting to work through the particulars.

– Lincoln

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