SaaS Blows Storm Clouds over the Channel

It’s been obvious for a while to anyone involved in developing or reselling B2B software that the move to SaaS is having a profound effect on the role of the IT solution provider channel, on the services they can expect to provide, and on the margins they can expect to earn.

In a presentation given last week at the Distree XXL event in Monaco to an audience of 950 senior executives drawn from technology companies, resellers and distributors, Peter O’Neill of Forrester described the “Coming Upheaval in Technology Channels” - and set out his conclusions as to how the new revenue streams are going to be distributed.

B2B Customers are Becoming More Empowered

O’Neill used what he described as the “Business Empowerment Index” to explain how the B2B customer landscape will change over the coming decade - driven by business-ready self-service technology, increasingly technically savvy employees and a radically more complex business environment.

It’s clear that cloud computing is a growing part of a disruptive transformation of the business of IT - something reinforced in a recent Goldman Sachs report predicting a three-fold growth in the number of SaaS applications deployed by corporates over the next 3 years.

The Changing Role of the Solution Provider

These changes are forcing a dramatic re-evaluation of the role of the IT solution provider. Much of their traditional value added has already been eroded. SaaS systems don’t require the customer to buy hardware - so no margins on that or server configuration and installation services to be sold.

And whilst most SaaS solutions benefit from some measure of software configuration and customisation, I can confirm from my own personal experience and that of many clients that they tend to require far fewer such services than conventional “behind the firewall” enterprise software installations.

The New SaaS Services Opportunity

It’s in the interests of the SaaS software providers to make their systems easy to install - thereby making it easier for their customers to trial solutions, see the benefit, and decide to expand their usage. This goes against the interests of traditional Systems Integrators.

Their opportunity to surround a salesforce.com installation with chargeable software implementation services is way less than they would have earned from implementing a similarly sized Siebel CRM system only a few years ago.

The Evolution of “Value Added” Services

Of course this is by-and-large good news for B2B software users. There remain significant service opportunities for the channel - but their nature and their value has changed. Traditional hardware-margin driven resellers are going to struggle whichever way - in fact most of them have already had to change.

IT Solution Providers and Systems Integrators face a different set of challenges and opportunities. Pure software implementation revenues will continue to decline. But services which are designed to help clients make the most of their investment in SaaS solutions represent significant and growing opportunities.

A raft of new managed services that leverage SaaS-based capabilities are emerging - including business continuity and disaster recovery services, remote systems management, network security, hosted email and enterprise mobility.

Elevate, Consolidate, or Die

Well-qualified members of the channel will also be able to make growing amounts of money from selling business expertise, rather than just technical capability. They will develop valuable services based around applying SaaS solutions to specific industry environments, and in solving particular classes of business problems.

SaaS driven efficiencies mean that channel players can support more customers with a given set of functionality with the same or fewer resources. So I think we can expect a consolidation of mid-sized, mid-value-delivered channel players.

Finally, some of today’s IT channel players, if they fail to evolve or consolidate, will die. Forrester predict that 15% may suffer this fate. I would not be surprised if the figure were higher. That’s on top of the ones that have gone out of business already.

So - What Should You Do?

If you’re a customer, evaluate your current IT suppliers carefully. Are they truly delivering value? And have they got the vision - and the ability to execute - to continue to deliver value in a changing world?

If you’re an IT solution provider, have you established where your value needs to lie as these transformational changes rock your industry - and have are you executing on a clear plan to get there?

Either way, I’d welcome your comments. How do you see the future unfolding? Please contribute to the discussion.

Best Practices Checklist

Do you work for a B2B software developer or solution provider? I've captured many of today's best go-to-market practices in a 20-point self assessment checklist. You can download it here. Please take a few moments to complete it. I think you’ll find at least one idea that will help you create an even stronger foundation for the future.