For
BlueWolf, one of the pioneer consultants in the Software-as-a-Service market,
the average deal some seven years ago was $5,000 to $10,000. Today, that average
SaaS project sale is in the range of $60,000 to $70,000.
New
York-based BlueWolf has ridden those higher average sales to become what many
consider to be the No. 1 SaaS consultant in the country. One of Salesforce.com's top partners, BlueWolf is now a $30 million SaaS star
with robust net income in the 20 percent range.
BlueWolf
isn't alone. On average, the respondents to the CMP Channel State of the Market
Study have 19 percent of their business tied to SaaS products. What's more, 24
percent of solution provider respondents are changing their business model to
cope with the transition to SaaS, according to the survey.
For
his part, Eric Berridge, co-founder and principal of BlueWolf, says one of the
keys to SaaS success is to keep firmly focused on customer needs. "
Salesforce.com has created so much hype in this market, which is mainly a good
thing," Berridge said. "That has lent credibility to this market. But the
problem with hype is you have to stay focused on what pays the bills. We tell
people in our organization if you are not having a dialogue with a client, you
need to look yourself in the mirror and ask yourself what you are doing. I don't
care what the dynamic is, a hot economy or a bad economy. The customer makes the
[buying] decision.
Berridge
says he and his partner jumped headlong into the SaaS business because they saw
a way to help customers get to market quicker and more cost effectively with
on-demand solutions. And he's betting that BlueWolf's successful SaaS run is
"only the tip of the iceberg." SaaS has thrived so far because CIOs and
businesses want to get out of the infrastructure/hosting business, he said. "The
enterprise organizations that hire us today know they can get to market faster
relying on us rather than trying to do it themselves," Berridge said.
Up
Next: BPO
The
next wave, says Berridge, is outsourcing more business process re-engineering to
companies like BlueWolf.
That
move to focus on business process outsourcing is the biggest change solution
providers are making to play in the SaaS world, according to the State of the
Market study.
Berridge
advises VARs that, given the declining commission margins on SaaS products, the
idea of giving up SaaS commissions to focus purely on business process
consulting may not be as big an issue as it once was. He sees a lot of the
technical work surrounding SaaS engagements going offshore over time and the
high-margin, high-value work being done by companies like BlueWolf "driving
high-level conversations and building consensus" while managing the business
process outsourcing and SaaS engagement from initial dialogue to implementation.
The
big question for 2008 is whether software vendors like SAP and Oracle will step
up to make a big SaaS play.
"By
the end of 2008 you could see the big enterprise vendors kind of wallowing in
the mud with their SaaS strategies very diluted," he says. Old-guard software
giants used to selling multimillion-dollar enterprise engagements are going to
have a hard time "turning on a dime" to sell SaaS products, Berridge said.
That
said, more solution providers by far are working with software giant Microsoft
on SaaS than any other vendor. In fact, 44 percent of solution providers polled
said they are working with Microsoft, followed by 12 percent with Symantec, 10
percent with Citrix and 9 percent with MySQL. Only 4 percent of VARs polled said
they are working with Salesforce.com.
Business
Model Changes
Solution
providers are exploring a lot of ways to alter their business models to deliver
SaaS solutions to their customers.
Mitchell
Cannady, president of Spinnaker Network Solutions, an Irvine, Calif.-based
Microsoft Gold partner specializing in CRM, is setting up a completely separate
organization to sell Microsoft's on-demand CRM product, slated for general
availability in 2008. Cannady says this represents a significant new opportunity
for Spinnaker. He estimated that 30 percent of all of Spinnaker's sales
prospects are looking for an on-demand CRM offering for five to 10 seats.
"Typically,
we passed on those," he said, noting it just didn't make economic sense for
Spinnaker to take those deals on before setting up a separate on-demand CRM
organization. "They just wouldn't have been a good customer for us.
We
wouldn't have made money working with them. Now we have a completely separate
organization with different pay structures. My personal vision is we have to
have a separate mind-set of how we sell Microsoft CRM Live vs. CRM on premise.
In order to do this right, we need to look at this as a completely different
business."
Cannady
says solution providers that try to adapt SaaS into their current business model
are making a big mistake. "That is why there is so much fear and concern in the
partner channel around SaaS. They don't know how to do it. That's because they
are trying to fit it into the business model they have vs. reinventing the
business model," he said.
