Report: SaaS Vendors Need Local Partners

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Global Industry Analysts reports businesses are rapidly increasing investments in Web-based applications, and the market will hit $26 billion by 2015. Multinationals are aligning directly with vendors, where SMBs are working with local partners. That means the cloud must go through the channel.

Logic, it seems, remains valid in the cloud era. According to a new report by Global Industry Analysts (GIA), businesses of all sizes and scope are increasing their adoption of software-as-as-service offerings to simplify their application portfolio, increase productivity and decrease licensing costs. The pace is so fast that the SaaS market is anticipated to top $26 billion by 2015.

Not surprising, large multinational companies are gravitating toward SaaS providers that can provide consistent service across all their geographies, while small and midsized businesses (SMBs) are squaring with local and regional providers that can provide right-sized offerings for their needs.

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The growth and alignment trends are self-evident. What’s interesting is that local and regional solution providers are increasingly being called on to extend the reach of SaaS providers into markets they can’t reach through direct sales forces or automated sales mechanisms.

“[Multinational corporations] generally ally directly with an international SaaS vendor to enable smooth implementation across all regional offices, while SMBs rely on localized partner and associate companies of SaaS companies. In the near term, SaaS vendors are expected to broaden their partner network in order to meet the geographic spread and consumer dynamics of the emerging markets,” GIA reports.

A lingering fear in the channel is that cloud vendors will try to cut out partners in favor of selling cloud products and services directly to end users. Google’s Apps and Microsoft’s Office 365 are available through partners, but they are sold through direct sales portals, as well. Salesforce.com, the most popular cloud CRM app, is sold direct while its add-on applications are sold through partners.

Conventional wisdom is this: As applications become simpler to deliver and deploy through the cloud, there's less of a need for channel involvement in the sales, implementation and support of those applications. And that has concerned many solution providers who are already struggling to find their place in the cloud computing era.

If the GIA prediction is correct – and all indications are it is – solution providers will remain a vital and viable piece of the cloud equation, as vendors cannot put enough people or resources in the field to effectively cover the total addressable market by market segment or geography.

The question remains: What role will channel partners play in the sale and support of cloud computing? Research conducted by the Cloud & Technology Transformation Alliance (formerly Cloud Convergence Council) found average channel margins for cloud services is less than 20 percent, and most services skew toward less than 10 percent margins.

What that means is solution providers are making less money on the annuity of cloud service contracts because there are fewer after-market support and product sales opportunities. Solution providers report they need more sales and product opportunities.

The good news is it appears cloud computing is dragging new opportunities for hardware sales – particularly mobile devices. As users want greater portability of devices and data, they’re adopting more tablets, smartphones, notebooks and desktops, complemented by cloud applications and support services such as file synchronization. While hardware margins are no better than SaaS services, they do provide an immediate revenue event and open the opportunity for bundling attached cloud services.

These cloud market trends are pointing in a positive direction for local and regional solution providers, which will serve their traditional roles as the gateway to the SMB market.

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