Dealing with SaaS Disruptors

Nowhere is the pace of change in technology more apparent, more crucial for vendors and more vital for users than in the sphere of software development. Not only has this sector had to cope with a change in deployment model to SaaS but also had to contend with industry giants for market share.

The software market is both dynamic and challenging for all concerned – not only to vendors and channels need to keep up with developments but also to users needing to maintain awareness of groundbreaking features that could impact upon their business fortunes.

Of course, the cloud market is bigger than just SaaS as Chandler Song, Co-Founder and CEO of Ankr, a company that is a proponent of cloud computing that is accessible and instantly distributed across the globe, points out.

Song says that today, cloud computing can be broken down into three main services: Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), and Software-as-a-Service (SaaS).

While each type of cloud platform has its own unique advantages and use cases, at a basic level each offers the universal benefits that come with sharing computing resources, including scalability, ease of use, lowered costs, burgeoning ecosystems, and access to the latest technology.

Progressively, over the last decade, the question for businesses is no longer a matter of whether the implementation of cloud is necessary, but rather how or when it’ll take place.

While enterprises can undoubtedly reap huge benefits from implementing cloud computing solutions, they come with certain drawbacks as well. According to statistics by Synergy Research Group, there is a massive imbalance in the cloud computing market share. In 2017, the top five giants—Amazon, Microsoft, IBM, Google, and Alibaba—owned a combined market share of almost 75% of the entire public cloud market.

This is a result of these tech conglomerates purposefully targeting enterprise users to move their workloads onto the cloud.

Chandler Song says that while increased adoption is a good thing, it also means that companies may implement solutions without a real understanding or without really identifying a clear need.

“Their market dominance also comes at the expense of the small-to-medium sized cloud operators who, lacking the scale and financial muscle of these leaders, are unable to keep pace with their larger competitors.

The existing monopoly of cloud computing services can also significantly impact the ability of smaller businesses to implement such solutions, by making access to the cloud incredibly expensive.”

We asked channel suppliers if they found this to actually be the case.

Graham Wilkinson, Head of Sales at Beyond Connectivity

With cloud-based business process deployment now a given, are there common differentiators for any given application set?

Renat Zubairov, CEO and co-founder, elastic.io, says the SaaS industry has created a challenge for itself in not only attracting customers and creating differentiation, but in the related aspects of pressure to make their products ‘sticky’ so that they have time to secure revenue and make a profit from the subscription model.

“The continued rise of the integrated enterprise is fuelling a new trend where we see customers no longer selecting a product, they choose an ecosystem.

The impact on the buying decision is that functionality remains important, but interoperability is critical (see 2019 Okta report). Customers will discount applications that don’t offer full integration capability with the other systems that are already in place. As a result, solutions are no longer assessed on their individual merit and a key differentiator becomes their capability to integrate with and contribute to an ecosystem.”

Graham Wilkinson, Head of Sales at Beyond Connectivity notes that whilst there will always be niche areas the market is now dominated by a broad spectrum of SaaS solutions.

“Key players are going after key markets to grow faster such as CRM applications. SaaS is becoming more universal as the world continues to shrink and people work from anywhere. There are a lot of opportunities fuelled by growing demand in what is a developing sector.”

Lindsay Willott, CEO at Customer Thermometer, a support, service and helpdesk firm that provides customer feedback applications, commented;

“As market demand for SaaS grows, while profit margins become razor-thin, channel partners need new ways to extend their value propositions and generate new sources of recurring revenue. This will increase the value they are delivering and receiving from new and existing customers.

According to Barracuda MSP Research, 64% of channel partners say services sold on a recurring revenue basis are their best growth drivers.

SaaS vendors with easy subscription based models that enable partners to generate easy subscription revenue as a value-add to existing solutions will be placed to retain their partners. This all needs to be wrapped with best-in-class customer service that goes beyond vendor/customer, to a true partner relationship.”

Carl Boraman, Director of Strategic Alliances at Tollring says:

It is clear that SaaS offers new opportunities to the channel, and that a SaaS delivered solution with a fixed monthly cost is often more appealing to the end customer. Common characteristics like a lack of upfront investment are typical, but there is still differentiation to be found in ease of deployment and use, feature sets, and whether there are “freemium” options that allow customers to trial the solution before they buy without the normal investment cost, commitment and risk.

Lindsay Willott, CEO, Customer Thermometer:

Given the number of choices available to users for any cloud-based business process application are customers getting harder to find and putting pressure on profitability?

Renat Zubairov at elastic.io notes that finding customers in a crowded marketplace is always a challenge, but then they need to be retained – and it is also getting harder to do that.

“These are direct implications of the ‘as-a-service’ business model and the subscription economy that it has brought in. Not only does the provider need to secure customers in the first place, it needs to keep those customers over the long term to maximise revenue and profit.

As a result, SaaS companies are searching for ways to make their product ‘stickier’ with customers, decreasing customer churn to secure more revenue over an extended period, and reducing the burden of integration with an ever-growing range of applications.

An integration platform as a service (iPaaS) allows software vendors to achieve exactly that. By building universal integration capability into their own application, ISVs can offer a new kind of one-size fits all model for the subscription economy – at the same time, saving on development costs and still delivering the most comprehensive, premium value product possible.”

Graham Wilkinson at Beyond Connectivity says he does not think customers are harder to find as there is still a huge market to go after.

“It’s not a saturated market by any means. Yes, the choice is huge and it’s getting bigger everyday with the speed of new applications coming out but crucially we haven’t reached the stage where it’s a race to the bottom. In time that will come which will trigger amalgamations and company buy-outs. It is likely to follow a similar pathway to the hosted PBX sector.”

Carl Boraman at Tollring says SaaS vendors in the IT and telecoms market have a number of new and specific challenges.

“For a small start-up, the commercial investment and time to revenue is long and protracted. These companies have to give a lot away for very little money for quite some time before they start to even begin billing, let alone hit profitability. There is also a perception the price point for SaaS-based products needs to be significantly lower than the on-premise equivalent. These factors alone are likely to bankrupt them before their products see the light of day.

For established software vendors things are a little easier. If they are introducing the SaaS version of their existing software, they can dual run for some time and benefit from a gentle switch over within existing channels. It’s important to note that SaaS isn’t about stopping one thing and swapping immediately to another, it’s about managed transitions where SaaS products may sit naturally alongside an existing service, delivering an increase in customer revenue and customer lifetime value.

There is clear benefit for the owners of reseller organisations to sell software on a recurring revenue basis as it provides stability and can significantly increase the value of their business when planning to exit. However, everything in their business has to adapt to selling SaaS. The key questions to face are, how do you differentiate your offering, and how do you fund your business? And, critically, how can you get your sales team to buy into a new “pay per month” commission plan?

Ultimately, the opportunity SaaS brings in terms of reducing costs, opening up new markets, driving up shareholder value etc, are significant and will undoubtedly outweigh the disadvantages.

As long as the move towards cloud and SaaS is done in a phased approach, with careful management and minimal disruption, it should benefit everyone involved: from the vendor to the end customer.”

Carl Boraman at Tollring

Nearly 70 percent of software vendors work with the channel in some way so how are they differentiating their go to market strategies to recruit and retain channels?

Reiterating the emerging trend for companies to purchase an ecosystem rather than a single product, Renat Zubairov at elastic.io, says the smartest thing that software vendors can do is demonstrate the integration capabilities of their product.

“Functionality no longer reigns supreme, and with the continued rise of the integrated enterprise and Internet of Things, the channel is increasingly attracted to pushing products with interoperability at the core.

A software solution with built-in integration-platform-as-a-service (iPaaS) differentiates in the channel by offering complete interoperability with any existing architecture, as well as any applications that may be added in the future. This promises to secure more revenue over an extended period and reduce the burden of integration with an ever-growing range of applications.”

Graham Wilkinson at Beyond Connectivity believes there are many factors to consider such as how quickly do you go to market and how quickly do you take on new technology and show you are capable of delivering that.

“Across existing customer bases there will be entrepreneurs happy to embrace new technologies whilst others will sit back and watch as the market matures. It’s important to be at the forefront of leading technologies and are able to offer that within your portfolio to stay one step ahead. This applies to resellers, distributors and the vendors themselves.”

According to Carl Boraman at Tollring, building a channel willing to promote, sell and support your products is not always easy.

“The channel is ensconced and well-invested in Capex sales, high levels of engineering expertise, proven sales models and rich, upfront income to fund sales commissions, marketing and customer support. Under this model, the risk lies with the end customer, not the reseller or the vendor. However, in the SaaS world it’s much easier for the end customer to churn or switch to an alternative product or service.

For a reseller, the cloud SaaS model means vendor selection is more critical than ever. The reseller could be effectively ‘married’ to a vendor for many years to come – not necessarily because of lock-in, but because of the investment required in selecting a suitable solution. The channel must do their due diligence to a much higher level when choosing a SaaS vendor, and look for different things to when they would have evaluated an on-premise solution. These SaaS vendors will differentiate based on things like strong roadmaps, innovation, commitment to security, focus on quality of product and service, support, ability to scale and long-term commitment. There’s a lot of new vendors in the SaaS market looking to rapidly build a customer base and sell up.

It’s also key to look at vendors who can demonstrate financial stability and long-term profitability. SaaS vendors who depend on major investment to succeed and may have not yet turned a profit, need to be considered very carefully. After all, the SaaS disruptors can be very quickly disrupted by new vendors and business models.”

Ed Says…

When it comes to Software as a Service applications the boot is most definitely and firmly on the foot of the user. No longer tied into the up front or long lease expense of a CAPEX solution means that users can shop around to get the deal they want almost at will. The reseller does however still have plenty of ammunition to fire in the form of bundled services solutions, other forms of differentiation and by providing customer service excellence.

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David Dungay

Editor - Comms Business Magazine