SAAS: More, Not Less, Channel

When Bluewolf Group unwrapped an on-demand Salesforce.com implementation at the New York Times Co. earlier this year, it was already weeks ahead of the schedule an on-premises solution would have required. But the real work was just beginning.

Bluewolf immediately plugged in 700 of the Times sales representatives to the Salesforce Enterprise Edition Customer Relationship Management solution and Salesforce Sandbox as well as 225 licenses of AppExchange Mobile without the heavy investment of time and energy in infrastructure, database installation and staff to maintain the system that normally would stretch projects into years, millions of dollars and out of reach of the midsize market.

It is after the installation that Bluewolf demonstrated its expertise in media and entertainment companies (most earning between $200 million and $1 billion in annual revenue) in delivering training for sales representatives, integrating the specific business processes associated with a companys needs, and leveraging best practices picked up at dozens of other clients in the industry, said Eric Berridge, co-founder and principal of Bluewolf, in New York.

"The way you have to look at it is it comes preinstalled," Berridge said. "Its as if you bought an on-premises Oracle [solution] in a box with user names, passwords, and you just log in and youre ready to go without the infrastructure investment.

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"But you need someone now to map it to the clients specific business process needs," Berridge said. "At the Times, we knew what they needed before they did because we had rolled out the same solution at Dow Jones & Company, IDG, NBC and others, all of whom are using the solution to sell advertising space and TV time to advertisers and advertising agencies. The processes are the same, and they are able to leverage our expertise. The company spent its dollars with us on the business process end and not on the infrastructure. They had a full integration and a trained staff in less than 90 days versus years."

The New York Times experience with Bluewolf and Salesforce.com is to become the norm, say industry experts, as end users find that the real value of SAAS (software as a service) isnt the rapid and cost-effective implementation but rather the freedom in time and money it affords to business process integration.

The trend means a greater reliance on VARs, systems integrators and business consultants—even accountants and finance and marketing advisers—as the business process trumps the technology solution, said analysts, vendors and resellers.

The initial promise of SAAS was in cheap and easy implementation, said Don Best, director of marketing for Jamcracker, which operates a delivery platform to distribute SAAS applications piecemeal or bundled by resellers.

"The midmarket company looks and feels like an enterprise but without the resources of an enterprise," said Best in Santa Clara, Calif. "[Midmarket companies] would certainly benefit from enterprise-class solutions. But they dont have the money to put into the sort of infrastructure that is involved, and they sure dont have the time to wait for a two-year rollout.

"The promise of software as a service initially was that that sort of solution is now available to them in [a] format they can afford and consume. You dont have to spend the money on the hardware, you dont have to expand your staff to maintain it [and] you dont have to buy more licenses than you need," Best said.

Cheaper and quicker is currently driving implementation, analysts said. Five percent of software purchased in 2005 was service-based, but the number is expected to reach 25 percent by 2001, according to Gartner Group.

That sort of value proposition, "the focus on the [total cost of ownership]," is what Bill McNee, founder and CEO of Saugatuck Technology, in Westport, Conn., refers to as "SaaS 1.0." Going forward, the SAAS market will be dominated by "SaaS 2.0," in which applications will be seen as a core functionality, some nothing more than a distribution medium, to be implemented by providers with deep business process knowledge and vertical expertise, he said.

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The real value comes in the shift toward business service provisioning, said McNee. A deployment of a human resources application now goes beyond a vanilla software configuration to a richer set of business services, such as helping perform background checks and a virtual HR team to call on.

Companies such as FedEx, UPS and American Express are making such leaps in their specific vertical or horizontal business process sectors and would be likely contenders to add business and IT services to their repertoire in such a model, McNee said.

Salesforce.com has already seen the trend, said Bobby Napiltonia, senior vice president of worldwide channels and alliances at Salesforce.com, and is capitalizing on it by building out its partner circle.

"It used to be that 11 of 10 dollars spent in IT was spent on hardware and software, those things toward which there is little inherent business value," Napiltonia said. "There is no business value in spending four weeks installing a database.

"There is business value in re-engineering your business process, change management, training for your sales force," Napiltonia said. "The channel is going to be the driver of that. They can make the end user a good user of that system. I can turn it on, and, within weeks, Im not only running the system but I have incorporated best practices. That is a democratization of the software."

Salesforce.com is among a handful of companies investing in what Saugatuck has termed SIPs (SAAS Integration Platforms), in which the service acts as base code on which SAAS applications will be delivered to customers. Salesforce.coms AppExchange service, launched in January, is such a platform, enabling developers to create and publish applications that are secure and scalable. Microsoft has already been billing its Office Live in a similar fashion, as a delivery medium for thousands of SAAS applications. Microsoft on Nov. 16 announced plans to launch an application marketplace where developers will be able to showcase software. IBM and a few others are doing the same, according to Saugatuck officials.

Companies building on those platforms will become "white label" software providers, delivering custom, vertically oriented solutions for the SIPs, wrote McNee in "SaaS 2.0: Software-as-a-Service as Next-Gen Business Platform," a study released earlier this year.

"While many VARs will continue to act as channel partners, providing local/regional service and support," McNee wrote, "others will build or re-label competitive SaaS 2.0 vertical solutions, often using open-source-based software and SOA [service-oriented architecture] standard components to reduce development costs and improve standardization and adaptability for customers."

"They will continue to play a traditional role in providing application deployment and customization services," McNee told eWEEK. "But they themselves could be an aggregator of services. For example, they might work with a bank or a telecom company to provide a customized version of the AppExchange platform deployed by Salesforce, helping them choose the relevant applications for their sector made available through AppExchange. In this way, they can assemble their own basket of software and white-label it for banks in Connecticut."

Next Page: The value of SAAS.