Friday, October 17, 2008

Bessemer SaaS Law #5

Bessemer SaaS Law #5. SaaS is a whole new ecosystem where traditional IT channels don’t
work – Focus your business development efforts on business services channels, but you will need to sell directly for a long time as these new set of partners are not easy to ramp-up.

Unfortunately many software executives have spent years building deep relationships with executives at the major software and integration companies like IBM, Oracle, HP, and Accenture…only to find they aren’t much help to SaaS businesses. SaaS products, by their nature, do not require massive amounts of systems integration work to implement, so they’re not a great fit with the traditional system integrator (SI) business model. SaaS products don’t pull through large stacks of hardware boxes and software licenses so they’re not very attractive to traditional independent software vendor (ISV) partners either. ISVs and SIs have both spent decades building up deep relationships with the IT organizations, but many SaaS vendors now prefer to sell to line of business instead so these executive relationships are much less valuable.

Channel relationships are very hard for any small company to establish even when interests are directly aligned, but this challenge is proving even more difficult for most SaaS companies given the restricted value proposition to the SI and ISV community. Therefore, it is still the case that most SaaS businesses have to be comfortable with the fact that they will live or die by their ability to sell directly, and only if they are successful alone will they be able to build meaningful
channel relationships with the new generation of partners and resellers. In recognition of these dynamics, many of the early SaaS leaders have started to focus their business development effort on business services channels, i.e., partners that provide technology enabled or managed services to the same customer segment and can enrich their offering by adding a SaaS application. These business services channel partners range from marketingagencies to payroll providers to accounting firms and have started to understand the power of SaaS when many of the ISVs and SIs do not. However, this trend is just emerging and we have not seen any of them generating a significant portion of the SaaS company revenues, but we think this will accelerate in 2009.

In addition we have been encouraged lately by an increased partner focus among many of the early SaaS leaders (, Cisco/Webex, etc…). In particular, we have seen the emergence of a new generation of smaller, more nimble and SaaS-savvy SI firms. These firms are primarily working with public SaaS vendors like Salesforce, but have started to extend their set of partnerships to late stage private companies.
This may be the Bessemer “law” that is evolving the most rapidly, and I sincerely hope that by the next update we will have numerous established channel partners that “grok” the SaaS business model and are incentivized to support SaaS vendors.

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