Archive for August, 2008

Death of the VAR in a SaaS World

August 20, 2008

In general, offline channels have not played a big role in SaaS GTM strategies. The early focus of business and infrastructure SaaS solutions has been on SMBs. SaaS delivery makes it economical to serve SMBs, and online channels make it economical to reach SMBs. As SaaS grows up though (see our earlier post), what role will offline sales channels, in particular VARs, be able to play?

We are very skeptical that VARs will be able to thrive and prosper in their current business model as SaaS adoption continues to gather momentum. The reason is that the TCO model that is promised by SaaS drastically reduces the revenue pool accessible to channel partners. (As we point out in our earlier post, the TCO model still needs to be proven in the long run.) In a June 2007 article, the McKinsey Quarterly compared the total cost of ownership (TCO) for a 200-seat CRM license as on-premise ($2.3m) vs. SaaS ($1.6m). More interesting though than the headline 28% reduction in TCO is the fact that the non-software revenue pool accessible to channel partners shrinks by 90%. Specifically, in this midmarket example, the $1.1m that is spend in the on-premise model for implementation, deployment and ongoing operations shrinks to a meager $106k in the SaaS world.