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During the extraordinary rationalisation of all organisations at the moment, the channel has been hit where it hurts. Companies that used to renew laptops every three years have stretched it to every five, many infrastructure projects have been put on hold and companies are generally shopping around for better service contracts.
There has been one saving grace for many IT services companies: Software as a Service (SaaS).
Some IT resellers started to build this side of their business a number of years ago and it is now paying off. Even in times of rationalisation, monthly revenues are still streaming in for managed anti spam services, hosted CRM, email archiving and online back-up.
The constant per-user per-month revenue is dependable regardless of general trading conditions. Even better is that this side of the industry continues to grow. Companies continue to replace in-house software and appliance-based systems with externally hosted SaaS.
The business model suits companies better because they do not have to make large capital expenditure decisions and they can depend on the service remaining up to date.
The business model is also very channel-dependent. SaaS companies tend to rely on their channel partners to inspire trust in customers.
They also rely on their channel partners to provide first level support without which they would not be able to provide such good value services. Margins for the channel can be as high as 80 per cent on some services.
One factor that seems to have stalled some traditional VARs is that their own business model is structured to reward sales staff based on the up-front cost of the sale.
The idea of charging per user per month can seem illogical to sales staff. This problem needs to be overcome or the moment of opportunity will disappear.
As appliances become replaced by services over the next year the channel needs to ensure their customers end up using a service they are selling and supporting.
One of the hidden benefits of selling SaaS is the low administration costs. Couple this with high margins and you can end up still making profit in three years time on something sold this month, without incurring any new costs. For those who were still holding off on embracing this model, I think it is time to jump in.
Ken Bagnall is managing director at The Email Laundry
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