Willing the clouds to open

SaaS hype has suggested that recurring revenue should be raining down on the channel, but few VARs have done more than dip a toe in with a view to the profits. Fleur Doidge investigates

Rumour has it that SaaS offerings have not been flooding the channel with new streams of revenue. While vendors have certainly been looking to recruit resellers for their diverse as-a-service solutions, fewer VARs have come forward to bear witness to the profitability of the opportunity on offer.

If there is ultimately little money in SaaS, why even experiment with it? One recent commenter on ChannelWeb noted the lack of clear margin. "The margin is like 50p per user per month," he wrote. "Sure, the ISPs or massive companies will do fine when they have a million users, but they expect us resellers to jump at it?"

Barrie Desmond, business development director at distributor Exclusive Networks (formerly VADition), says the segment concerning enablement-tools-as-a-service is "toddling along" nicely. "Something like Salesforce.com, we are not doing that," he explains. "We are sellers of spades, not diggers of gold."

It can be difficult to make margin, he agrees, but over time it will grow. And because customers want to - and are - moving to the cloud, the channel must follow, which for some could well mean a painful transition phase before recurring revenue starts to build up.

"I think people can make money out of it, and you can go to market quickly for incremental new business and growth. Users have shrunk their operation so much that they are looking for people to come in and innovate," says Desmond (pictured, right).

"With integration, many will see lower revenue but higher margins - better than selling a router or a server. And it is a seed that is going to grow."

Adrian Jukes, director of Derby reseller Grade Computer Solutions, says he is "not doing a great deal" when it comes to SaaS, but it is a trend that cannot be ignored. "We see it as something for the future, and we see that SaaS is here, cloud is here, and if you're not there, you will miss out," he adds.

That said, Grade focuses on smaller companies that traditionally would have been installing Microsoft Small Business Server and Exchange in-house but are now moving to the cloud. Jukes notes that companies with fewer than 30 staff can have very mobile employees, especially with the advance of consumerisation, smartphones and tablets, so Office 365 fits the bill nicely.

"We are still making money on installation," he maintains. "The majority of small businesses do not have their own IT people."

Key for Grade is partnering with a cloud provider that can fill in any technical or support gaps while enabling the reseller to still present a united front to the customer, says Juke.

Chris Baldock, managing director of cloud services provider and Grade vendor partner intY, says the road may be long for resellers but he believes it is worth it.

"When we started engaging with the channel in 2007 or 2008, we thought we would be greeted with open arms but instead we were kicked around the car park," he says.

Baldock adds that resellers did, and may still, perceive SaaS as a threat, but it is all about engaging with SaaS in a productive way. Companies already providing services have been better prepared to grasp the opportunity from SaaS, he notes, and that is certainly key to any reseller looking to ride the wave of cloud migration.

"There is a tremendous opportunity to get cloud services into businesses," he says.

Fighting back

Increasingly, applications are important for partners looking to build a business around SaaS - but they must work out how they can add value to the SaaS solution and who they need to partner to deliver what their customers truly seek, Baldock maintains.

"If you don't do that, if you end up reselling a generic solution from an application vendor, you will make very little, or even no, margin," he concludes. "And the most lucrative opportunity is in the mid-market - not in the smaller companies."

Rob Lovell, chief executive of cloud provider ThinkGrid, agrees that the direct approach to SaaS taken by some large vendors is "undeniably" creating a problem for VARs and other resellers.

"Sometimes margins are being eroded, and resellers being pushed out completely by vendors going direct," Lovell says.

However, he maintains that the channel can fight back. "Customers really want to keep their local contacts by continuing to work with trusted VARs. We are seeing more resellers come to us to enable them to offer cloud services to their customers so they do not turn elsewhere," he adds.

Lovell believes VARs can also offer SaaS not available from large vendors. In any case, customers are moving towards cloud, so the trend cannot be ignored.