SaaS and Clouds: Should VARs Build, Assemble, Partner or Buy?
VARs evaluating a Cloud/SaaS strategy have a fundamental business decision to make: Do you build, assemble, partner or buy your solutions? In all cases, VARs are looking at the best way to rapidly offer new services and create recurring revenue streams from customers. In this blog post, I’m going to briefly discuss each option, touching on when it makes sense (or doesn’t), why, and for which types of VARs.
1. Build: Building a complete solution to manage the provisioning, delivery and billing of hosted applications from scratch would be very costly and impractical for 99.9% of VARs.
Metaphorically speaking, virtually no one would begin building a kitchen table by heading into the forest and cutting down a tree. More realistically, you would head to IKEA and buy a table and then have to assemble it from various pieces.
2. Assemble: A more rational approach would be to take off-the-shelf hardware and software solutions and customize a platform tailored to your business. This can be done with just a few key vendors.
The primary benefit to this approach is the VAR maintains complete control of their business and customers. With their own service delivery platform, a VAR can set and adjust pricing and margins as needed while maintaining the direct relationship with their customers.
For those VARs that can afford the capex and opex needed to put the systems and people in place to execute, this is a great approach with the best potential return.
3. Partner: This is probably the most common approach for VARs right now. Companies like Apptix or ExchangeMyMail offer white-label reseller solutions, or a VAR can become a Microsoft Business Productivity Online Suite (BPOS) reseller.
The primary benefit to this approach is the minimized investment needed to get to market. The primary risk to this approach is vendor or technology lock-in, which over time may dictate how a VAR does business.
For many VARs, the minimal time and investment needed to get to market is well worth that risk and this is definitely a great approach for VARs who want to move in this direction but are not ready to take the steps needed to build a custom solution.
4. Buy: VARs that are big enough could consider acquiring a company that specializes in offering and managing hosted applications.
The primary benefit to this approach is that a VAR immediately has people, process, technology and customers. The challenge here is successfully integrating the acquired company, namely transitioning the key employees and customers. A misstep during integration could cause a deal that makes perfect sense on paper to utterly melt down.
The reality, however, is that most VARs are not in a position to make an acquisition of this nature, so they are probably looking at an Assemble versus Partner decision.
The Bottom Line
A VAR ultimately has to ask itself: How important is Cloud/SaaS to the future of its business? For those VARs that know this is will become an increasingly important if not mission-critical part of their business within the next few years, an Assemble decision probably makes the most sense. For those VARs that are unsure, a Partner approach is probably the best way to start — and over time if this segment gains significant traction, the VAR could look to migrate to their own platform in the future.
Joshua Beil is the director of market strategy and research for Parallels. Guest blog entries such as this one are contributed on a monthly basis as part of The VAR Guy’s 2009 sponsorship program.