By Cara Sievers

Software as a service has a number of agents scratching their heads. Abounding hype at the outset led some partners to believe these whiz-bang platforms were hot-hot-hot and their customers would be chomping at the bit to buy-buy-buy. However, some members of the indirect channel admit facing challenges when it comes to successfully selling SaaS, and have discovered it’s a different kind of animal with its own unique characteristics. But even though SaaS might not be as plug-and-play as it originally seemed, a modified approach to selling this technology can help close deals and might even lead to additional revenue streams.

One agent’s distinctive approach to software as a service has helped it grow its SaaS sales to account for 25 to 30 percent of the company’s total sales in third quarter 2008. “It certainly was not at that level when we started out [in October 2007],” said Tom Turpin, president of Lightwave Consulting Group. “But I expect it to continue on roughly at that level for the next quarter or so.” Lightwave is a subagent for Venture Group Enterprises, which is the exclusive master agent for SaaS provider nGenX Corp.

Turpin said his company takes a more holistic view of the SaaS market, morphing the term into “software on demand,” which combines traditional software as a service and applications management. The former, SaaS, is a software solution that is hosted and managed by a provider and is accessed by the end user via the Internet. The latter, applications management, is management of infrastructure and applications already owned by the customer.

“It’s been interesting because we’re tending to sell, these days, much larger customers; and by that, I mean we’re really doing full outsourcing of an entire suite of applications, taking sometimes as many as 14 different applications out of a customer and managing their entire environment as opposed to just one particular application,” said Turpin. “That’s driven our average MRC of our recent deals closer to $10,000 per month.”

However, Turpin acknowledges that with the sheer number of opportunities, there will still be a lot more play in the lower end of the market, i.e. companies that just want Microsoft Exchange, SharePoint or CRM. He suggests asking questions around human resources, which he has found businesses to be open to moving, and avoid very complex systems like enterprise resource planning applications. “Focus on certain core applications and pain points early and then just be open to other things that pop up once you’ve built the relationship,” he said.

Similarly, John Krzykowski, general manager of SaaS aggregator 19Marketplace, thinks going with a few of the commonly used SaaS applications is a good place for agents to start if just entering the market. “[Agents] need to look at what they’re good at and what they understand before they take on SaaS applications,” said Krzykowski. “If agents don’t understand a service well enough and don’t know the alternatives, they will be a little leery to bring it up,” he said, adding that knowing the cost of initiating an application in-house becomes a key factor and selling point in a SaaS sale.

“I think that your typical telecom agent is going to have to spend a fair amount of time educating themselves more technically than they’re probably inclined to do for the rest of the products they sell,” said David Goodwin, co-founder of agency ATC. Goodwin explained that his company makes it a practice to use most of the solutions it sells in order to understand their benefits and pitfalls before marketing them to their customers. His staff also has spent a good amount of time on conference calls and webinars learning about SaaS.

Robert A. Bye, executive vice president of nGenX, said, “Good providers will offer the agent the necessary training to uncover and qualify prospects before bringing the agent into the sales cycle.” Bye said if an agent cannot depend on the SaaS provider for technical expertise and sales teaming, he or she is partnering with the wrong provider.

Keith Altman, general manager of agency Bridgevine Business, agreed and warned agents against trying to become a SaaS expert. Instead, he advised agents to “work with a partner who wants to be involved in your sales cycle and is flexible to what your strategy is.” Altman said Bridgevine brings its partner, 19Marketplace, into anything outside of the basics. “This is a good tactic for any agent with any product,” explained Altman. “I have always tracked the success of close rates working with your partner versus being the ‘lone wolf’ and the success rate to close is greater by over 50 percent.”

Whether it is the SaaS provider itself or an IT consultant the agent trusts in his/her geography, 19Marketplace’s Krzykowski agreed building an ecosystem of support and expertise is the best way to approach a SaaS sale.

“The role of sales is uncovering an opportunity,” said Krzykowski. “The next role of sales is to bring the right resources to meet with the customers to close the deal. The customers usually don’t expect a sales rep to have all the answers, and that’s OK.”

Krzykowski explained that in deals such as these, the agent does not share the recurring revenue with the IT firm; instead, the IT firm will make the money on the implementation side. Furthermore, the relationship can be mutually beneficial if the IT consultant reciprocates by bringing leads to the agent.

In addition to leads an agent might receive from IT partners, Krzykowski pointed out that SaaS applications increase the importance of the WAN, presenting possible network upgrade opportunities.

Altman said his company has been successful positioning SaaS as an add-on. “Due to a low or zero up-front cost and a non-intimidating monthly recurring cost, it is easier for sales reps to ask for another service to be bought on top of the original order,” he said.

Lightwave’s Turpin even alluded to SaaS being SaaS’s best add-on. “As people try the service, they become much more open to having more and more services go outside their four walls,” he said, assuring agents that they likely won’t get all of a customer’s SaaS business at once.

Alternately, ATC’s Goodwin thinks SaaS can be a good door-opener. “Somebody might not want to talk about their local, long-distance, conferencing or cellular, but you open the door with a SaaS offering, then you may open a door you wouldn’t have gotten into otherwise,” said Goodwin.

However, Goodwin admitted he is not SaaS’s biggest fan. He fears the ROI doesn’t seem all that great when you compare the time it takes to cultivate a sale with the compensation available. There are only so many gigabits to backup and only so many BlackBerrys to sign up, he said. Goodwin said this aspect is exacerbated by a limited niche market — if you play in the SOHO or small business space, there might not be enough revenue; but if you get too big, say, more than 100 users, you price yourself out of the deal because it becomes more cost-effective for the company to purchase, house and manage its own solutions.

Still, Goodwin agreed that while SaaS might not make money for agents hand over fist, it is a good portfolio differentiator. A partner not offering SaaS solutions might end up losing customers to partners that do offer it. And that is especially true in this economy with the cost of money being so high.

“We believe that the current economy will be a strong catalyst for growth in the SaaS and hosted managed services industry,” said nGenX’s Bye. In fact, a SaaS market survey done by THINKstrategies/Cutter Consortium shows SaaS adoption has doubled in 12 months (See chart below.)

“Demands for data storage and regulatory compliance will only grow as capital budgets shrink,” added Bye. “This provides an excellent opportunity to serve companies needing to upgrade or expand their IT infrastructure without increasing their budget. [And] the ability to scale up when the economy improves without requiring additional capital will be a big benefit for those organizations poised for growth,” said Bye, affirming that nGenX expects the SaaS industry to benefit from this economic cycle and continue to grow.