By Charles Cary, vice president of small business services, XO Communications

We have been selling Software as a Service (SaaS) at XO for about six months now. As expected, developing the funnel and ramping sales has taken time. What was not expected was the amount of education required, especially for smaller businesses. Also, the mix between direct and channel sales is tilted more in favor of direct than channel than expected.

With respect to the length of the close cycle, we’ve learned that while most in the industry have a pretty good idea of what SaaS, or Software on Demand, is all about, much of the outside world does not. They, logically enough, are focused on their everyday business.

They need tools to run that business but don’t care much about the delivery mechanism. So, call closes are rare as most prospects need to learn and get comfortable with this new approach. In our experience, concerns about control and security are not as prevalent as some articles would have you believe, especially at the low end. Rather, the biggest concerns are the usual ones: cost and price. “Show me how you can provide me the tools I need at a compelling cost and price.” Cost in terms of ease of implementation and operation. Price that is 15 percent and less than what I pay today. Otherwise, it’s not worth it.

Why has channel uptake been slower than we’d hoped? A large reason is because SaaS is different from what a lot of channel partners have focused on in the past. Software is the bread and butter for many in the channel. But not necessarily using an online delivery mechanism. Many partners have done quite well with minimal or no software in their portfolios. If it ain’t broke, why fix it?

Anytime you suggest altering business models you are going to face challenges. While the monthly recurring revenue model is familiar, the services or support model may not be. At XO, we began with services that we felt would be easy for our sales channels and prospects to grasp: Hosted Exchange, BlackBerry, Backup and Recovery, Anti-Virus/Anti-Spam, etc. While these are understood for the most part by the channel and market at large, they have not been in the portfolios of most channel partners. Adding VPNs, data, and wireless to partners’ portfolios has taken time. In many cases, so will SaaS.

Like so many things in telecom, the technology and hype are often way ahead of adoption. But we believe the market will look for service providers and channel partners to offer these services. The value is there. Over the long term, markets are rational. They will get there.

Charles Cary is a seasoned executive with expertise in telecom, IT, enterprise software, and internet industries, both domestic and international. Currently, he is vice president of small business services at XO Communications. In addition to running marketing organizations, Cary has significant finance, sales, and general management experience. Other companies where Cary has worked include Nortel Networks, AT&T Inc., PSINet, and CGI AMS. Cary has an M.B.A. from the University of Michigan.