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A Winning Combination: Software-as-Services Plus Business Consulting and Process Services
By Laurie McCabe
January 30, 2004

Channel strategy may be the most important differentiator among ASPs. Some ASPs have developed powerful and effective channels, while others depend on direct-sales models and viral marketing to reach potential customers.

Share Your Sales Secret
Share your channel wins (and losses) in the ASPnews Discussion Forum.
The importance of channels depends largely on the size of the sale. That is, for large sales, using your own direct sales force has advantages. But, for smaller sales, it is usually preferable to involve channel partners. The examples below illustrate the considerable variety among channel strategies and partners. They also reveal the meaning of large, when we say that sales are “large” enough to justify a direct-sales approach.

While channels are critical for ASPs like Rivio and NetLedger (now Oracle Small Business), who target small businesses, they are also important for ASPs like BlueStar Solutions (formerly eOnline), Corio and Qwest Cyber.Solutions who deliver large, complex and customized applications such as those from SAP, J.D. Edwards or PeopleSoft to enterprise customers. Our examples also include an interesting exception to these ideas.

A fact of special importance in the context of ASP channels is that, for the most part, both the software and its users have been around longer than the corresponding ASPs. What is new in the ASP context is usually the hosted delivery of software possessing greater brand equity than the ASP itself. There are exceptions to this generalization, such as e-Gain, which offers intrinsically new customer-support functionality, and NetLedger, which offers QuickBooks-like functionality so elegantly Web-enabled that it is effectively new.

Preexisting Conditions
Preexistence of the software, its customers and, most importantly, established trust relationships with customers implies that, for many ASPs, channel strategy means introducing an enhancement (hosted delivery) to a preexisting product into preexisting channels.

The best and purest example of the use of existing channels is ManagedOps, which focuses on the hosted delivery of applications from Great Plains and Siebel. Great Plains has sold its software through a network of VARS (value added resellers) for many years. It has nurtured this VAR network, which is now numbers approximately 1,200.

The ASP ManagedOps was formed by the largest and most successful of the Great Plains VARs, and now enlists the entire Great Plains VAR network to sell its hosted-delivery services. ManagedOps has opened a second promising channel with its partnership with Portera, a portal serving the professional-services submarket. Such partnerships are very promising because they preserve the application focus of the ASP, while providing segment-specialized one-stop shopping for the customer.

Rivio: Big on Small Business
A second exemplary channel strategy is that of Rivio. Rivio offers to small businesses a set of services, including HR, time-and-attendance, payroll and expense reporting and a framework for the inclusion of partner technologies, notably Microsoft’s b-Central. Individual service contracts in this market are quite small. Rivio has partnered with very large organizations, such as Bank of America, Verizon and BellSouth, who offer the Rivio service to their small-business customers in the name of customer retention.

The total number of small businesses introduced to Rivio in this way by its channel partners is comparable to the total number of small businesses. Thus, Rivio’s channel strategy provides an endorsed introduction to effectively the entire relevant market.

Hosted Delivery to Established Channel — That’s Progress
As different as the ManagedOps and Rivio examples are, they are similar with regard to the critical ingredient, the exploitation of preexisting trust relationships. Another channel strategy sharing this critical ingredient is that of Progress Software, with its acquisition of the ASP Allegrix. The ISV (independent software vendor) Progress is the world’s largest supplier of embedded database software.

The database software is the basis of many applications created and sold by Progress’ more than 2,000 ISV partners. For example, Progress claims that it is difficult to buy an automobile tire in the U. S. without using Progress software.

The ASP Allegrix is now a division of Progress chartered to provide hosted delivery of the applications of Progress’ ISV partners, all of whom have existing customers. This could be the most explicit example of inserting hosted delivery into a highly developed, preexisting channel.

Sticking with Oracle
Another similar-but-different example is that of Appshop. This example stretches the concept of channel somewhat, and is enjoying spectacular success. Appshop sells the hosted delivery of Oracle applications and related professional services.

Appshop’s channel strategy is their extremely tight partnership with the Oracle sales force. The two organizations share leads and go on customer calls together. Joint calls imply, as an important byproduct, “training the channel.” That is, the joint calls serve to educate Oracle sales personnel with regard to the issues surrounding hosted delivery.

Appshop’s coupling to Oracle is so tight that even their fiscal quarters coincide with Oracle’s unusual choice. In this way, Appshop is synchronized with Oracle’s quarterly sales cycle and sales initiatives.

The results of this strategy are impressive. In the second quarter of ’01, for example, Appshop, which is located in Silicon Valley, participated in 64 percent of Oracle general-business (less than $500 million revenue) sales in the San Francisco Bay region, 14 percent of sales including and west of Denver and 4 percent of U. S. sales.

Voyage of the Enterprise ISV
The most natural and available channel in the enterprise tier is system integrators. Enterprises commonly demand and can afford elaborate software systems that are often extensively customized. Additionally, this submarket is characterized by segment-specific applications and customization.

Professional-services organizations combine technical expertise with a deep understanding of the business processes of their clients. And, they have built longstanding relationships with their enterprise clients.

For all these reasons, they are the natural channel for ASPs serving the enterprise market. Indeed, ASPs like BlueStar Solutions (formerly eOnline), Corio and Qwest Cyber.Solutions all utilize this channel. From the perspective of ASPs, professional services consultancies are the enterprise analog of mid-market VARs.

Enterprise ISVs, especially SAP and PeopleSoft, could do much more than they do to couple ASPs to system integrators, and to generally nurture this naturally symbiotic arrangement from which all benefit. These large ISVs unfortunately persist in regarding ASPs as a new, down-market channel, instead of an opportunity to accelerate software sales through existing channels.

Surebridge Plays It (Well) Both Ways
We conclude with our contrarian example, Surebridge, a successful (revenues approximately doubling yearly) ASP that combines indirect (channels) and direct (its own sales force) sales models. The Surebridge example ties together several of the topics raised in this column. Because Surebridge offers one-stop-shopping, including its own professional services for implementation and systems integration, the value of an individual account can be unusually large.

Recognizing that the parameter relevant to the choice between direct and indirect sales is the ratio of customer-acquisition cost to contract value, Surebridge justifies its direct sales model at the high end of the mid-market. For smaller customers and contracts, Surebridge uses an indirect approach illustrated by its partnership with KeyCorp, one of the largest American financial-services companies.

The relationship with KeyCorp is similar in some ways to that between Rivio and its partners, but different in others. As with Rivio, KeyCorp provides Surebridge with an endorsed introduction to existing KeyCorp customers, but, because Surebridge targets larger customers than Rivio, the more complex Surebridge offerings are not piped through a KeyCorp portal.

To Recap: Exploit Preexisting Channels
To summarize, hosted delivery is most often a new enhancement to old products. ASPs can take advantage of the considerable time, effort and money that has gone into building customer relationships — before hosted delivery became an option.

In most cases it makes sense for ASPs to exploit preexisting channels and relationships. Our examples demonstrate that the character of channel partnerships varies greatly, and that they are not always necessary. They are especially attractive when the ASP is focused on relatively few applications for which effective channels already exist.


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