How to implement a successful SaaS business model
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Editor's note: Part one of this two-part article on building a well-targeted cloud business model addressed how providers should analyze their markets to decide what kind of cloud services they should offer businesses in their geographic footprints. When moving beyond basic Infrastructure as a Service (IaaS), author Tom Nolle emphasizes that providers need to consider partnerships with software developers to address different SMB and large enterprise needs. In part two, Nolle delves into SaaS development and how to structure the software development partnership.
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Once service providers that want to offer Software as a Service (SaaS) focus in on the markets they want to serve and analyze for attracting customers, the next step is to identify software developers in their service areas that can partner with them on application development. This often means conducting the same kind of search that software buyers would to select a developer or systems integrator for themselves.
The most important thing to look for is a developer with an established customer base that can provide referrals to validate the service to other prospects.
After identifying the community of prospective SaaS development partners, the next step is to determine the best platform for them to work on. Infrastructure as a Service has the advantage of being almost universally applicable to software partnerships because it is little more than virtual-machine hosting. If most developers have selected a single software OS, however, it may be better to consider offering them Platform as a Service (PaaS) as a virtual cloud operating system. This could simplify management and increase margins by reducing the complexity of developers and users adopting the cloud.
Structuring the business relationship between provider and developer
The specific business relationship between the cloud operator and software developers needs to reflect a number of factors. They include balancing costs and risk as well as generating customer leads and making a marketing program available to the developer.
Most developers value lead generation as much or more than cost, since they may be able to price their retail offerings to cover any program costs, but they can hardly sell without leads. A cloud provider with a strong brand and an effective marketing program that can generate sales leads will have an advantage in setting service prices and will likely command more partner attention. Putting a good marketing program in place is critical in creating a profitable service and attracting premium partners.
The complexities of acquiring software development firms
A question that inevitably comes up in developer/provider relationships is whether the cloud provider, under some conditions, might elect to buy one or more software development companies to do SaaS development in-house and create its own offerings. This would obviously differentiate the cloud provider from others, increase profit margins and establish a stronger brand for the company.
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Yet acquisitions could also make providers look as if they are competing with their own partners. Once a provider buys a developer, others may see any relationship with that provider as a stepping-stone for being acquired or as a major competitive risk and avoid the relationship entirely. The best approach is to take acquisition steps carefully and exercise them only when it's clear that they won't poison other critical relationships.
Some horizontal cloud services, like unified communications, fall so naturally into cloud provider offerings that it might be best to enter these spaces with an acquisition or an exclusive partnership with a national player that has a recognized brand. Here the focus for the provider should be on how to leverage and expand on a successful service in that horizontal space to ensure that the software partner doesn't get all the attention and all the business leads.
The bottom line: Software partnerships in some form are critical to the long-term success of any cloud provider monetization strategy. The keys to success are first to ensure that the market goals are defined up front, then that cloud service targets based on these goals drive developer relationships, and finally that brand recognition drives the decision to own software platforms versus partnering with them. Careful planning and execution can secure all these points; there's no other pathway to success.
About the author:
Tom Nolle is president of CIMI Corp., a strategic consulting firm specializing in telecom and data communications since 1982. He is the publisher of Netwatcher, a journal addressing advanced telecom strategy issues.