Is there room for a SaaS hardware play?
I recently had a conversation with a friend regarding SaaS and hardware VARs. The topic came up because this friend noted that hardware VARs will undoubtedly feel the SaaS pinch: if enterprises start overwhelmingly subscribing to software rather than purchasing it, they buy less server-oriented hardware. Although providers will be buying the hardware to host the SaaS offering, economies ought to consolidate the amount of hardware necessary to provide the same amount of functional utility. This chews into the total market revenue. But does this have to be a “net loss” game? Absolutely not!
 SaaS, aside from all of the business driver gobbly gook, does one thing very well: it mobilizes data and functionality since by nature SaaS lives in the cloud. Hardware VARs need to exploit that. Through creativity, endpoint hardware devices that integrate with in the cloud services can become a very lucrative market. Take a logistics SaaS offering and GPS devices, or an inventory control SaaS offering and lightweight mobile laptops with integrated scanners, for example. I think traditional VARs would do themselves a favor to spread out some and into these endpoint offerings rather than focus on the “next big server sale.” It seems that diversification will be the key. Any thoughts?
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Sinclair – I would say there are two opportunities for hardware vendors in the services area. One is like the examples you mentioned – special hardware with end-user functionality, (actually, much of the “mobile enterprize” business involves some sort of custom mobile terminals, and those can be used in SaaS as well as in client-server context).
Another opportunity is is managed services. Standard devices required for using SaaS (PCs, networking gear etc) need to be monitored and managed, and vendors can do this as a service remtotely. This is part of the same business case: companies should focus on their core competence, which in most cases is neither running applications on servers nor servicing IT gear.
So you may view a service like “managed PC” or “managed firewall” as hardware vendor’s analogue to a SaaS play.
Vasily – Good point. I occasionally forget about managed services, but the opportunity is clearly there.
Continuing the SaaS analogue, I believe VARs will appreciate the managed services revenue stream. Since remote management removes some geographic boundaries, I’d guess this would cause some consolidation among VARs.
I think hardware vendors are in the same boat as any VAR or SI with SaaS: the mechanisms for them to benefit are not there today, and in fact they are at considerable risk.
See my blog posts about how SaaS can be positively partner toxic:
http://smoothspan.wordpress.com/
With that said, Sinclair, you are right, these vendors as well as the rest of the ecosystem that surrounds traditional software vendors needs to think about how to reinvent itself to leverage the strengths of SaaS and avoid pitfalls to their own businesses.
SaaS is a whole new ballgame. One of the opportunities is to reshuffle the deck about where the market leaders are. The particularly insidious thing about SaaS, is it does this very adroitly for the software vendors themselves–perpetual license model companies face cannibalizing short term quarterly results to convert to SaaS. It’s an ugly business that few can face. If they come out the other side intact, they wind up like say Concur, who are extremely happy to have gone through the transformation.
The same will happen in the hardware arena. Make no mistake–SaaS will up server utilization tremendously. It will centralize hardware purchasing increasingly over time to ever larger data centers. The old relationships built over years with corporate IT will become less valuable as those corporations embrace SaaS.
A time of reinvention benefits the more nimble players and is hard for those just sitting on lucrative franchises.
It’s going to be exciting to watch, but far to early to bet on any particular outcome except for change itself as an outcome.
Bob,
You touch on some key points. For those who believe that SaaS will be catalyzed by SaaS Platforms, specifically Hosted SaaS Platforms (and I’m one of them) a consolidation of massive data centers will happen over time with a decrease in rate in hardware purchases. Companies developing SaaS offerings do not and should not need to care about running their IT infrastructure until they reach the point where they can achieve better economies of scale by doing so and frankly most will never reach this point.
As far as what do VARs do? It’s hard to say and their role is still unclear but change is imminent and desperately needed unless they want to face extinction.
I would love to hear any other thoughts you or anyone else has as this is a big concern for all of our fellow VARs.
Hi Sinclair,
I think that there a a good many unexplored ‘hybrid’ models of SaaS, applicances that are managed (like your classic firewall management service now). I think that there is still a large for appliances in the SaaS laggard space, (they still want to see something with flashing lights).
As an aside, i think SaaS vendors should be very careful when considering the VAR / SI channel as in the SMB space, these guys are either the IT department, or the most trusted advisor. If you don’t leave something on the table for them, if they feel massively threatened by SaaS instead of embracing it, their ability to influence a customer (and torpedo the SaaS sale) is in my opnion immense.
Sinclair, Abe – I think VARs will need to change a lot to adapt to the SaaS game. They make much of their margins on complex projects, and with SaaS there is inherently less complexity in projects.
VARs will be doing managed services, but the will often compete with the vendors. These geographical barriers for managed services exist, but to a far lesser extent than for on-premises projects. This is the opportunity for services revenue stream that many vendors will not miss.
I think another interesting subject is – if VARs used to integrate systems with systems, and now integrate services (SaaS) with systems (on-premises), will they integrate services with services to create (mashup) “larger” services? Maybe that’s a niche for them?
Vasily,
I think “mashup” integration will be vital for success. Although complexity reduces in traditional projects, VARs will have to be creative to succeed, which includes brewing new solutions from multiple services to cater to specific needs.
I think the reduction in complexity will open up the doors for VARs to dedicate resources to creating high-value (and potentially high margin) offerings through mashups.