SIIA On-Demand - SaaS, Verticals and Channels

The SIIA on-demand conference earlier this week was great fun - it's an insider's conference with several hundred very senior executives from the SaaS and cloud computing world all coming together to share best practices.

I moderated a panel on SaaS going mainstream. You can watch the video replay here. The premise was that as part of becoming mainstream, SaaS vendors are increasingly going to have to offer vertical and micro-vertical solutions and develop channel-friendly business models.

The session was standing room only - probably 300 people in the room - which tells me people are really interested in this topic. Remember the conventional wisdom is that SaaS is channel unfriendly - today's large SaaS vendors generally do not have channel partnerships, and that SaaS vendors need to be horizontal so they can cast the widest possible net for potential customers.

I was joined by Dan Fishback, the CEO of DemandTec, a large and public SaaS company focused exclusively on the retail and consumer goods industries, Adam Miller, the CEO of CornerStone on Demand, a SaaS Talent Management company now up to two million users, Jeff Shultz, the CMO at Bill.com, an early stage company focused on the accounting profession and going to market nearly entirely via the channel and Nik Puni, President of Sererra, a SaaS solution provider that customizes SaaS applications for vertical markets.

Each of these companies has seen rapid growth and success by focusing on solving the business problems of a particular set of vertical industries. All of these SaaS vendors see working with the channel as the key to making their business strategy work. We had a great discussion exploring the conventional wisdom that SaaS is by its nature horizontal and direct only.

The panelists felt that the opportunity for SaaS companies to become vertical industry focused and to work with channel partners is massive. They explained that in the early days of SaaS, the channel wasn't yet ready - so the early SaaS pioneers had to go direct to be able to sell anything. The feeling on the panel was that this would soon become a problem for today's large SaaS vendors, because their sales forces are now so large it will be hard for them to avoid channel conflict, which will make it harder for them to establish the channels they need to keep growing.

DemandTec is a SaaS firm like no other - talk about breaking the conventional wisdom. Their average sale is a multiple millions of dollars with the worlds largest retailers and manufacturers. Their channel is the traditional enterprise software integrator, like IBM Global Services, because, as their CEO says, their product is a true enterprise solution that just happens to be better since it is delivered via SaaS.

CornerStone has seen explosive growth, now up to more than two million users, that took off when they shifted from being entirely horizontal to working with partners to bring vertical versions of their applications to market. They have channel partners that add their own intellectual property and industry smarts into CornerStone's products, and then those same channel partners sell CornerStone into the industries that they are experts in.

Bill.com was an interesting case study - their business is almost exclusively through the channel and their channel is almost exclusively accounting firms. The value of their solution (automating a non-value added job that neither the accounting firm nor their clients want to do) is so compelling to the accounting profession that they are flocking in droves to become resellers.

I think the key insight from the panel was that verticals and channels go together. While there may be some horizontal markets that SaaS vendors can address through direct business models, as SaaS becomes mainstream many application categories will require vertical solutions, just as they have in the enterprise software world. The best people to bring lots of vertical and micro-vertical solutions to market are channel partners, since they are more likely to have deeper expertise in their particular industry than any vendor does. All of this is good for customers since highly tailored, highly valuable solutions become available to them via the SaaS model.

There was also good advice that a SaaS firm should probably service the first couple of verticals themselves, to ensure that the model works and the product can be properly customized for a vertical market. Other advice wasthat channels are not free - channel enablement takes real work and dedicated resources and is a lot harder than it may seem.

We ended the panel with advice to other SaaS firms from these executives. They all have seen that going vertical and adding channel partners helped focus their company on solving real business problems and adding real business value to their clients, while at the same time increasing their efficiency and improving their profitability. They all felt that SaaS companies have a better chance of succeeding in the downturn if they took a vertical and channel friendly aproach to their business. So much for the conventional wisdom...