• Epiphany's two recently-launched vertical solutions:
  • PedigreeNet  -- a solution enabling pharmaceutical distributors to comply with the federally-mandated requirement to manage the origin and market history of pharmaceutical drugs; and
  • VarNet -- a solution for high-tech vendors to facilitate effective management of quote, pipeline and other information.
• SPS Commerce, the SaaS EDI Provider, has developed a solution for manufacturers who need end-to-end supply chain visibility.
• Daston has announced a SaaS suite for defense contractors enabling them to be compliant with Defense Contract Audit Agency (DCAA) standards.
• IntoScape, a UK software developer, has launched Total Commerce Management to supply chain management, procurement, competitor monitoring and pricing systems for retail ecommerce companies.

Why Is It Happening? Platform plays in Software-as-a-Service have encouraged and enabled increased integration of offerings by long-tail partners, e.g., Salesforce AppExchange, Rearden Commerce's AXIOM, Cisco's WebEx Connect and the recent Facebook initiatives.  However, significant monetization has been elusive for these platform plays thus far.  Salesforce has recently shifted its tack by launching Force.com as a development and runtime platform for cloud-based applications that will pay subscription fees for use of the Force platform.

In contrast, NetSuite is leveraging its small-business suite and the underlying platform and development tools to create a channel for its SaaS solution targeting vertical industries.  The channel partners might be small-business integrators, VARs or ISVs.  Channel partners will pay NetSuite a share of their SaaS revenues for the use of the NS-BOS platform.

This revenue-sharing distribution strategy is similar to the announced SAP plans for Business By Design in Europe, although SAP's partners are allegedly the only source for the SaaS offering.  Targeting the same market niche -- SMBs with 100-500 employees -- NetSuite sells both direct and through their channels at $499 base plus $99 per user per month.

Market Impact:  NetSuite may have developed a very effective means of monetizing -- and therefore securing -- SaaS-plus-traditional channel relationships.

Channel sales success -- especially successfully monetizing channel relationships -- has been a conundrum for most SaaS providers, and for ISVs migrating to SaaS or expanding to include SaaS within their portfolios.

SaaS providers have been challenged to develop and maintain channel capabilities that are attractive enough -- and "sticky" enough -- to build and maintain critical mass.  Most SaaS sales (and relationships) for serious business applications have been direct in nature. SaaS providers have been unable to develop and deliver effective sales strategies through traditional software channels (i.e., SIs and VARs). Many claim to eschew such channels altogether, depending instead upon viral and direct sales and relationships with other SaaS providers. This is an effective sales strategy in the short term, but ignores the increasingly necessary role of integrators and VARs in making SaaS work for users.

ISVs planning on migrating to SaaS have been challenged by maintaining channel partnerships established under traditional licensed software models. Channel compensation and roles have been, so far, poorly understood and badly defined.

Clearly, the key to this is the platform, and for the small business segment in which NetSuite is doing business, the suite solution offers an attractive accompaniment to vertical SaaS solutions or on-premise software offerings integrated with the SaaS suite.

This channel model should also be easily adaptable to a geographic, rather than a vertical industry, distribution strategy.  With the combined business suite and platform, local SI, VAR or ISV could bundle current offerings with the business suite and profit as both channel and as solution provider.

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