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SaaS and SMBs

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Ricky

The small to mid-sized business (SMB) market continues to hold appeal as a large growth opportunity for many high technology companies. As those organizations experience increased competition for large enterprise sales, they often see the SMB market as an opportunity to continue their growth, without the fierce competition that occurs in the enterprise space. This is an overly simplistic view that does not take into account the needs and characteristics of the SMB market.


Small and mid-sized businesses need many of the same technology capabilities of larger enterprises, but they need it at a level of affordability that makes sense for their business. In addition, they expect to receive appropriate levels of support to help them implement the solution in their enterprise. For the latter, organizations have realized that SMBs will not tolerate “crippled” or “feature limited’ editions of their product and are starting to configure solutions that are truly designed for SMB customers. The support needs are a bigger challenge, one that is much more difficult to try to overcome.

Technology providers have three primary distribution strategies available to them:

• Direct Sales

• E-Commerce

• Channel Sales

Each of these choices carries with it a similar strategy for support. The choice of approach is driven by the number of different factors including technology maturity, opportunity size (revenue), and target market. It is not easy to implement multiple distribution strategies at the same time for similar products; therefore, one approach typical dominates.

If a business has targeted enterprises, they probably sell and service through a direct model. They may partner with systems integrators for implementation assistance, but these integrators typically have the same profile. The challenge for the SMB market is that selling and supporting solutions for SMBs often requires a similar sales and service approach to selling direct, albeit on a slightly smaller scale (i.e. smaller teams, shorter decision reviews). As a result the cost structure of an organization that has sold to enterprises does not lend itself to selling to SMBs.


For the SMB, they get a level of attention that they need, without paying high fees for travel expenses and direct consulting resources. The solution provider gets a profitable relationship that they can benefit from through the years as they help their SMB customer leverage new technologies.

One of the hottest trends in the technology industry is software as a service (SaaS). The SaaS market is dominated by emerging vendors who are providing customers with a new cost model for software--on with no upfront licensing or special hardware needed; all that’s needed is an Internet browser and pay as you use via a monthly subscription arrangement. While this changes the core approach to purchasing software, it does not change the fundamental need for support and assistance in getting maximum value from these solutions for the business.

Most SaaS vendors use an e-commerce model to sell their solutions. Part of this is driven by the fact that the revenue model does not lend itself to direct sales and part of this is driven by the nature of the technology—since you access it with a browser, why not just purchase a subscription the same way. As vendors get established, they are typically expanding beyond e-commerce with a direct sales and service force. The interesting thing is that most of those vendors are pushing to get larger and larger deals and competing with traditional enterprise vendors.
As a result, the SMB customer, who has been an early adopter of SaaS due to the affordability, is left in the cold. They get second class support. One customer of a major SaaS provider talked about how they always spoke with someone new when requesting support. Each time it was like starting over, explaining their business, how they were using the software, and their problem. SMBs often feel like an unappreciated stepchild in these circumstances.

For the SaaS market to thrive, the SMB needs to be embraced as a key market for SaaS solutions. This requires that SaaS vendors use an alternative distribution strategy—leveraging channels. The local and regional solution providers benefit from this approach as they can continue to be involved as trusted advisors to their SMB customers, while gaining recurring revenue stream (something many solution providers desperately need) from their share of SaaS subscriptions.

The SMB customer benefits by getting local service and support from someone who truly cares about their business and has a cost structure that makes providing that support good for business. The SaaS vendor benefit in that they can gain, and keep, traction in the SMB market and not be forced to move upstream to enterprise deals because of cost challenges.

When SaaS vendors allow for channel partners to use their application for marketing by co-branding and white labeling the solution, the SMB feels that they are receiving a local solution that is supported because the name and logo of their partner is directly on the software. In fact, a call center application vendor named Visitar provides SaaS software only through the channel and priced exclusively for the SMB – Visitar’s hosted application is co-branded and white labeled by channel partners so as to give the SMB the most localized feel.

The SaaS market opportunity and the realities of cost structures for technology providers is yet another indicator that solution provider channels are here to stay. When the Internet and e-commerce first appeared, many pundits stated that the days of the solution provider channel were numbered. That was wrong. What is right is that solution providers must add value by serving as trusted advisors and affordable providers of local support and service to their SMB customers. When this occurs, everyone wins—the customer, the solution provider, and the vendor.

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