October 08, 2008, 9:56 PM — From a buyer's perspective, there is a good case to be made for SaaS. Up-front costs, as well as total cost of ownership, are lower, and there is less spending required for integration, deployment and ongoing maintenance. These however, are precisely the things from which the VAR derives profit. It would seem on the surface that the SaaS model is taking the "value-add" out of "value-added reseller". Simply selling a plain vanilla, preconfigured service turns the VAR into an over-the-counter retailer, and profit margins start to thin out.
In many cases, SaaS offerings will compete with higher margin software products and some cannibalization is inevitable.Â There's no question: Deal size will decrease, and revenues will be smaller than what would otherwise be received from selling on-premises solutions. Another big potential loss is the upsell. In Microsoft's "Software Plus Service" plan, which offers a 12 percent cut for the first year and six percent for renewals to solution providers that sell its hosted services, the direct sales folks take over for upselling the customer. It's a common complaint in every company's sales channel; there is a fear that if SaaS takes over as the predominant model, it will lead to vendors taking over partner business.