Software as a Service Threatens Partner Revenue and Profit Streams, New Partners Emerging, IDC Research Shows

FRAMINGHAM, MA. – September 20, 2007 – Software as a Service (SaaS) providers are seeking rapid expansion of their channel strategies as a means to meet their growth targets, a new research study from IDC shows. However, the question of how the SaaS delivery model will impact the traditional channel has become an increasingly common discussion and unknown variable.

According to IDC's new study – which was undertaken to gain a deeper understanding about the channel development and execution practices of software vendors with SaaS offerings – the disruptive nature of the SaaS delivery model has progressed along the path of seriously impacting traditional partner revenue streams.

"Two big wrinkles for partners are obviously the subscription revenue stream associated with SaaS solutions as well as selling 'virtual' products where there is nothing to physically ship, implement, or keep on the shelf," said Erin TenWolde, senior analyst, Software as a Service. "This is going to drastically change the way partners and SaaS providers engage with one another in the future."

Darren Bibby, senior analyst, Software Sales Channels, stated, "One of the interesting things to watch in the coming years will be the shift of technology-centric solution providers to business process consultants that can help customers get the most out of their SaaS solutions. We will start to see some new types of partners emerging."

Among the key findings from IDC's study are the following:

* There are still nascent partnering business models in the SaaS ecosystem. Based on interviews with SaaS providers there is still a lot to learn and most of the activity is occurring on a trial and error basis.

* Traditional channel partners, particularly value-added resellers (VARs), have some potentially big challenges ahead, particularly in terms of securing top line revenue in resale scenarios. This will have implications on the valuations of VAR businesses, which have traditionally been valued based on a multiple of revenues.

* With many traditional IT challenges removed with SaaS, IDC believes that there will be new solution providers emerging that are more business-process oriented rather than technology-focused. Those partners that can develop discrete expertise in niche areas will be well positioned to take advantage of the vast SaaS opportunity.

IDC believes that partnering is going to be key towards market expansion in the SaaS ecosystem. IDC recommends that SaaS providers build out their formal partner roadmap and be as explicit as possible about the direction that partners can take to eliminate conflict. This will require open communication and transparency in working with partners. This is the time for SaaS providers to start considering their partner strategies, and to be ready to maximize the potential of partners.

This IDC study, The Emerging SaaS Channel, (IDC #208547) analyzes the disruptive effects of SaaS on the channel partner community, and what being a partner to a software vendor might look like in the future. The report covers the following critical topics: SaaS channel strategies by software category, analysis of SaaS opportunities by partner type, new partner types, and future challenges.

About IDC

IDC is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets. IDC helps IT professionals, business executives, and the investment community make fact-based decisions on technology purchases and business strategy. More than 900 IDC analysts provide global, regional, and local expertise on technology and industry opportunities and trends in over 90 countries worldwide. For more than 43 years, IDC has provided strategic insights to help our clients achieve their key business objectives. IDC is a subsidiary of IDG, the world's leading technology media, research, and events company. You can learn more about IDC by visiting www.idc.com .

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