A channel play for SaaS in 2006

Microsoft's competitors are ridiculing what they claim is Redmond's half-hearted entry into the world of SaaS (software as a service) with CRM 3.0. In numerous conversations I've been told, "It shouldn't even be called SaaS. They're not even hosting it. They are just reselling their solution to VARs."

As if "VARs" was a dirty word.

Well, I have news for those competitors. For the SMB market, Microsoft has the right idea.

The SMB market has always been about value-added resellers, says Josh Greenbaum, principal at Enterprise Applications Consulting. "Not one of the big players has figured out how to crack it other than through VARs."

SMBs use VARs because VARs understand businesses such as plumbing and heating, bakeries, and restaurants -- both large and small -- and are able to use their domain knowledge to package a set of services into a one-stop-shop solution. That's why in 2006 SaaS will morph from a technology play into a channel play, used by VARs and BPO (business process outsourcing) vendors as well, to capture this and larger markets.

Two high-profile players took the first step in 2005: Salesforce.com offered AppExchange, and IBM formed its SaaS Partner Council. These are SaaS bazaars that allow users to pick and choose among various solutions. AppExchange allows third parties to integrate only with Salesforce, but IBM is building a standard model for the integration of hundreds of different SaaS solutions with one another. Neither offers SSO (single sign-on) or billing, however, which account for a good part of the VAR appeal. But others are offering them.