Telco Strategies to Win a Share of the SaaS Pie

The major telecommunications carriers have recognized the rapid growth of the software-as-a-service (SaaS) market and are seeking to capitalize on its tremendous assets to win a share of this exciting new opportunity.

The attractions of the SaaS market have been spelled out clearly in a variety of analyses and articles. THINKstrategies Inc.’s own research found significant user interest and adoption of SaaS as early as 2003 among companies of all sizes. Our more recent surveys have found customer satisfaction rates remain high, fueling the expansion of the SaaS model across nearly every application area and vertical market industry.

In response to these trends, the telcos are adopting a three-prong attack to capture a piece of the SaaS movement.

First, they are expanding their basic hosting capabilities to support SaaS delivery and data storage requirements. Second, they are adding enablement capabilities to encourage more SaaS vendors to enter the market. And third, they are leveraging their vast installed base of customers and serving as a channel to market for SaaS providers. AT&T Inc., British Telecom and Verizon Business represent the most obvious examples of these three SaaS strategies.

AT&T has a worldwide network of hosting facilities, augmented with an intelligent content distribution service. This service is a facility-based content delivery network that replicates information across the Internet. In order to expand its hosting capabilities, AT&T acquired USinternetworking (USi) in 2006, one of the original application service providers (ASPs). Although the ASP model never gained broad market acceptance, USi has developed strong relationships with the major independent software vendors (ISVs), including Ariba Inc., Demandware Inc., Microsoft Corp., Oracle, PeopleSoft (now part of Oracle), SAP and Siebel (also now part of Oracle). It also has a stable base of 150 enterprise-level organizations in more than 30 countries.

The other major U.S.-based telco, Verizon Business, announced in January an agreement to deliver NOW Solutions Inc.’s new Web-based emPath human resource management, payroll and benefit administration service. Rather than simply hosting an existing application, Verizon Business is providing the “ping, pipes and power” that is enabling the new Web-based emPath. This includes the carrier-class data infrastructure, redundant power supplies and network connectivity, physical and data security, and 24/7 monitoring and management. Verizon Business’ SaaS service infrastructure and support capabilities are built on a combination of the company’s acquisition of MCI and internal hosting resources.

BT has taken the boldest steps, among the telcos, to assert itself as an SaaS provider, however. In addition to offering hosting services to ISVs, BT has launched its own SaaS solutions. Workspace is a Web-based software service that helps groups share information, manage projects, and build stronger working relationships. The service includes file sharing, group calendaring and project management capabilities to permit greater coordination and collaboration within workgroups and with outside partners and customers. BT also is offering a comparable SaaS solution, called Tradespace, to connect small businesses and individual sellers with potential customers online. BT Tradespace helps buyers make informed decisions based on member reviews and ratings, online information resources, and business communities of interest. BT Tradespace members can establish their own public Tradespace sites and drive their own content.

BT’s suite of on-demand collaboration services and community sites is being supported by Microsoft’s “Live” initiative. Microsoft also is working with AT&T and Verizon on comparable Web-based services.

In April, Microsoft unveiled its SaaS Incubation Center Program to help ISVs adopt the SaaS delivery model via service providers. Microsoft’s new program will provide ISVs with business and technical consulting services, a hosting channel to market, and incentive discounts to Microsoft’s enabling technology via the service providers.

The SaaS Incubation Center Program builds on the Microsoft Solution for Windows-based Hosting for Applications and the SaaS On-Ramp Program to give service providers training and tools to support the ISVs’ SaaS needs. The program includes structured business consulting and software architecture training sessions. The Windows-based Hosting for Applications platform gives service providers tools to build and monitor their service delivery infrastructures and establish SaaS SLAs. The program included seven companies initially — Affinity Internet Inc., NaviSite Inc., NTT Communications Corp., OpSource Inc., Rackspace Ltd., 7global, Siennax and Wizmo Inc.

This program is part of Microsoft’s effort to differentiate itself in the SaaS market by enabling service providers to become SaaS providers and providing a channel to market for ISVs. SaaS channel strategies have been a topic of debate because of the direct connection SaaS permits between the ISV and customer. Microsoft believes it can create a viable channel for its more than 20,000 ISV partners via telcos, hosting companies and cable operators.

Despite their vast installed base of corporate customers, the telcos face an uphill battle establishing themselves as a significant channel to market for SaaS solutions. They generally are viewed as network service providers rather than ASPs. Their salespeople lack skills or experience selling business applications, and have limited access to business unit executives who make SaaS purchase decisions.

But THINKstrategies believes the telcos will attempt to overcome these obstacles in three ways. First, they will establish a portfolio of point-and-click services, like BT’s Workspace and Tradespace, which reduces reliance on the existing salesforce. Second, the telcos will use their growing array of unified messaging services as a training ground and stepping-stone for selling more business-oriented solutions to a new set of corporate buyers. And third, the telcos will fortify their SaaS enablement capabilities via acquisitions.

Jeffrey M. Kaplan is managing director of THINKstrategies, an IT strategy consultancy in Wellesley, Mass. He is also the founder of the SaaS Showplace (www.saas-showplace.com). He can be reached at jkaplan@thinkstrategies.com.

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