Hosted Exchange Alone Offers Providers Little Upside

Reselling Broad Solution Is Path to SaaS Profitability

I read with interest Paula Bernier’s story “SaaS Continues Move Forward” in July’s xchange magazine. My company, nGenX, comes to SaaS with a telecom background, so I felt compelled to share our perspective with carriers.

Salesforce.com is the gold standard for SaaS. Salesforce.com was able to get out in front and establish a first-mover advantage. Now, there are literally hundreds of startups attempting to replicate its success. However, it remains to be seen whether others can catch lightning in a bottle and recreate this enormous success with an accounting, ERP or other software application. SMBs would rather continue using the software they already own and look for ways to eliminate the hassles of maintaining it. Moreover, there is no margin for the carrier in reselling these pure SaaS solutions.

SaaS Drives Bandwidth Sales

SaaS can be an excellent opportunity to drive additional bandwidth sales as well as increase customer loyalty for existing telecom products in the SMB market. Most telecom companies who enter the SaaS market focus exclusively on hosted Exchange. Carriers considering this approach must be aware that this product is already a commodity. There are dozens of companies who have invested in the infrastructure, and most will fail because of the slim margins and stiff competition. Microsoft has even decided to compete directly with service providers by delivering hosted services directly to customers.

Forget the hype of SaaS, and focus on getting high margin sales immediately while resolving issues SMB customers face such as shrinking budgets, increased amounts of data, security, disaster recovery, regulatory compliance and remote access for telecommuting. The ideal solution hosts all of the customer’s current business applications, such as an accounting package from Sage, as well as Microsoft Office, Exchange, SharePoint and CRM. For an SMB customer, this complete solution removes all of the hassle of maintaining a server infrastructure and eliminates the man hours required to update software and back up data.

The margins for this comprehensive solution are excellent and will remain high for some time, and the stickiness for this product is unparalleled. Once the carrier takes over the customer’s entire IT function, it requires advanced planning and a big investment to move the service. If the customer wants to bring the service in-house, it will be required to deploy and maintain a server infrastructure and hire additional IT resources. In comparison, hosted Exchange is relatively easy to migrate from one carrier to another with existing tools.

Complete SasS Solution Creates Infrastructure Challenges

Of course providing a complete solution is not easy, which is why so few companies have deployed the necessary platform to provide this type of solution. The data center and its controls must be first rate with SAS 70, Type II and HIPPA certification to ensure compliance with regulatory requirements. The provider’s staff must have the skill set to wade through the complexity of hosting the myriad line-of-business software applications available today, because it becomes the provider’s responsibility to manage these applications for the customer. The hosting provider will also need to keep up with regulatory requirements and be able to deliver 24-hour customer service.

Because of these barriers to entry, carriers should consider a white-label offering from a financially secure and experienced provider. This strategy offers an immediate payback with excellent net margins. The white-label partner will provide the market expertise, sales training, sales engineering and customer support for the carrier.

SaaS is an excellent opportunity for carriers to complement existing services, increase customer loyalty and drive new revenue. Partial solutions, such as hosted Exchange or reselling individual software lines, don’t fulfill these goals. A white-label, complete-SaaS solution allows carriers to deploy a very profitable service without the capital investment and lead time required to build this new product line.

Robert Bye is executive vice president of nGenX Corp.

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