Vipertech Online tech Why is reseller model ineffective with SaaS?

Why is reseller model ineffective with SaaS?

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What makes the reseller model ineffective when paired with Software as a Service (SaaS)? Could it be the nature of SaaS itself or is it due to the mismatch in operating models? With more tech companies shifting to SaaS models, are traditional reselling strategies failing to meet business expectations?

The fundamental issue is that SaaS and reseller models operate on completely different principles. Research from Gartner has pointed out that while traditional reselling models focus more on inventory, SaaS is rooted in dynamic service provision1. Further, Forbes has cited that SaaS works on the pay-as-you-go model, which contradicts the upfront fee model that resellers follow2. Hence, blending these two divergent models often leads to business inefficiencies. A potential solution could be the reorganization of reselling strategies to align more with SaaS operational guidelines.

In this article, you will learn about the intricate dynamics of SaaS and reseller models. We will delve into their fundamental operating principles, understand why their current combination often leads to inefficiencies, and what adjustments are required in conventional reselling strategies to make them suit the SaaS framework.

Lastly, the article will provide evidence-based recommendations on how to adapt reseller strategies to the SaaS model for better business performance. By shedding light on the underlying issues and offering possible solutions, the article aims to lead the path towards a better SaaS-reseller model alliance.

Why is reseller model ineffective with SaaS?

Definitions and Meanings of SaaS and Reseller Model

Software as a service (SaaS) is a cloud software delivery model, where customers access software applications over the Internet. The software is hosted and managed in the cloud by the software company, eliminating the need for customers to install or maintain it on their own servers.

Reseller model is a business strategy where a company sells its products or services through third parties (resellers), who rebrand and resell these products or services to their own customers.

Historically, these models have been problematic when combined because resellers lack control over SaaS product updates, customization, and service maintenance which results in potential dissatisfaction for end customers. Hence, reselling SaaS could be considered ineffective.

Caught in the Middle: Unmasking the Tricky Terrain of the Reseller Model in SaaS

The Impact of SaaS on Traditional Reseller Model

The Software as a Service (SaaS) model has revolutionized the way businesses operate. With easy implementation and scalability of software, businesses have embraced this model due to its cost-effectiveness, flexibility, and simplicity in usage. However, this shift has rendered the traditional reseller model utterly ineffective.

The nature of SaaS eliminates the need for physical shipments and reduces the installation process to a simple click, making it difficult for resellers to add in their margins and retain profit consulting on the implementation of the software. It also takes away the need for extensive infrastructure, creating a chasm between software vendors and resellers, as there is little to no room for the latter to add value.

Threats in Subscription Based Platform

One of the major reasons the SaaS model clashes with the reseller model is the focus on the subscription-based platform. Unlike the traditional purchase of licenses from resellers, SaaS users directly subscribe online. They have the ability to scale up or down according to their business needs, making it hard for resellers to define their long term role and secure continuous revenue.

  • As it is in the SaaS industry, most software vendors interface directly with the end-customer, negotiating deals that exclude the reseller. This minimizes the role of the reseller to a mere middleman, who is conveniently avoided in the SaaS model.
  • The SaaS model often includes regular upgrades and updates that are automatically provided to the end-user. This cancels out the need for the customer to seek out the reseller for periodic updates or maintenance, eroding one of the key value-adds that resellers bring to the table.
  • End-users have more control over their software usage and budgeting in the SaaS model. They determine how many licenses to subscribe to or unsubscribe from. Resellers accustomed to making profits off a bulk sale of licenses find themselves at a disadvantage.

With these challenges in the ecosystem, it’s impractical for a reseller to continue operating under the traditional model in the realm of SaaS. The business model needs to be reinvented or reconsidered to remain relevant and sustainable. Adapting to the changes and finding new value propositions in the SaaS industry is imperative for any reseller who wants to stay in the game. Alternatively, they can invest in understanding the complexities of SaaS solutions offering consulting, customization, and other value-added services, thereby creating a new niche for themselves.

Rejection of Tradition: Unpacking the Incompatibility of SaaS and Reseller Model

Why Does the Reseller Model Not Work in the SaaS Landscape?

Ever contemplated what will happen when a traditional organizational practice, like the reseller model, tries to integrate within a modern and advanced industry such as Software as a Service (SaaS)? Initial observations show a complex dichotomy precipitated by a myriad of factors. Traditional reselling relies heavily on the physical distribution of goods and services, a selling point that becomes null when dealing with non-physical commodities like software subscriptions. It essentially tries to put a square peg in a round hole – the model just doesn’t fit. On top of these, complexities like competitive pricing, direct competition with the primary SaaS provider, and customers’ fluctuating needs makes it further challenging for resellers in this sector.

The Key Challenge Resellers Face in the SaaS Industry

But what stands as the main impediment for resellers in the SaaS industry? The answer is simple but crucial: the constant innovation and rapid pace of change characterizing this industry. In a traditional model, resellers aim at buying at a low price and selling at a high price. However, when it comes to software, it’s a different ball game. Software updates, newer versions, and constant improvements are the norm, rendering a once high-value product less valuable, sometimes even obsolete overnight. Also, unlike physical products where the customer is dependent on distributors for availability, SaaS customers can directly download the software from the vendors, bypassing the need for resellers. This directly debunks the unique selling proposition of traditional resellers, leaving them grappling for relevance.

Successful Approaches for the Reseller Model in the SaaS Industry

So, how can the reseller model be employed for SaaS without defying its fundamental principles? A few practices have emerged to be highly effective. Firstly, resellers can transform their transition into being value-added resellers (VARs) by offering value-added services like consulting, troubleshooting, and personalizing the software based on customer requirements. This value addition keeps the reseller relevant amidst the direct sale offering from the vendor. Secondly, resellers employing a Software as a Service reseller agreement can incorporate an effective strategy for monthly recurring revenue. And finally, instead of viewing SaaS vendors as competition, treating them as partners can result in a mutually beneficial arrangement. Partnering with SaaS vendors allows resellers to capitalize on product knowledge, receive technical support and offer a broader product range to customers. This practice of strategic collaboration has proven beneficial for both SaaS vendors and resellers, promising a more harmonious and productive relationship.

SaaS Evolution: How the Reseller Model Holds Back Potential and Stifles Innovation

Is the Reseller Model Really Effective for SaaS?

One may question, is the traditional reseller model really the best approach for SaaS companies? The key idea to consider is the inherent conflict between the nature and structure of SaaS and the typical characteristics of reseller models. Firstly, the reseller model is mainly based on the transfer of ownership of goods, while SaaS is based on a subscription service, casting doubts on the suitability. Furthermore, SaaS often requires ongoing support and continuous improvements to meet rapidly changing technological and business demands. This is fundamentally different from the traditional, transactional nature of reseller models, which largely focus on singular sales and may lack the infrastructure and incentives for long-term customer engagement and success. Moreover, the reseller model typically operates within a geographic or industry-specific market, while SaaS inherently has global reach and could cater to a diverse array of clients, uncovering the limitations to large-scale expansion inherent in reseller models.

The Core Problem of Mismatch

The main issue glaring us in the face is the mismatch between the foundational elements of SaaS and the traditional reseller model, causing its ineffectiveness. The challenge lies in monetizing software as a service rather than a product. The consequence of following the reseller model is that margins are squeezed, making it difficult for resellers to see the initial benefits, as the financial reward from SaaS is often realized over a longer period of time. Additionally, unlike physical products, there is no stock control or warehousing concern with SaaS. This changes the game for resellers, as the conventional need to manage and move stock becomes obsolete. In fact, the key strengths of SaaS, like easy scalability, frequent updates, and global accessibility, can actually turn into challenges in a reseller model. These models need a clear understanding of local markets and clients, potentially limiting the natural ability of SaaS to swiftly scale and adapt.

Effective Alternatives: Direct and Channel Sales

Enlightening examples of best practices come from companies that leverage direct and channel sales models for distributing their SaaS offerings. A combination of direct online sales and inside sales models can often provide better results for SaaS vendors compared to a traditional reseller model. For instance, Salesforce, a global leader in the SaaS market, has adopted a go-to-market approach that combines a robust direct sales force with a wide suite of online self-service tools. This allows them to engage directly with customers, deeply understand their needs, rapidly respond to feedback, and continuously enhance their services. Alongside, a channel sales model – a strategic partnership with other industry players to sell software – can also work well for SaaS. For example, Slack, a popular communication platform, has partnered with other tech vendors, who integrate Slack into their broader service offerings. This approach capitalizes on the strengths of SaaS and offers a more holistic value proposition, catering to the evolving demands of customers.

Conclusion

Have you ever contemplated the myriad of obstacles inherent in using the reseller model with Software as a Service (SaaS)? Unveiling the layers of complexities reveals how incorporating this model with SaaS could pose some significant inefficiencies. As we have explored this issue in depth, we found some considerable challenges that businesses may face – the difficulty in maintaining a seamless customer experience, issues with integrating sales and marketing strategies, and, above all, minimal control over pricing which could potentially affect the profit margins significantly.

With these points in mind, it becomes evident that despite its apparent advantages, the reseller model may not be the most suitable for SaaS companies. The core of SaaS dwells in its ability to offer efficient and customized solutions to clients, a value proposition that ultimately may get lost in translation when passed through a middle party. Given the rapidly immersive and dynamic nature of SaaS, prioritizing robust control over your product and customer experience is key.

We hope you found this analysis both informative and thought-provoking. To stay informed about new perspectives and critical insights into the world of SaaS, we warmly welcome you to follow our blog. The rapidly changing landscape of this industry ensures there will always be fresh material to engage with. By becoming a regular reader, you’ll be among the first to hear about new releases, trends, and tips that will be beneficial to your SaaS journey. Let’s keep this conversation alive, and together navigate the fascinating world of SaaS!

F.A.Q.

1. What is the reason behind the ineffectiveness of the reseller model with SaaS?
The reseller model tends to be ineffective with SaaS primarily because of the recurring revenue model that SaaS operates on. This differs significantly from the traditional upfront licensing fees, making the typical reseller margins much less profitable.

2. Is there any way to make the reseller model more advantageous for SaaS?
Yes, by changing the reseller relationship into a partnership. The vendor can provide training and resources to the reseller to not just sell, but also service the product, thus adding more value and improving profitability.

3. What are the downfalls of the reseller model in the context of customer service?
Since the reseller acts as a gatekeeper between the vendor and the customer, there can be a significant disconnect in communication. This could lead to slower response times and less effective customer service.

4. How does the reseller model affect the SaaS sales process?
The reseller model can make the sales process more complex and prolonged. Instead of dealing directly with the vendor, the customer has to go through an additional party, potentially slowing down the sales process.

5. Can direct sales model be a more effective alternative to reseller model in SaaS?
Yes, a direct sales model can be more effective as it enables direct communication with customers. This model allows for a deeper understanding of customer needs and more prompt service delivery, thus potentially improving customer satisfaction and retention.

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