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One of my predictions for 2009 was that this would be the year of the channel in the Software-as-a-Service (SaaS) market.

While the direct sales and delivery model associate with SaaS fundamentally disrupts the traditional role of the channel, the SaaS industry still needs to establish a successful channel strategy to cost-effectively extend its footprint across various market segments and win greater mainstream adoption.

In addition to relying on various resellers as channels to market, legacy software vendors also viewed other independent software vendors (ISVs) as potential channel partners because they extended their software functionality into new market segments. The same holds true in the SaaS industry.

Not innovative but timely

The latest example of this strategy is NetSuite’s announcement that it is putting greater emphasis on its ISV partnering efforts via a new SuiteCloud Developer Network (SDN) and SuiteApp.com single-source online marketplace.

These new offerings are not innovative, but they are timely because they could help NetSuite (NYSE:N) maintain the momentum from its report at the end 2008.

NetSuite has been far behind Salesforce.com (NYSE:CRM) in size and growth in part because it hadn’t placed as much emphasis on building an ecosystem of third-party ISVs as a key component of its overall go-to-market strategy.

Part of the problem was that NetSuite had to establish a sufficient track-record of success to attract a critical mass of ISVs interested in utilizing NetSuite’s solution as a platform to address specific industry requirements. This has been a tougher task for NetSuite than Salesforce.com because it is far harder to convince a CFO to buy a SaaS solution than a renegade salesperson.

NetSuite compounded this challenge by insisting on building an all-in-one solution which looked more like a traditional enterprise resource planning (ERP) solution from SAP and Oracle than the easy-to-use SaaS solutions which have gained widespread customer acceptance in other segments of the market. NetSuite’s all-in-one product packaging also added a layer of complexity which made it difficult for ISVs to create their own unique industry-specific solutions.

Now that NetSuite is finally gaining acceptance among CFOs and has begun to modularize its SaaS solution, it is in a better position to appeal to other ISVs.

Competing with Salesforce.com

Company executives who briefed me regarding the new SDN also admitted that they hadn’t put enough effort into helping ISVs be successful in the past. They are now committed to providing partners more hand-holding and greater sales/marketing support. The company has even recruited partner development specialists from Salesforce.com to staff the program.

This new initiative comes on the heels of NetSuite’s previous announcement that it has teamed with HP to educate and encourage value-added resellers (VARs) to sell and deliver its SaaS solution.

The company executives who I spoke with last week also conceded that they will probably not match the vast number of ISVs which Salesforce.com has attracted to its AppExchange and Force.com platform. Instead, they are hoping that their new partner program will attract a smaller number of specialized ISVs who can help NetSuite penetrate new market segments.

It remains to be seen whether NetSuite will be successful in the execution of its new partner program. But, it will be worth watching whether third-party ISVs and VARs can take NetSuite’s solution into new markets successfully and demonstrate the channel opportunities for SaaS companies.

Source: NetSuite's Game Plan for the SaaS Market