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SaaS potential lures hosting service provider into midmarket

A leading hosting and managed service provider decides to make an aggressive play for the midmarket with a new suite of SaaS business applications.

The Software as a Service (SaaS) market is hot, and Web hosting and managed services providers are slowly moving in. One in particular is taking a very aggressive approach in an attempt to garner its piece of the pie.

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Verio Inc., one of the leading hosting and managed service providers, is offering midsized companies a new suite of business applications through the SaaS model.

"It's definitely aggressive," said Phil Shih, a research analyst at New York-based Tier 1 Research.

SaaS lets companies subscribe to software through a Web portal rather than buy it through traditional means. Such an approach can save thousands of dollars on licensing fees, thus, the basis of its appeal to small and medium-sized businesses (SMBs) and the vendors that want their business.

According to Saugatuck Technology Inc., a Westport, Conn.-based research firm, the percentage of businesses with one or more SaaS applications in place increased from 11% in 2006 to 26% in 2007. Growth among SMBs, defined as businesses with less than $1 billion in revenue, was even more dramatic: SMB adoption rose from 9% in 2006 to 27% in 2007.

Vendors of all kinds are offering products through the SaaS model and more will come, experts predict. Software security vendor Symantec Corp. recently announced its foray into the SaaS market.

But Verio is the first of the hosting vendors to enter the race -- and it's being very strategic, rather than reactionary, about it, Shih said.

"Verio is making a strong push all at one time. They're trying to evolve from a traditional hosting provider into a one-stop show where you can get all you need."

Verio Business Solutions consists of on-demand versions of several popular business applications, including Microsoft Exchange 2007, SugarCRM Professional, McAfee Desktop Security and PC Data Backup powered by Iron Mountain. The suite also includes a collection of business applications from Accrisoft Corp. that manages online business transactions.

Customers can subscribe to the applications on an a la carte basis or to the entire suite.

Microsoft SharePoint will be offered by the end of the year, the company said. By the first quarter of 2008, it will offer an accounting application.

What's particularly significant about this announcement, experts said, is that while other hosting companies have either focused on IT management services or SaaS business applications, Verio is providing a full suite of service capabilities that can address both sides of the ledger, so to speak.

It's definitely aggressive.
Phil Shih
research analystTier 1 Research
"This is the first case that I'm aware of where a hosting company is delivering services that meet both IT management and business applications needs of their customers and channel partners," said Jeff Kaplan, managing director of Wellesley, Mass.-based ThinkStrategies Inc.

Kaplan said there are plenty of places where midsized companies can get these products and services individually, but "the challenge is that you're managing multiple vendors. If they can get them from a single source, that's an advantage."

He said midmarket IT organizations and business units are both increasingly interested in offloading the labor and costs of deploying and managing IT systems and business applications.

"And as they both become aware of and receptive to using this service as opposed to buying a product, they're looking for alternative sources where they can find those services," Kaplan said. "IT is looking for hosting services, and the business side is looking for business application services.

"The biggest challenge is demonstrating to prospective customers as well as channel partners why a company like Verio should be seen as a legitimate source for these services and what are the advantages of going to a single source for this wide array of on-demand applications," Kaplan said.

Let us know what you think about the story; email: Shamus McGillicuddy, News Writer.

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