(Gawkwire.com) Small and mid-size businesses (SMBs) across all industries are embracing the idea of outsourcing software applications which, traditionally, have been hosted and managed in house. This trend is occurring due to SMB’s focusing on their core business rather than IT, high demand for uptime, as well as 24/7 technical support. Software-as-a-Service (SaaS), as these services are better known, is becoming widely accepted.  Finding and utilizing this new class of application is the challenge businesses face; but this challenge is felt by more than just end users.  In most cases, web hosting and internet connectivity providers are one of the first places customers turn.  The SaaS model is becoming widely embraced by SMBs because they want to utilize enterprise-class applications to grow their business but lack the financial and human resources to do so. To successfully meet these customer needs, add value to their hosted services offering, and increase average revenue per user, hosting providers are looking for ways to provide additional best-in-class SaaS applications.

While this acceptance of SaaS services creates new revenue opportunities for hosting providers, it also creates new challenges as they are being asked to move beyond their areas of expertise.  Providing new services can be an expensive proposition.  First a company needs to make significant capital outlays to invest in additional hardware. They also have to develop the technical expertise to deploy, maintain and ensure uptime reliability for the SaaS application. Additionally, providers need to patch and upgrade systems as well as train administration and support staff on these applications. Without significant customer scale these investments may not produce any returns. Additionally, in order to offer multiple SaaS applications providers would need to make these investments in each application. This means that an ever-growing set of experts must be kept up-to-date with training and new skill – a costly proposition. 

Without breaking the bank – or disappointing customers (and risk having them turn to another provider) – how can hosting companies face this challenge?  One approach is to utilize the resources and expertise of hosted SaaS providers who offer applications which were traditionally deployed in house such as SharePoint, CRM and Microsoft Exchange.

Microsoft Exchange represents an example of the compelling SaaS opportunities for hosting providers. Today, there are almost eight million SMBs worldwide.  The total estimated number of PCs used by SMBs is 520 million globally.  Assuming a conservative percentage of that group is interested in just enterprise-level email (seven percent), the target market is about thirty-six million mailboxes.  It is estimated that the U.S. market is approximately 4.5 million SMB mailboxes.  All of these businesses are willing to pay for advanced options provided in Exchange such as anytime/anywhere access and integrated collaboration features. Assuming these customers are willing to pay a median of $12 per month, this business is projected to grow by more than $600 million over the next year.

As mentioned above, the types of applications that SMB’s are looking for go beyond just basic POP3 email or web hosting. Hosting providers, looking to minimize their roll out costs, address this customer need by offering private label Exchange, Sharepoint, CRM and other services offered by third party providers. The main reasons why web hosting providers are deciding to partner with private label service providers are that they continue to own and enhance their relationship with their customers, increase ARPU, improve customer retention and do this with no upfront financial outlay or risk.

Owning the Relationship
One benefit to companies who resell a truly private label solution is that their customer never has to know that the additional services are provided by a third party.  A private label SaaS solution allows hosting providers to completely and easily re-brand the service with their logo, url’s, corporate look and feel and contact information.  Owning the customer relationship means the service provider can have a deeper relationship with their customer, thereby, providing a one-stop-shop for all the customer’s needs.

Increased ARPU
By partnering with a private label provider to offer expanded services, hosting companies also see increased average revenue per user (ARPU).  Providers can offer additional SaaS services to their customers as “upsells”, giving them the opportunity to collect increased revenues with each user without incurring any of the costs associated with an in house deployment – hardware and software purchases and hiring and training of personnel. As a result, hosting providers can bundle high revenue generating, key business services such as Microsoft Exchange, for their customers increasing ARPU by $20-$25/user/month with profit margins of up to 50%.

Increase Customer Retention
Being able to offer new services doesn’t only help attract new customers but also in retaining existing ones. With each additional service sourced from the same provider, it becomes less likely that a customer will switch to another provider for additional services.  Working with a private label reseller new and exciting functionality can be offered to customers more easily and frequently than building and deploying them in house.  These services, bundled with the provider’s core offerings, allow them to differentiate themselves from other providers and make switching services harder for customers.

No Upfront Investment or Risk
The initial deployment of a new technology can be very costly, but ongoing expenses for hardware and software upgrades, maintenance, and personnel training must also be considered.  By partnering with a private-label hosted Microsoft Exchange provider, for example, hosting companies are able to expand customer offerings, be up and running in minutes and increase revenue, without making any initial capital investments. 

In addition, hosting providers who offer a service level agreement (SLA) provide their customers with piece of mind that they are getting solid and reliable service and access to their data at anytime from anywhere.  This is a key selling point to businesses that work around the clock and have employees who work remotely or travel frequently.   

As customers continue to demand increased enterprise-class services from their web hosting providers, these organizations are searching for new ways to differentiate themselves from their competition. Being able to offer customers additional services and provide "upsells" to current services will allow web hosting companies to increase revenue and customer retention figures while eliminating the costly investment in time, personnel and hardware.

Authors Bio:  Ravi Agarwal has been working with small businesses for the last eight years, most recently with a provider of outsourced IT support for SMB’s. It is from this experience – working with small businesses owners face-to-face and discussing their needs – that Mr. Agarwal recognized the need in the market for enterprise level e-mail & collaboration services – at a small business price. Realizing this crucial customer need and combining it with his experience creating BizLand, Inc., he founded groupSPARK.

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