I’d like to welcome all of you to the first CRM at the Speed of Light mini-conference. We have two distinguished analysts here today to discuss the often daunting business of partners and the channel,and how their needs and models are changing.
First,I’m going to ask Louis Columbus to step up. Louis is an analyst who now works happily at Cincom. He is one of smartest guys in our industry and has one of the kindest hearts. He has a strong set of bona fides,having worked as a senior analyst at the highly respected AMR Research. He’s published 15 technology books (how he did that,I’ll never know—I had enough trouble with this one). He knows the partner channel inside out,and I’ll yield the floor to him so he can tell you what they are thinking and where they are going.
Extended Conversation with Louis Columbus:
Channel Partners Are No Longer the Sile nt Majority
It’s time to question the assumption that channel partners aren’t interested in,and further,don’t have the technical skill to be more connected with each other and the companies they resell for. Social networking is turning this assumption on its head,and with it,completely reordering distribution channels and value chains. Frankly,it’s amazing this continues to be an assumption in so many companies,as social networking is serving as the catalyst for much more interactive and online learning going on—much more so that any given application vendors’ learning module as part of their partner relationship management (PRM) system could deliver. Granted,there are Luddites out there who are afraid of even dial-up,but the vast majority of resellers have had to change or risk being driven out of business by competitors who embrace new technologies and use them to grow their businesses,and find new ways of delivering value to their customers. Watching Twitter traffic or blog entries scroll in any RSS reader that includes entries from resellers regarding the pros and cons of selling Microsoft CRM versus salesforce.com just makes this point even clearer. Channel partners definitely aren’t the Silent Majority anymore; social networking continues to be the catalyst that is leading them to create new channel networks of their own.
Forget about the diagram showing channel management as a top-down hierarchy,or the rigid structure of a value chain. This isn’t accurate anymore. Think of channel relationships as a series of interconnected networks,resembling more molecular structures and less command-and-control. Now intersperse in the many companies that even a single reseller interacts with, and the point becomes clear: the reseller’s world has become infinitely more complex. Compounding all of this is the fact that there is more to learn than ever before; product lifecycles are increasing in many industries. Differentiation through using firmware,or electronics embedded in products,from refrigerators and appliances to cars and aircraft forces resellers to learn faster than their competitors,master specific product and sales knowledge,to gain a competitive advantage. It’s not about winning the sale anymore by just having price and availability,it about earning the trust of customers with an exceptionally strong grasp of product,selling,integration,and use data. In essence,channel management and managing value chains is much more about knowledge and a lot less about products. It’s enough to wake up even the quietest of a Silent Majority.
Time to Knowledge Now Critical
There are no doubt entire books written on how channel management strategies can be made more efficient by synchronizing them with supply chains,in effect re-engineering an entire value chain to be more efficient and customer-centric. Yet all this business process re-engineering misses the point: knowledge is the fuel that makes the entire channel management and value chain engine run. What’s remarkable is the octane social networking has and continues to enrich knowledge with. Managing channels is now more about what any given company can contribute to these conversations and less about trying to restrict transactions,learning,or decisions. In a sense the essence of marketing and channel management is now laid bare in social networking; it truly is all about giving more than you get if you want to succeed. Paradoxically the command-and-control models of channel management and value chains,while still enforceable by market makers (Wal-Mart for one),are going by the wayside for more integrated and network-based models. Products themselves even become gradually incidental to the really valuable asset: knowledge of how to transact between partners and companies and trust that gets built over time.
In Search of the Perfect Refrigerator
If you’ve ever had to replace a major kitchen appliance and you’re like me,you immediately dive into the manufacturers’ websites you know of,scouring their selections,checking Consumer Reports for reliability ratings,and thoroughly reading reviews on third-party sites. Armed with all that data,my wife and I headed out to see the models we’d settled on in person. From the high-end Expo store,a Home Depot spin-off that didn’t know what a counter-depth refrigerator was yet wanted to sign us up immediately for a credit card,to big-box retailers Home Depot,Lowe’s and Best Buy, to a Maytag store,we ran the gamut of channels refrigerator manufacturers sell through. Here’s what we found out: up-sell and cross-sell techniques are drilled into the heads of sales reps in the Expo stores. Maytag stores are staffed by product experts who tend to want you to fit into their products’ range and not vice versa. Big-box retailers in general stress price. Here’s where my wife’s and my expectations were changed,however. Our qualifying question at each big-box store was why there was such a variation in price between the websites and the store. The Lowe’s sales rep immediately dismissed that with a commitment to beat the price online,and then proceeded to ask us about what we felt we needed in a refrigerator. This conversation went on for 45 minutes and in the end,we bought from them. The sales rep had been to these manufacturers’ websites,and understood how each manufacturer does their energy efficiency ratings slightly differently. It was the sales rep’s combining of knowledge and empathy that won the sale. In the end we bought from the sales rep who was the most informed and the most interested in helping us make the best decision. He was the most informed because he’d taken the time,online,to understand so many more nuances of these products than anyone else. Social networking’s potential from this is clear; the more knowledge is seen as the most valuable part of managing channels,the more effective customer interactions become.
Now,to drive this home,since I know a good number of the people who read this book are business people looking to partner,I’m going to turn over the podium to Mike Fauscette. You can see Mike’s credentials below. I’ve known him 10 years and he is one of the few analysts who really got his chops on the street as a leader in industry. For example,before he went to IDC,he was the group vice president in charge of global professional services at Autodesk. Hands on.
He’s going to give you three takeaways to consider for a new kind of partner model—one that fits quite nicely into the collaborative value chain,thank you very much.
The Partner Joins the New Ecosystem
Michael Fauscette is the group vice president of the Software Business Solutions Group at IDC. The group includes research and consulting in ERP,SCM,CRM,and PLM applications (and the associated business process that the software supports),small and medium business applications,partner and alliance ecosystems,open source software,software vendor business models (software as a service,or SaaS),and software pricing and licensing. Prior to joining IDC,Michael held senior consulting and services roles with seven software vendors,including Autodesk,Inc.,PeopleSoft,Inc. and MRO,Inc. His software experience spans the entire enterprise lifecycle process and covers all facets of the global software business. A former U.S. naval officer,he began his technology career as a surface line engineering officer. Michael is a published author and accomplished public speaker on software and software services strategies.
Mini-Conversation with Mike Fausce tte: Software Partners in Evolution
As I look at partnering in the software industry,several factors have emerged over the last few years that are driving significant change. The software industry itself is in the midst of a change cycle that began post-Internet bubble and has continued for the last seven years with consolidation,new business models,and new use paradigms. Software partner models across all partner types are not exempt from the effect of these industry changes. There are three key partner issues around these changes: the emergence of software ecosystems,the effect of SaaS on traditional software partners,and the emergence of new partner types around the SaaS model.
The old model of point-to-point partnerships is not serving the software industry effectively. A new paradigm has emerged that is starting to create a networking effect that places the partners in a constantly evolving ecosystem of peer-to-peer networks. There are many factors driving this change from vendor strategy to customer needs. Software vendors are realizing that partner-topartner networks have the potential to increase wallet share of their products and increase the overall satisfaction of their partner community by increasing partner revenue. Customers,who have increasingly demanded more complete and industry vertical specific solutions,are engaging more readily with these networked solutions. Partner ecosystems are developing into vendor megaeconomies around a few large software vendors. This has accelerated because of the continuing consolidation in the overall software industry and has partners coalescing around Oracle,SAP,Microsoft,salesforce.com,and IBM because of their dominance in the marketplace.
As the SaaS on-demand business model becomes more mainstream,software vendors and their partners have struggled with the need for new partner models. Value-added resellers (VARs) and system integrators (SIs) are the most affected by this change but even the independent solutions vendors (ISVs) are contemplating the impact of SaaS on their businesses. Software vendors with traditional VAR distribution models seem to be perplexed about how to shift their current indirect distribution models to effectively distribute SaaS offerings in a volume model. Since SaaS software products are of particular interest to small and midmarket customers,the need for a volume distribution channel is even more critical. The problem with traditional VARs is a business model issue; on-premise software is often sold in a dealer model that is based on a one-time license revenue transaction (thus delivering margin in a single transaction). On-demand software does not have an up-front license fee,but instead is based on recurring subscription fees. The VAR could be engaged by the vendor in several ways—there could be an agency fee that is a percentage of the recurring subscription fee,or there could be influence fees that are paid at deal close. Neither delivers the large up-front revenue to the VAR or is a significant change in the cash flow and sales compensation models for the VAR. The commitment to shift the business from the old model to the new is large and can be very difficult for businesses that are often cash flow challenged anyway.
SIs also have to retool their businesses to meet the challenges of the SaaS business model. Customers will not accept long,complex software implementations. Instead SIs must offer similar value in their services that customers see in SaaS offerings: fast time to value,easy deployment,minimal hardware and infrastructure investment,and so on. In addition,many of the traditional skills that SIs have employed are not necessary for SaaS deployments,since there is no on-site infrastructure and minimal (or no) customizations. Instead the skills required are more oriented around business process,and the services must deliver value fast. Delivering small incremental service packages is much more palatable to customers.
The SaaS business model is also driving the emergence of new partner types,fueled by the need for industry-specific business process expertise. The new partners seem to fall into two types, business service providers and business domain specialists. Business service providers are often customers turned partner and offer a combination of business services on top of the SaaS software. Business domain specialists combine deep business process expertise applicable to specific micro-verticals. Their job is to assist others in the industry to apply business process around new software deployments.
Overall partner models are in transition. Today, traditional SIs often resell product like a VAR or develop add-on product like an ISV. VARs add revenue through the delivery of services and by adding custom product. ISVs also resell product and provide services around their solutions. P2P networks are taking hold and changing the way partners go to market. Vendors are working out new business models for SaaS distribution partners. The end result of these changes is still not obvious and should continue to play out over the next two to three years.
That’s it for the conference. Please fill out your evaluation forms. When you hand them in at the back, you’ll be getting a keychain with a clock and a pen with a light attached to it. I know it’s a unique gift you’ve never seen anywhere—except every conference you’ve ever been to.
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