Who really owns the partner channel?
Historically, technology vendors have had ‘reseller’ channels, the sole purpose of which being to sell as quickly as possible as many licenses as possible for the vendor. As such, the vendor has long measured success solely on the basis of revenue generated by a particular channel partner. Quite simply, the technology vendor hopes that the channel partner will bring in lots of new business for them, and the channel partner hopes that, in turn, the technology vendor will provide them lots of hot sales leads. It’s a a you-scratch-my-back-and-I’ll-scratch-yours kind of deal.
It’s a system that can work well. For example, Microsoft has a huge channel (over 400,000) that sells its products directly to businesses, picks up a commission on the deal, and very often also picks up associated service fees to help the business to get things up and running. But increasingly it’s a system that does not work well as it used to. For though the technology landscape has changed dramatically in the last decade, programs and attitudes to do with channel management have in many cases remained the same. In our many discussions with IT service providers and digital agencies large and small over the past few months we have identified a clearly defined and increasingly critical drama triangle of conflict that’s emerging in the channel. One symptom of which is the growing frequency of partners essentially ‘firing’ the vendor and a dramatic decrease in partners’ ‘loyalty’ to so called strategic vendor partners. Whereas once a typical channel partner would have only one or two true strategic vendor partners, today many have ten or more. Not so strategic, one might argue.
There are many reasons for this lack of alignment and loyalty, but four key reasons seem to be driving this conflict:
- There used to be a limited number of technology products suitable for businesses, and each of those was complex and difficult to install let alone configure and run. Today there are a multitude of choices that are easy to install and run.
- Enterprise technology licenses were once cripplingly expensive; today the upfront cost of the technology has plummeted.
- More technology RFP’s (Requests for Procurement) are going directly to service providers than technology vendors than in the past.
- In large projects today, the focus is on business solutions not technology products
In other words, the number of competitive options has risen and initial license prices have dropped thus weakening many vendors’ control of their channel. But here’s the kicker: the cost and need for related technology services and consulting has remained constant. In fact, if anything the need is growing for services, and the costs for those services may well rise further in the future. We have finally moved (in the business application world, at least) from a product world view to a business solution perspective.
What we are witnessing is a major shift in channel power from the vendor to the service provider. The vendor is no longer calling all the shots. In many cases it’s the service provider in the driving seat, equaling a dramatic shift in the dynamic and how channels need to operate in the future. As we move from a product-centric to a solution-centric channel (more service led), we will see more vendors get summarily dismissed, less partner loyalty, and a need for vendors to urgently rethink their established channel management practices. Some vendors are already managing this shift, but most in our opinion are either unaware of the shift or are in denial. Those latter vendors continue to impose ever more cumbersome requirements on partners, demand high fees for training, and arbitrarily change the tiers and ranking requirements (Platinum, Gold etc.) as they see fit, inadvertently accelerating the decline in loyalty and co-operation between vendor and partner.
The new channel reality is that service providers, be they consultants, system integrators or digital agencies, are taking control of and leading the sales opportunities out there. It’s a smart vendor that recognizes that uncomfortable reality, otherwise the vendor could find themselves getting fired.