The New Software Provider Business Model - ToolsmithBy Howard M. Cohen | Print
We think of software providers selling their products through resellers, but some software providers have radically changed that to a services model.
Value-added resellers (VARs) long ago morphed into managed service providers (MSPs), and with that change went a lot of easy revenue - it was no longer easy to add new revenue by adding another vendor product to your lineup.
That makes finding new sources of revenue an ongoing challenge for MSPs, and there the challenge hasn't changed, just the difficulty. As with any business, you can go to your existing customers and sell more to them, or you can create new customers.
The success curve for creating new customers is long. You have to find them, then contact them, then capture their interest, then find something to offer them they’d consider buying, then confirm they have budget for it, and that you’re speaking to the right decision maker, then convince them it’s a great solution, then that you’re the best provider for them to get it from. Finally you overcome any objections and ask for the business.
Catch your breath.
You probably heard it said a thousand times that it’s “five times easier to sell to an existing customer than it is to create a new one.” Now you can vividly see why.
This leads you to the biggest challenge in selling more to existing customers who already know you and trust you.
Finding Something to Sell to Existing Customers
This may sound like an odd challenge but think about it. Your existing customer already knows you, knows what they can expect from you, and trusts you. Those are the big hurdles with new customers and you’ve already passed them.
Back when the channel was predominantly filled with resellers it was fairly easy to find new things to sell. You spoke with distributors or looked at magazines and catalogs. You went to shows. In all these places you found products you hadn’t yet sold. You took the time to evaluate some of them and found ones that you felt were aligned with what you’re best at, and your customers would perceive the need for. Simple!
But now you’re a service provider. Strategically and logically, you don’t want to lead with products. So where do you look now?
Some of you will wisely look to your own technology team to come up with new services your customers would appreciate and that you can provide. But even they will eventually run to the limit of their creativity and all “new” services will start looking the same.
Turn to Software Providers
Turn to software providers to help you identify new services to sell to your customers? Absolutely.
Many software providers produce applications that can be used to measure and improve the performance of various aspects of computing. Optimization software to increase the throughput of networks or capacity of storage systems. Automation tools to reduce the workload on human operators and the likelihood of errors. Security scanning and hunting tools. Workflow automation. Visual “building-block” software development tools that eliminate the need for coding. Anomaly identification and notification. Database process templates. The list goes on.
Many of these software developers have shifted gears in their sales models recently. Rather than look to channel partners to re-sell their software to customers, these developers are looking to channel partners to directly purchase their software licenses and use them on behalf of their customers to make things happen for them. To deliver needed services. This software becomes a tool that enables them to deliver a service.
This is the secret sauce that leads to adding new services to an MSP’s portfolio. New things to sell to existing customers.
Creating a New Software Provider Relationship
There was a time when software channel managers would encourage new or existing partners by assuring them they could achieve high margins on sales of their products. Channel competition led to severe discounting which caused those margins to evaporate. So how could they differentiate themselves?
Smart software providers realized long ago that one important selling point for a channel partner was how their software drove increased revenue and profit. They also saw that MSPs didn’t look to product margins to create that revenue anymore, they looked instead to services.
Their reaction to those realities was to identify service requirements that would be driven and/or resolved by their software. In doing so, they repositioned their software to be tools for the channel partners, tools that would drive high-profit service revenue instead of the long-gone product margins.
The smartest toolsmith software providers send their channel managers in to partners to offer them servicing opportunities from customers who engaged them elsewhere. “Free business” is the most effective way for a software provider to launch a wonderful friendship with a channel partner.
Short of this, those who offer extensive technical as well as sales training are probably enabling partners to deliver services with their software. Many will engage in co-marketing programs that emphasize the partner and what they do with the software. They will likely not speak of margins or discounts, but simply of license costs. They may even suggest ways of configuring, promoting, and performing service models.
For an MSP seeking more to sell to their loyal customers, the software you’ve traditionally sold may now provide the answers you seek!
Howard M. Cohen is a 35+ year executive veteran of the Information Technology industry who today writes for and about the IT channel. He’s a frequent speaker at IT industry events that include Microsoft Inspire, Citrix Synergy/Summit, ConnectWise IT Nation, ChannelPro Forums, Cloud Partners Summit, MicroCorp