Looking to identify which partners wield the most influence over sales rather than just recording the revenue on their own balance sheets, big vendors are eyeing new ways to measuring the real value of channel partners.
From Microsoft’s recent announcement of its U.S. Influence Revenue Model —a plan to capture data about which of its smaller partners are doing the best job of influencing sales—to IBM’s Software Value Incentive program, introduced just over a year ago, vendors are beginning to look for ways to measure not just the sales dollars recorded by partners, but also the value that lower-transaction partners such as smaller VARs, ISVs and system integrators bring to the table.
“Mainstream partner programs are going to change their barometer,” said Darren Bibby, senior analyst for Global Software Sales Channels at IDC’s Software Business Strategies Group. “To date, most vendors have had software sales as the barometer.”
The change was among IDC’s top predictions for the channel in 2007 and recognizes that business models are evolving toward VARs selling more services rather than thin-margin products.
“There are a lot of VARs out there that don’t want to be VARs,” Bibby said. “But they continue as VARs because product sales are the measuring stick by which they are measured.”
The Microsoft program is designed to capture data about which of the smaller Microsoft partners are doing a good job of influencing the sales of Microsoft products and services. Microsoft had not previously collected such information—relying instead on the data about the partner who actually fulfilled the deal, normally a LAR (large account reseller) or one who can sell to IT shops with 250 seats and above. Indeed, smaller partners would often fulfill their deals through these larger partners, but not get credit for any of the revenues.
The new program equips LARs to capture data about the smaller partner who influenced the sale, a system that Microsoft said should eventually give the software giant a better idea of who its best partners are.
IBM formally launched a similar program in 2006 at its PartnerWorld conference. “Our primary motivation was to better align our incentive structure to the role the partner played rather than have all incentive focused on fulfillment phase,” said David Lorden, director of worldwide channel strategy and development at IBM, based in Armonk, N.Y. “We felt that it was important to recognize all of the roles and all of the value that takes place beyond just the last phase.”
And a year later IBM is declaring the program a success. While the company would not divulge specific numbers, Lorden said IBM saw a significant increase in the number of partners now participating who had never participated in any other software incentive program—about 50 percent of the total number of partners.
“They are probably partners where being a reseller is not part of their business model,” he said. “They are influencers, ISVs or regional systems integrators, more likely to be integrating a solution rather than reselling a product. They were always involved in the deals, but now we know who they are.”
The IBM program offers partners incremental rewards at each stage of the deal, from identifying the opportunity to closing. Rewards can total over 40 percent, Lorden said.
And not only does the program provide IBM with more information about its best partners, it has also resulted in incremental revenues, although IBM won’t say how much.
Oracle also claims to have a model that rewards business influencers in the form of a finder’s fee of 5 percent to 10 percent of the total deal, capped at a figure in the tens of thousands of dollars, depending on the deal, according to Tom Herrmann, vice president for ISV Programs and Strategy at the Redwood Shores, Calif.-based software company.
The company also offers a category called “non-commission influence” for partners that may have a corporate regulation that prohibits them from accepting commissions or referral fees.
“Over time we’ve been thinking about putting in place market development funds [MDFs],” said Herrmann. “We absolutely are re-evaluating our program and in some cases looking at building up and creating more value for partners. We are looking beyond just paying a fee now that we are seeing certain partners in deals all the time.”
Not all rewards need to be financial, according to IDC’s Bibby. Indeed, Microsoft has yet to identify the rewards it will offer the smaller partners it identifies as bringing great value to the company.
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But other rewards could be valuable even if they aren’t financial. For example, Bibby said, rewards could offer greater convenience, such as determining who is designated as the partner’s contact person at the vendor—an account manager, a field account manager or a phone account manager?
“It seems clear that they didn’t want to go [the] clear route of deal registration that would offer small cash reward,” Bibby said. “I think that’s the right way to go because cash reward doesn’t mean much, especially for a systems integrator.”
But Bibby said the growth of deal registration programs comes from the same movement. While these programs only really recognize VARs, more and more vendors have been implementing such programs.
“For years a lot of software partner programs have tried to figure out how to track the performance of partners, and the whole idea of who is recommending what is generally lost because it is difficult to track,” Bibby said. “This is the Nirvana for a lot of missed deals.”