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The Changing Channel: How IT Vendors Should Position Partner Programs

 
 
By Howard M. Cohen
 
 
 

There are only two ways for companies to make more money:

  • One is to create new customers to sell to and then sell to them. To accomplish this you need to find new prospects, pursue them, penetrate those organizations, convince them of your superiority, propose excellent services and products, and close those sales. Many say this is five times harder than...

  • Sell more to existing customers. To accomplish this, you need to find new things to sell!

In the earliest days of the channel it was easy to look at all the new products constantly emerging from various vendors, pick those that made sense for your customers, and reach out to offer them. When a product sold well, the channel partner applied for that vendor's partner program for "authorization."

Most vendors' channel partner programs offered specific “discounts” that would create profit margins if sold at suggested list price. Some programs had built in progressive tiers, such as Bronze-Silver-Gold-Platinum. Each level provided an increased discount. Unfortunately, channel competition drove many partners to discount heavily, making those profit margins an illusion.

Also included by most programs were sales and technical training, channel management resources, co-op and market development funds. In these, a specific percentage, usually 2-3%, of the partner's purchases were returned to them in available funds with which to market the vendor's product. They were often required to stick to an approved list of activities and sometimes had to match the vendor’s investment with their own.

From Push to Pull: The Changing Channel

When the majority of channel partners were either retail locations or catalog sales it was natural for them to be encouraged to "push" each vendor-partner's products to their customers. Especially when profit margins were available there was real profit to be earned pushing these products.

As the channel moved away from retail to corporate sales, the big driver became corporate IT initiatives, big projects that required plenty of products to enable them. These projects pulled product sales along with them. It wasn't long before this became the preferable way to sell.

Where Channel Partners Make Their Money

With little or no profit margin in product sales, the more enterprising channel partners learned to deliver services, beginning with product-attached services such as configuration, "burn-in" testing, installation, network integration, and much more. Each channel partner had more control over the cost of delivering those services, so they were able to drive much higher margins. Products became the enabler of projects that produced profits through the services provided.

VARs Become MSPs

As corporate and commercial networks proliferated and grew, many insightful "resellers" saw the opportunity to create a wealth of services around monitoring, managing, and administering those networks for their customers remotely. These became the first managed service providers (MSP).

In the course of the next twenty years, more and more resellers made the move to MSP. Today there are very few resellers left but tons of MSPs offering a broad set of excellent services.

Partner Program for MSPs Differs from Resellers

Smart channel vendors have realized that they need to have faith in the "pull-through" of their products and support their partners' ability to drive new services projects and programs. How?

For many hardware manufacturers this is a challenge. The transition of most customers to the cloud continues to reduce the quantity of servers, storage devices, and other related on-premises deployed products. Those who manufacture routers, switches, and other communications devices still find healthy demand. The impact of the pandemic, driving more and more users to work from home, may be the first challenge to this, bringing much of the sales down-market to residential gear.

The most profound change is happening among software providers.

Traditionally, development companies sold their products through the channel to distributors who then sold them to resellers who, at last, sold them to customers. While packaged software continues to sell well, an innovative group of industry leaders are pursuing a completely different model. Instead of selling licenses for resale, they are selling them to the MSP who uses them on behalf of their customer.

For the MSP, the key is the vehicle for using those licenses, which is to create new services based on the application of that software. They make their money by selling their service into which they've bundled the cost of the software.

Examples of these tool providers include:

  • Utilities enabling MSPs to automate much more of a customer's network, including onboarding, license management, virtualized server management, and more

  • Creators of customizations for data management platforms that enable new functionality

  • Automation of key functions such as data backup, disaster recovery, and business continuity

  • Tools MSPs use to expand their practice to include security, making them a managed security service provider (MSSP)

  • Improving customers’ network resilience and agility by implementing software-defined networking, storage, and more

This has many powerful positive impacts for MSPs:

  • They no longer need to worry about pricing software for sale to their customer

  • The cost of the software, and the software itself, becomes transparent to the customer; they're buying the service, not the tools used to deliver it

  • They drive new services revenue, which provides far more profit opportunity for the MSP

  • They expand the MSPs' services portfolio, adding opportunities for new sales to existing customers and increasing the desirability of the MSP to new ones

Creating the New Preferred Channel Partner Program

This new model brings new imperatives which vendors, especially software developers, must embrace to remain relevant to their channel partners. These include:

Licensing

The tool-provider model is not new. Decades ago there was the "consultant's license." Today it must be a primary choice enabling MSPs to use the software for the benefit of a customer or customers. In many cases each license purchase will be officially assigned to a particular MSP customer. While transferrable, the MSP must assure they will only use the license for one current customer.

Training

Time-to-market being critical, many MSPs will demand extensive and immediate sales and technology training, especially the latter to enable creation and delivery of the services they will deliver.

Marketing & Promotion

The essential nature of the sales and marketing relationship between vendor and channel partner changes. MSPs need to promote themselves, their messaging, and their services to be successful. Smart vendors will offer marketing support allowing each MSP to customize the collateral to promote their own services. Far more than "crash-printing" their logo onto brochures, these materials and activities will require far deeper interaction between vendor and MSP to craft the most effective messaging.

Innovate, Innovate, Innovate

Given the intimacy with which the developer knows their products, the MSP will benefit dramatically from strategic planning with them. 

From the earliest days of the channel, innovation has been the ultimate key to success. Any vendor whose Channel Partner Program encourages such innovation will be most preferable to the new-age MSP.

What Vendors Should Consider When Developing Channel Partner Programs

What your channel partners want most to know, and what will drive them to find value for themselves in the sale of your products, are the services they can create and wrap around your products. The questions they should be asking, and that you should be answering even if they don't ask, include:

  • Can MSPs charge for initial consultation and planning prior to deployment of your products?

  • Can MSPs charge for provisioning of related services connected to your products?

  • Can MSPs charge for installation, implementation, and deployment of your products?

  • Will customers require significant training to use your products, which MSPs can provide?

  • How much user support do your products require? Will this justify a support contract? Can MSPs deliver that support themselves?

  • How long is your warranty? How long before MSPs can buy and sell extensions and enhancements to it?

  • What adjacent services and products can MSPs offer customers alongside your products?

  • Do you offer a program in which MSPs assign services to you as a certified partner and pay you to deliver them when customers buy from someone who is not a certified partner?

  • How well do you promote and enforce your certified service provider program?

Upfront services bring immediate revenue with high-margins. Training and support services add more monthly recurring revenue (MRR) with excellent margins. For your partners, the goal is to include, bundle, and offer as many services surrounding your product as possible.

Coming Soon: Cloud Channel Partner Programs

What has not yet been mentioned are the preferred Channel Partner Programs for resellable services providers such as those offering IaaS, SaaS, UCaaS, DRaaS and other cloud-delivered services. Born in this era of the MSP, this is a study unto itself. Coming soon.

 
This article was originally published on 2020-09-08