My last post provided some commentary on an excellent presentation on Partner Lifecycle Management, by Chris Dogget, Vice President of Global Channels at Sophos. That presentation was given at the Channel Management Summit held earlier this summer in San Jose.  The point of the accolades in the last post were to recognize Chris for providing a formal approach around a subject that could be holy grail of getting more effectiveness from your channel partners while benefiting from greater efficiency from your human and financial resources—something we’re all short on these days.

I have always thought this was an area of untapped potential, and perhaps Chris was the first one to come forward with a sound, quantitative process for meeting this challenge. (For more information on the benefits of a formal partner lifecycle management process, and Chris’ approach in specific, do take the time to review the last post on the subject.)   Channel models are changing so fast that the survival of the fittest has never been more true….and frankly, I think the rate of change is going to increase exponentially, meaning the need for employing an approach of your own is going to grow.  The days of “the more the merrier” as a foundation for a channel strategy is quickly drawing to an end.

To create a similar approach on your own, one first must subscribe to these principles:

• Partners are mapped on a quadrant that plots your investment (x axis) with their revenue (y axis) with changes in each tracked over time. Further, ALL partners will start out somewhere in the lower left hand portion of the quadrant ($ 0 revenue and $0 of investment, or near so). Any changes to any one partner’s position on the map should be monitored at least annually, if not on a quarterly basis.  Ideally, partners would proceed on something that may resemble a 45-degree line to the upper right hand quadrant.
• Investment considers both real cost and resource allocation to cover both partner readiness and joint marketing activities with the understanding that partners must also be committed to investment of both time and resources on their end.
• It assumes (correctly) that all channel partners will reach a point of diminishing return wherein additional investment will no longer yield proportionate sales gains. Once they do, they are considered mature partners (upper left hand quadrant), and emphasis is directed to a maintenance mode with less aggressive investment levels. Other categories on this quadrant would also include those partners identified as At-Risk (lower right),  Growth (upper right-- or the “magic quadrant”), and Emerging (where all partners start, the lower left quadrant as stated earlier). 
• Investment on those Emerging partners in the lower left is really focused in the area of partner enablement—rather than joint sales.

Other components that are equally important to this process include:

• Partners should be segmented by go-to-market categories and potential—not simply sales volume--as a basis for establishing “Silver”, “Gold” and “Platinum” tiers.
• Potential is really a score that can consist of multiple dimensions relative to how you—and your partners-- do business. Criteria can include, but is not limited to, rate of sales increase, % opportunities closed, Gross Margin %, sales team enablement, attainment of stated business objectives, etc. These metrics should be identified by channel segment—although some may apply to the partner population overall.  Any changes in these metrics over time can be leading indicators that an individual partner is still on the growth path, or are nearing their point of diminishing return.
• Business planning is conducted annually, and quarterly marketing plans are completed—or reviewed—quarterly, and consider each of the key metrics that are used to evaluate potential as described above.

Hmmm, this all seemed some so straightforward when Chris presented it…  In any case, his model would need to be modified to adapt to your business model. So, hopefully enough of the concept was conveyed between the two postings for you to develop your own partner lifecycle management model. If you need help, give me a call or send an email—I’ll try and fill in the blanks.

Image Credit: Monty Python and the Holy Grail

The Effects of SaaS, the Cloud, and Managed Service Providers on Channel Models

CCI speaks with XO Communications Vice President for Channel Development and Strategy, Tom Gorey, in the monthly eNewsletter Channel Management Insights.

Channel models are due to shift again. The growing trend away from "buying systems" to "renting solutions" on a fixed-fee or pay-per-use basis is one driver. So is the emergence of the "Cloud." The use of managed service providers as a channel type is also a major catalyst for this shift. Whose channel models will have to change in response to these developments? Simply put, everyone's -- vendors', distributors' and resellers'.

Vendors will have to gain a greater understanding of channel partner models, review compensation practices and rethink the importance of branding. Distributors will have to put together not only prepackaged bundles but the right packages, and redefine their relationships with resellers. And resellers will have to decide whether they will maintain their role of selling these prepackaged solutions or become distributors themselves, which may be more feasible than ever before.

To find out more about this dynamic time, how to take advantage of the key drivers behind it and the necessary evolution of the channel model, Channel Management Insights spoke with XO Communications Vice President for Channel Development and Strategy, Tom Gorey. The following is a summary of that interview.  

CCI: How are SaaS and managed service providers changing the reseller model?

Gorey: Single SKU transactions will become monthly subscriptions that will bind the reseller to the underlying service provider, or cause it to become one. There's a financial impact to both of these responses.

In the first scenario, resellers become consultants. Intellectual property is what they sell, and they no longer finance inventory. Pricing to end customers is a different paradigm, and resellers may have far less control over price. The distributor will make more decisions, and the reseller will customize the solution for end-users. In addition, the statement of work will evolve around value-added services that are complementary to, but not the core of, the managed service being provided. That changes the marketing value proposition.

If the reseller becomes a provider, this will have an impact on how its business is financed. For example, instead of financing inventory and receivables for a short cycle, a reseller selling services on a typical three-year cycle is going to have to manage cash flow reflecting the combined billing of multiple clients over a longer term. The rule of 78s applies. This change could be profound in today's credit markets.

CCI:  How will the Cloud contribute to changing the reseller model?

Gorey: The Cloud ties into sales funnel functionality. It's not a Siebel product in a back office; it's a subscription for service that resellers can integrate into other things their end customers use. Resellers have been selling boxes to move bits of information; with the Cloud, they won't.

CCI: What should vendors do now to prepare for these changes?

Gorey: Vendors have to review their channel partners to understand their business models better than they have in the past. For instance, larger VARs that tend toward efficient fulfillment models without supporting services are likely to have a more difficult transition. Education and support for business planning through these transitions would likely be good investments now. 

Also, now is a good time for vendors to review compensation models and contract structures to their channels, if they're going to host services and pay agency fees. They should also review how these changes will impact VAR internal compensation models within their businesses. Past efforts at converting traditional go-to-market methods with compensation models based on receiving the proceeds of a sale upon billing have been problematic when combined with compensation from vendors paying residual fees over the life of the contract. Though many of these programs pay out higher over a standard product life cycle, the loading of revenue over a typical three years versus upfront creates focus differential.

Employee turnover mitigates the value of longer payout cycles at higher overall gain. If an employee isn't there to collect, or in the same position, those higher returns never materialize. Vendors and resellers need to understand that, and potentially create different payout programs for transitions.

Another issue to consider with SaaS is branding. Since resellers will be selling functionality, the vendor's name may not be on the product; the reseller's name could be. The hard drive people already lost their identities in the personal computer market, as an example. Computer companies sell drive capacity, not brands. Intel is the exception because it puts a sticker on products. Even so, many people buy processing power, not necessarily the Intel brand.

CCI: How will resellers have to adapt to these changes?

Gorey:  Resellers have the same issues mirrored in the vendor community, plus they'll be at the cutting edge of the integration of services models into legacy systems, where services models and traditional implementations meet. A premium will be placed on resellers that understand the ecosystem of related vendors where integration has been initiated and APIs are in place.

Differentiation is also a concern. When potentially thousands of resellers are presenting solutions from one provider, and that provider sets a price point, how do they differentiate themselves? Training, implementation, services and tying the product into legacy systems are some examples. They also have to be relevant, with a defined value proposition.

In addition, they have to pay attention to the generational change in the workplace. The next generation will expect different things where they buy or work. They don't know the siloed way of doing business, and they expect collaboration inside and outside the company. Plus, they don't need to own anything physical, just functionality.

CCI: In this new dynamic, who owns the client? 

Gorey: Good question. That depends on who provides the invoice and whether the customer looks at the reseller in the same way as before. Issues will also arise around who takes the first call from the client when things break or when the client doesn't understand how to use functions. Will it be the VAR or the application vendor? Will the application vendor understand the context? And where will the client fall in the hierarchy of response on service intervals?

In addition, resellers will have to choose between owning the invoice and customer, or owning the consulting, which will create a number of other issues in how they define their businesses. For instance, if the vendor pays an agency fee for representation, what are the responsibilities of the reseller to the client? Does that change when the client is no longer the one paying the reseller, but the vendor is instead? Is that different when the reseller performs as an outsourced IT provider versus selling to a client with its own IT staff?

CCI:  What shifts will be necessary for pre- and post-sales support requirements?

Gorey: Decisions need to be made for where the first call goes when something breaks, who's responsible for the repair or restoration of service, how communications are handled and at what frequency, and what happens if a customer buys other services from a different reseller or direct from a different service provider and requires interoperability.

In addition, there are financial implications. I'll leave the revenue recognition question to the financial experts who can articulate that better than I can, but there's a difference in receiving income in the first year as a traditional hardware and software license sale and in receiving a revenue stream that extends beyond the first year to two-year, three-year and even longer contract terms. There are also nuances in the services model since longer-term commit contracts that are common in this area don't allow a client to suspend services and still function, as a customer can by delaying a planned hardware or software upgrade. The monthly subscription charge and the services contracted continue.

CCI: What is the scope of the change -- how much and how fast?

Gorey: We're in the beginning stages where the hockey stick is ready to take off. Right now, we're in a bad economy, where people are examining assets and looking for safe bets, efficiency and options. They're more willing to accept input from resellers that can help their businesses survive or grow. Companies that understand the users' needs and how business is changing are capitalizing on their knowledge and experiencing double-digit growth. 

I expect to see a substantial amount of change within the next 24 months, enough that the world will look very different from today. Providing functionality, not a box, and delivering it through the Internet changes everything.

Tom Gorey is vice president for channel development and strategy at XO Communications, a $1.48 billion facilities-based telecommunications services provider. Prior to joining XO Communications, he served three decades in technology companies including a CBS Broadcasting specialty division, Ingram Micro, GTE, Qwest Communications and MCI.

For the past five years, Gorey has been a key driver in XO's indirect channel as the company turned a stagnant sales and revenue channel into annual double-digit growth in both areas, including very strong growth through the recent economic recession. He has a bachelor's degree in architecture with a minor in physics from the University of Washington.

This article was originally published in Channel Management Insights- a monthly e-newsletter from CCI featuring articles and insights related to channel marketing- click here to subscribe.

Within the last couple of months there has been a lot of buzz how the channel is going to change beyond recognition in the next 5 years.  I am now a believer in this scuttlebutt. Driving this is the notion that margin from the sales of hardware products will evaporate (did evaporate?). The technology channel was born to sell hardware to the SMB markets in the ‘80s (that’s 1980’s for you millennials).  That hardware margin disappeared as the business shifted to various forms of software/hardware “bundles” and then ultimately “solutions”.  Now the channel’s  revenue source is set to shift again as there is a growing trend away from “buying systems” to “renting solutions” on a fixed fee or pay per use basis.   The emergence of the “Cloud” is credited as the catalyst for this change. While the cloud is certainly a driver, I don’t believe it’s solely responsible for the shift.  The emergence of managed services providers as a channel type has been evident for years—and I believe they will play an increasing role in the channel composition as the shift in buying preferences occur.   Let me give you just one example of how the managed services concept is extending beyond the cloud:

A client of ours was in the copier business, now they are in the copying business. What’s the difference?  Not subtle.  Instead of selling or leasing copiers, they are offering a turn-key pay-per-copy program in which the reseller (managed service provider?) now is responsible for making sure the paper is purchased and stocked, the toner is at optimum levels, and provides continual  service and maintenance at scheduled intervals.  Many of these aforementioned service actions was formally the responsibility of the owner (or leaseholder)  to initiate (e.g. buy and stock paper). But now we’re in a pay per use model, and this becomes the channel partner’s problem.  While this is certainly not an example of  SaaS software delivered via “the cloud”, it certainly is a parallel model including the quick start, low maintenance, pay per use components.  Which is why this model is going to become more commonplace.

This small shift buying behavior creates a big shift in your channel program and your partner’s business model.

The Notion of “who owns the customer” will get more convoluted.  As we are a SaaS software provider who sells through channel partners, we are facing this dilemma first hand.  We support the software, even though a channel partner made the sale.  While the channel plays a continual role in client relations, when it comes to assuring overall customer satisfaction, who is really responsible?  Well, the answer to this question is:  “it depends”.  What it depends on in our world is less important than the fact that you are going to be asking yourself this question soon enough…you better prepare for the answer. 

Subscription invoicing will become commonplace.  If companies are moving to rented solutions or pay per use models, your channel strategy will have to adapt to this recurring revenue recognition model. This means that you’ll either be invoicing the end user company directly, or you are going to have to revise your terms and pricing with your channel partners to accommodate such a model.  In any case, one bill is going to the client/end user, and every participant in the supply chain has to get their share  with each billing period.

Channel source of revenue will introduce new business models  and perhaps new capabilities.  This is evident in the example provided above. The “reseller” now has to become the “Stock boy” and “office services” too.

Distributors will play an even stronger role in multi-vendor solution coordination. This is true more or less depending upon the products you manufacturer, but someone has to put these “ready-go” bundles together, teach reseller new tricks about how to sell and support the solutions, as well as coordinate supply chain administration and marketing funds from the various vendors (if the vendors haven’t had the foresight to create a prepackaged solution among themselves.)

Gee, and I left package goods industry some 20-odd years ago because I thought the technology channels were more dynamic. Dynamic indeed!

I just returned from Channel Focus North America in San Diego-the annual event that is the Mecca for all channel marketers in the Technology B2B space.

A common theme in the event was focused on the fact that Channel Partners are continuously reinventing themselves and are now focusing on service and solutions as a basis for their GTM model. (Note: Those as old as I will remember that the channel initially was a hardware-centric distribution model born out of the need to sell 286 desktop PCs to the emerging SMB market some 30 years ago --displacing IBM Selectric typewriters as the desktop appliance of choice. ) Making real money by relying on hardware margins has gone by the wayside in terms of providing a sizable revenue stream for resellers. In response to this, new channel segments have emerged in the last few years to capitalize on the service/solutions revenue trend. Managed Service Providers, Consultants, Agents, and hosting companies have joined the fray of existing channel models (ISV, OEMs, Resellers, SIs, DMRs, and others) to form a dizzying array of channel segments. In fact, the term "VAR" is almost passé-as most resellers are labeling themselves something other than that to find their niche. This shift adds complexity for the average vendor: Keeping up with Partner profiling and segmentation is a full-time effort. Incentive and training programs must be aligned to conform to the GTM strategy of these models. Plus, vendors must manage yet one more form of possible conflict with their channel partners-service-which now joins Vendor/Channel sales ownership, and Channel/Channel conflict as areas that vendors must sort out. This last point is interesting to me, as service revenue really hasn't been that profitable for many vendors anyway, so why wouldn't this be viewed as an opportunity to strengthen their relationship with the channel? Well, the answers to this question are too numerous and complex for this column, so that will have to wait to be answered until another time.

While the impact of the shift to service revenue from hardware revenue isn't exactly up-to-the-minute news, the impact that "The Cloud" is going to have on the industry as a vehicle to deliver "virtual" solutions in the next few years will accelerate changes both further AND faster. For instance, new questions will have to be answered, like: "Who really owns the client?" across the various phases of the client lifecycle. Or, "How will commission and margin structures work?" and "Will partners be responsible for subscription billing?" The growth of the "cloud" model will impact some vendors more than others, of course, but it will be a strong catalyst for more dramatic changes in the channel nonetheless. It is my prediction that "Agents" will emerge as the growth channel segment in the IT industry to capitalize on this trend (Note: "Agents" are already prevalent for the telecommunications service providers as a partner type).

Finally, there was a standing-room-only crowd in the session covering "Are you easy to do business with?" hosted by this author. It seems that vendors are becoming more aware of the shortfalls and selfishness in program design that makes it hard for their partners to take full advantage of their expensive channel programs. The increased awareness of program complexity in the vendor community will yield good things for everyone, of course. The session specifically addressed "Easy tips you can use" to make doing business with you easier for your partners-and a more mutually rewarding experience. Stay tuned for those tips in a future article. I hope I have your interest piqued.

Why?

Well, to answer this question lets first address the appeal of a standardized global program: Today's multi-lingual, multi-currency SFA/PRM solutions facilitate a common platform throughout all global territories. The resulting standardization assures that consistency and simplicity program-wide is attainable now more than any other time in the past. What's more, the universal set of program standards and reporting inherent in the design give executives a strong sense of control and empowerment-which feels really good if you're writing the check. It is no wonder that this is the key selling point for system standardization. However, the people writing the check aren't the people that ultimately get the work done.

Very few channel partners indeed have a global trading area. And although the promise of a "Global Village" is nearing every day, I contend that for most of us it is far from a homogenous market. Channel marketing, by definition, implies "creating efficiencies through partnership to delivering products and services to the consumer". When designing a channel program, there is a lot to consider about its application on a global scale because while consumers en mass are indeed global, any one purchaser is local. For a global program to be truly effective, there needs to be common standards across the following: category maturity, channel maturity, regulatory requirements (as to how incentives may earned and paid among them), GTM strategy, solution "mix", value added requirements that must be fulfilled by the channel, distribution strategy, availability of local resources, logistics and fulfillment, culture and language (and its impact on the sales process), business processes associated with program management, marketing mix, pre- post sales training support requirements, customer purchase motivations..........do I really need to go on?

The point is, any difference in any one of these conditions from market to market will require some adaptation of your program. Therefore, the sheer number of conditions that require localized adaptation then multiplied their relative importance to your channel GTM will address the full scope of localization required for your program to be equally effective globally.

The good news is, that there are solutions out there that will allow you to "have your cake and eat it too" through localized flexibility and centralized reporting and control. But no solution is ideal for everyone ("You can please some people all of the time or all people some of the time......"), so it's best to REALLY understand your requirements before you completely push your pendulum from localization to centralization (or visa versa). In closing, I repeat what I stated in previous posts: it shouldn't be a matter of one extreme of the other (as seems to happen), as the ideal global program is likely a compromise between local flexibility and centralized systems. I know we can help you get there.

I recently read an survey performed by a noted consultancy which stated that global program standardization managed via a common infrastructure was among the top 3 investment priorities in 2010 for global channel marketers within the technology industry. This is of no surprise considering that technology has changed through the years thus enabling infrastructure standardization to exist. That makes perfect sense...after all, what home office in their right mind would want to disseminate funds and program authority to channel partners on a global scale to spend willy nilly without having any controls in place? (BTW: "willy nilly" is a technical term for "hap hazardly" which itself is a technical term for.....well, never mind).

Well, at least one vendor we know well does...after 2 years of going to a completely centralized model to manage their global programs, they have announced intent to move back to a decentralized model permitting only local controls of program design and execution. This shift back makes perfect sense to me too. The "promise" of globalization and standardization sounds great and all, but under the mantra of "think globally, act locally" perhaps there is an admission that business practices require attention to local needs and customs as much (or in this case more) than centralized insight and controls. I've often attested to the fact that the best position is somewhere in the middle, but often the forces of office politics are at work. The pain is real strong on one side, so the tendency is to compensate by moving to the extreme opposite side, sighting: "See, I told you that having the pendulum on their side wouldn't work".

Hmmmm, the more things change, the more they stay the same.

Our team just returned from an event targeting channel marketing professionals yesterday in San Francisco. Attendees from about 50 companies were present to talk about what new (and old) challenges are facing us. To that end, here is a rundown of some of the "more lively" topic's as gleaned from the pulse of the attendees.

1. As a vendor, are you easy for your partners to do business with? Many of us forget that our channel partners represent more lines than our own, and therefore assume that our partners' as a whole are accepting of our quirks and understand all the changes we make to our programs and extranets on a routine basis. They don't. My take: this is a topic of growing significance-and indeed vendors are starting to listen. In fact, I'll be talking about this topic at a future conference, so stay tuned.

2. Vendor sales certification and training for partners. Among the issues most pressing to channel professionals is the sales readiness of their partners. The discovery is that different partners need different types of training-unique curriculums that align the solutions they sell and their business model. Sales training is not about product training, it's about solution understanding and the best way to design and package solution to meet the needs of their prospects-training is not homogeneous anymore.

3. Using POS data to provide complete channel and program analytics. While many vendors use POS data for rebate and commission processing, still others don't collect it at all. Some more progressive vendors have unlocked the secret to using POS data to analyze program performance, evaluate partner performance, and to conduct a gap analysis for coverage and skill sets. This is the wave to be on, if you're not already doing it.

4. Social media is changing the face sales engagement. It's understood that social media has its place in vendor communities and partner communities but it is also a growing sales tool. While most partners haven't fully taken advantage of it yet, some of the more progressive ones are leveraging social media as a prospecting tool by using it as a way to learning about prospect needs and pain points before they make the introductory call. This advanced insight creates a fast track to building prospect rapport as well as targeting proposals since the sale person is already familiar with the prospects needs as they are conveyed on the social network.

I promise you that there will be complete articles on each of these areas in our newsletter moving forward, so if you haven't signed up for it, now is your chance. (just sign up on this site). I am also anxious to hear about the challenges, rants and raves from other channel professionals so we can address those in the newsletter or this blog as well. So please leave your comments as I love to read them and to use as a basis for future content. This is only good for me if it's good for you.

Enough about me, lets transfer the idea of complacency to you now. It amazes me how many marketers-particularly those in a dynamic industry like technology-maintain their channel programs year over year and expect better results. If you fall within this category, I remind you that it fits the definition of insanity-"doing the same thing over and over and expecting different results". So, I guess it's time for you to overcome your complacency.

Face it, your business objectives change, the economic environment changes (or so we hope), your competitors certainly aren't sitting still, why are you doing the same ol' same ol'? In fact, we recommend reviews no less often than annual with a schedule for quarterly enhancements likely. Yet, it's common that I see programs carry over with minimal revisions 3-5 years or more.

If you answer "yes" to any of these questions, it's time to review and revise your channel program NOW.

• Are you introducing new products or services?
• Do you expect changes in your channel composition this year?
• Has your sales goals changed since last year?
• Do you expect to recruit or release partners this year?
• Is your staff more or less capable of managing the program than last year?
• Is your competition sitting still?
• Are you confident that you can evaluate-and indeed report on-- the true ROI of any one of your programs?

Ok, then. You know who you are. Your channel programs are not a cost of doing business; they are your competitive advantage. I have to believe that, I'm in the business of promoting that. My promise to you in return is that many more articles will come on this site that will help you simplify the process and guide you through the right decisions-really. Stay tuned.

What struck me in this survey were the repetitive comments on the impact of channel program ROI. From measurement to trends to best practices, the ROI dynamic appeared multiple times as a response. Here are some of the pertinent survey questions:

Q. How do you measure the success of your MDF/co-op program?
A. ROI on activity.

Q. What measurements are important to your organization?
A. ROI, based on revenue.

Q. What are your biggest challenges with your MDF/co-op program?
A. Measuring ROI of activities.

Q. What have you done to overcome these challenges?
A. Implemented requirements for partners to communicate ROI.
A. Understand the importance of being able to demonstrate ROI.

Q. What innovations would you like to integrate into your MDF/co-op program in the future?
A. Better metrics/tracking of ROI.

Q. What changes have you made in your MDF/co-op program in the past 3 years?
A. Heavy ROI scrutiny-a good thing.

Q. What impact have these changes made, if any?
A. Better ROI measurement.

Q. Name one change to your MDF/co-op program that has made the most positive impact?
A. Focusing on ROI.

Q. Name one change to your MDF/co-op program that has made the most negative impact?
A. Funded programs that did not yield an ROI.

Q. 33% of respondents feel pressure from management to discontinue their MDF/co-op programs in the future. Why?
A. Lack of clear ROI.

In these challenging economic times when companies are scrutinizing every internal investment dollar, the last question and response is particularly relevant. Are you currently being asked to justify the value of your channel program? Do you have the ability to report in a timely manner on the metrics which tie your program objectives and activities to positive results? When push finally comes to shove, will your executive management team support your program because you were able to demonstrate a greater ROI versus another company program? It is not an understatement to say that the survival of your channel program may ultimately depend on how you answer these questions.