Vendor-channel relationships have worked for so long mainly because of the established synergies and a continued mutual need. Vendors focus on product development and innovation while partners and distributors cover the majority of sales and delivery duties to get those wares to the end customers. It’s a model that has served all parties well.
But times are changing rapidly as the industry embraces a cloud-based, “as-a-service” economy. Evidence of this can be found in CompTIA’s 6th Annual State of the Channel report released in October. The study found that while 4 in 10 respondents describe themselves as “very satisfied” with their vendors in the last year – a percentage on par with 2015 – the channel firms that had some level of dissatisfaction with vendors more than doubled from 7% last year to 15% in 2016. All told, 43% of channel firms are either evaluating new vendors or shifting them actively.
There are myriad of reasons for that uptick in discontent, but clearly we are seeing the results of an industry moving away from the strict, transaction-based channel model of selling hardware and/or software at a markup. And, because of this, partners are becoming more finicky. What they once valued as an "essential" from a vendor benefit standpoint is less relevant in today’s market.
Take partner program elements such as sales spiffs as an example. These one-off bonus incentives are aimed at getting a channel partner to meet sales quotas at the end of the month or quarter, or to ramp up sales of a newly released product. Spiffs have been a "table stakes" element of partner programs for decades. They made sense as motivators for channel firms selling hardware products or software licenses. But in today’s managed services and cloud services worlds, individual spiffs won't work the same way. In fact, in this year's survey, one third of the respondents categorized them as the one vendor compensation benefit that is less important to their business today.
It doesn’t stop with sales spiffs. Almost another third of respondents consider volume/upfront discounts and back-end rebates – two longtime staples of vendor-channel compensation – to be less important to their bottom line now. Just five years ago, these incentives were considered a prime source of income for channel firms. It's much less so today. Now the main income driver is their own sales and marketing efforts.
Modern SaaS partners are much less concerned with margins, spiffs and other direct compensation from their vendors. Based on qualitative research conducted as part of the CompTIA study, many SaaS partners may have started out as pure-play business consultancies and added software sales later in their evolution. These firms often specialize in business transformation with a focus on particular business groups (such as marketing, finance, human resources) or an industry vertical (i.e. healthcare, energy, financial services). They sell to business leaders and focus on delivering business value. The software vendors often come along for the ride.
Consider the following quotes from two provider business executives who took part in the one-to-one qualitative interviews during the study:
“We started as a pure accounting firm, right? You're doing the taxes, your audit, that sort of thing. Naturally, as you're working with these systems, you start to build an expertise around the products that your clients are using so, it's a natural extension to add various product lines.”
“Our product is our people. It's primarily consulting hours, not at all any product resales revenue.”
Partners of this type are aligning with vendors like Salesforce.com that buck the conventional rules of the road for vendor-partner relationships. Boasting the largest cloud ecosystem in the industry, the company works with thousands of consultants, systems integrators, and ISVs. It has also gained a following among non-traditional types of “channel partners,” including digital agencies and professional services firms. But here’s the kicker: Salesforce is a direct sales organization. Yes, direct sales only. And yet this has not been a turn-off to legions of partners. Those firms are finding plenty of money to be made working with Salesforce’s customers, providing implementation, customization and other services. This continually growing group considers those activities to be their bread and butter revenue, more so than what they receive from vendor-based compensation and/or product sales.
So here we sit on the cusp of 2017, as providers and their vendor partners straddle the old and the new worlds. Established vendors will need to take a hard look at how they compensate – or don't compensate – their partners, and re-evaluate the way they structure their partner programs. Likewise, channel firms in the more traditional mold may want to take a cue from today’s growing SaaS ecosystem, and adopt some of the ways that group works with its vendors. It should be interesting.
