What is a Channel Partner, System Integrator, Value Added Reseller, Alliance Partner, Distributor, OEM ?

What is a Channel Partner, System Integrator, Value Added Reseller, Alliance Partner, Distributor, OEM ?

Channel partner

A channel partner is a person or organization that provides services or sells products on behalf of a software or hardware vendor. Value-added resellers (VARs), managed service providers (MSPs), consultants, systems integrators (SIs), original equipment manufacturers (OEMs) and distributors may all be called channel partners. Many companies, including CA, Microsoft, AMD, IBM, SAP and Oracle, have formed channel partnership programs to work more closely with the distributors for their products.

Channel partnerships provide an opportunity for companies to promote certain products or services. In return, channel partners receive access to product and marketing training, discounts, technical support, lead generation tools and beta versions of releases. A VAR that chooses to partner with a

vendor may lose a certain degree of independence with respect to other vendors in the same market. As a result, these relationships make sense only when the increased access and support result in greater revenue for the channel partner. Several vendors have created online forums, discussion groups and social networking sites to encourage and support channel partnerships.

Partnerships, Channels & Alliances – Who Does What Exactly?

The IT community has many residents, all co-existing and depending on each other. IT ecosystem is a system where suppliers and users co-exist and are mutually dependent on each other to survive.

Vendors realize that in order to reach their objectives, they cannot or do not want to go alone, they need partners. And the combination of vendor and partners will only be able to compete if it is part of an ecosystem or creates an ecosystem. Business success depends for a large part on how the various entities within that ecosystem are able to work together, co-develop, co-deliver or collaborate in any other form.

So, why use partners in the first place? For starters, partners are used to complement strategic business directions like:

§  

Increase Market Power & Market Penetration

§  Market Expansion & Accessing New Markets or New Business

§  Innovation & Acquiring new Skills or Technology Transfer

§  Gaining Scale & Improving Supply Chain Market Defense & Protection

Partner community (or partner ecosystem) is a generic term used for all partner types. The partner community can be broadly divided into:

Alliance Partners –represent a more qualitative opportunity – opening new markets, building new business, accessing new markets, create new product / solution offerings, and innovate. Alliances are less transaction oriented (if at all), and measured in business benefits (soft dollars). Alliances are more long-term strategic partnerships, interactive and creative by nature.

Channel Partners –represent a more quantitative opportunity: a means to get the product from A to B. Usually there is a transaction involved, partners may or may not add value to the product, but the product they sell is usually someone else’s. Focus is on improving supply chains and creating economies of scale. Channels are more transaction oriented, benefits are usually measured in volume and discounts. End-user reach and loyalty are important elements. Channels are a delivery mechanism, driven by economics or efficiency.

Basically, channel partners are more transaction oriented, whereas alliance partners are more interaction oriented.

A system integrator may focus on equipment, an ISV may have high consulting revenues, a business consultant can have an IT integration division.

Looking at who does what, we have to connect the IT activity to the partner type. Alliance partners have more interaction oriented activities, whereas channel partners have more transaction oriented activities.

Alliance Partners

Business Consultants – Business Consultants focus on business issues within an organization, organizational or operational by nature. They focus on improving results. IT recommendations are part of an overall business strategy advice. Business consultants are companies like Boston Consulting Group and KPMG.

System Integrators – System Integrators traditionally realize a substantial part of their revenue (more than 40 %) from IT consultancy and system integration. They are different from a business consultant in that they also take title to product. Main characteristic is that they are able to connect and integrate various subsystems in an IT environment. They have a generic approach to IT systems, but also have access to dedicated and certified product staff (Microsoft certified for example). In a cloud computing environment, cloud integrators fit into this category. Companies like Centric, Cap Gemini and Atos

ISV – The major revenue stream of an ISV comes from repeatable software licenses sales, either direct, indirect or through the cloud. ISVs have a one-to-many business model. Increasingly, the business model also includes higher levels of service & maintenance revenues. An ISV takes ownership to the product, however, they do not always have direct customer ownership. Microsoft is an example of a vendor who still gets a large part of its revenue from license sales, SAP gets a very high portion of revenues from services as well. Salesforce.com gets most of its revenues from software license sales on a rental (SaaS) or cloud model.

Channel Partners

VARs – A VAR usually excels in one or more specific IT roles -either horizontal (e.g. CRM or Mobile solution specialist) or vertical (public sector, financial sector etc.). A VAR builds a solution around one or two specific vendors, the solution often consisting of hardware, software and a service component (one-stop shop). VARs resell hardware and software, but most of the revenue stream comes from service & integration and complete solution offering. The value addition of a VAR also lies in the fact that they often have customer ownership – they have direct access to and knowledge of the client base. Serac is a VAR for SAP solutions for example, Imtech ICT Performance Solutions is a VAR in the area of business intelligence and corporate performance management.

Hardware & Infrastructure Providers – Hardware & Infrastructure Providers deliver the goods. These type of partners, also OEM, embed products in their products and resell. Hardware and infrastructure providers make their margins on equipment & product sales. This category can also contain data center providers and hosted solution or (web) service providers. Vendors like KPN, but also Cisco fit into this category, or companies like Voipro.

Resellers – The reseller mainly supplies IT products without any modifications to a specific end-user market. Margin is in volume. An example is iCentre, an Apple reseller.

Distributors – A distributor does not sell to the end-user but to other channel members. Their value add lies in volume, but they often provide other services such as finance offerings, license management, technical support & training. An example is Copaco, who distributes but also educates & certifies for Microsoft, but also recently launched its cloud reseller program 2tCloud, or Portland, another distributor focused on cloud distribution.

The list above is not comprehensive, nor is it exhaustive. And the type of channel and alliance partners mentioned above are the traditional ones, however, they do capture most of the activities performed by the partner community. In most cases though, it will be a combination of various partners.

What Are IT Channel Partners and Channel Programs?

Channel partner is the common phrase used to describe a business-to-business (B2B) relationship where a smaller company or organization partners with a corporate manufacturer to market and sell that producer's products, services or technologies — usually through a reseller relationship. In reselling, the partner takes title to product and resells. Usually, the relationship is defined by the manufacturer's equipment being part of a larger solution offered to customers by the channel partner. The partner will "add value" (see VAR) to the product or technology, or even build a solution that utilizes one or more of the vendors' products.

In establishing the business relationship and partner program, channel partners may be in number of different types of businesses, including distributors, vendors, retailers, consultants, systems integrators (SI), technology deployment consultancies, value-added resellers (VARs) and other organizations.

Large manufacturers or producers, such as IBM, Microsoft, and Oracle — to name but a few — offer channel partner programs that give businesses the opportunity to promote their established products or services. When joining a channel partner program, the business benefits by receiving product and marketing training, discounts, technical support, lead generation tools and other important 'perks'.

Generally, a business will partner with a manufacturer only when the business utilizes that specific type of technology or product in their portfolio, and only when an increase in access and support offered through the channel partner program will provide the business with a greater revenue. 

Resellers (VARs)

"We've already signed up a 100 partners to resell our software. Sales should start coming in a few months, this is easy". The business world is filled with resellers, especially in the EMEA and APAC regions. The reseller relationship starts with what you do after the agreement is signed, while most companies think signing the agreement is the achievement. Reseller agreements are notorious for lack of business commitment and are easily signed by both parties (most resellers won't sign a document that requests revenue commitments). Without accountability, which most resellers avoid, especially with young products (or markets), the ability to count on their future achievements to fund the growth stages of a young company tends not to pan out.

Resellers are an essential and viable component of any sales strategy. It's not practical to reach a global market from a centralized business structure nor is it often prudent business practice to open offices all over the world (to say nothing of the investment cost). Resellers help your organization reach territories you would not otherwise have any competent access to.

They can be granted with certain levels of exclusivity. They can be very loyal if they believe you have the potential for generating lots of business in their territory. Great resellers market your products in their regions, take you to key customers, provide at least informal product support, coach you on roadmap issues and more. Poor resellers sign your paper, take a few leads, give up if they don't close business in a short period of time ("if the pitch did not cause the product to be sold, it must not be sellable").

Distributors

Distributors primarily manage relationships with resellers. They are very commonly used for North American companies building an off-shore business -- one distributor relationship to establish in each major territory. The alternative is often to manage a high volume of small reseller relationships.

A good distributor will offer you visibility into their partner base (through events and other similar methods), introduce you personally to their key partners, make sure you have the right sales materials to support the partners and have infrastructure. Some distributors may also offer some level of customer support but will usually act as a collection house for revenues so you only have the one point of risk in managing receivables.

OEMs

OEM (Original Equipment Manufacturer) generally means you. Hard core technology companies often envisage establishing a technology licensing business which is largely what the OEM process is all about. Few companies in the software industry can make a living exclusively through OEM licenses (royalty rates tend to be small and there are often only a few possible licensing customers), but it can be a significant part of the overall revenue stream if done at the right time in the development of a market.

Establishing an OEM program tends to require a full-time OEM experienced sales leader and a strong

sales support engineer. OEM agreements can be complex to establish as they must protect a variety of key areas including technology or IP ownership, a typically complex licensing model, terms for support and on-going technology maintenance as well as guidelines as to how the technology under license is to be used. It's not uncommon to license core technology to a competitive partner within your market space but restrict its use to market areas way from where you sell your products, also based on the same technology.

Systems Integrators- Explained Above

Agents

Agents are the truly individual representative who takes on a few products and sells them to a network of known companies they likely have worked with in their past. They can bring some fast developing leads to your organization, they can sometimes bring some quick sales. Given they are rarely exclusive, they share their time amongst the handful of products they offer, so they should not be counted on to be as productive in the same way as a full-time sales resource.

Agents can also be viewed as 3rd party organizations that help companies enter new markets.

It's hard to quantify whether this is a good type of engagement to enter, it may depend on whether or not you are able to muster together your own sales force. If you feel you need the assistance of a temporary sales force, agents may be the way to go -- it may also mean you do not have a competent sales team to depend on.

Deal Registration

Deal Registration provides a way for partners or agents to register with you the deals they are working on -- a valuable way to help manage conflict in the channel, become more aware of what deals are in the overall pipeline, monitor overall partner activity, track partner effectiveness and more. It is also a way to establish communication rhythm between your sales support team and a partner -- a deal is registered, you call up to explore the opportunity and see if you can help in any way.

Formalized infrastructure for deal registration can be involved. There are not many effective ones in the market to license, although web solutions like salesforce.com are great places to start if you have the time and resources to configure it properly. For low volumes of registration, you might be able to have the sales support team manage it directly, otherwise investing in the right infrastructure is worth it.

Partner Business Planning

Ideally you would meet with your business partners with the same frequency as your own sales team meets to review business planning. Good partner managers meet at least quarterly to formally review business plans and set measurable goals for the next planning period. Good partner managers stay in contact with their partners and build strong trust relationships.

Not all partners will do business planning or even need to. It depends on what type of channel program you are setting up, whether you are going wide or deep (many or few partners), what information you need from them, what support you are providing them, what type of product you are selling (e.g. highly shrink wrap versus complex selling). It's a tedious process but when done effectively, tends to add detail and confidence to your forecast allowing other key decisions in your business to be made with confidence (e.g. spend, grow, spend, grow).

We'll look at the core elements of a great partner business plan. We'll also look at the relationship that needs to be established with partners so that they also value business planning. We'll also touch on when you should consider some incentive your partner through achievements related to the business plan -- great moments for both organizations . 

(Front Line) Support

Providing global front line support, especially 24x7, is challenging to take on. It's not uncommon to have business partners suggest they could take on front line support and ask for a (high) percentage of the revenues for doing so. It's also not uncommon for those same partners to be unable to actually provide formalized front line support, meaning they do not deserve any special commissions for selling it.

Partners bring two singular advantages to this discussion -- local language capability and physical presence in the regional market. The former is often important when the user is non-technical in nature (e.g not an IT specialist who is often conditioned to accept English support), the latter is relevant to providing service during the work hours of the customer, something hard to do from a single time zone.

If heading in this direction, make sure the proper due diligence is performed by finding out things like -- is the partner providing front line support for other products (check references), do they have a formalized SLA, how do they work with the OEM (you) for escalations, etc. More often than not, it is an informal support provided that would not otherwise line up with your own goals.