Journey to Profitability: from Resell to Adoption
When I started my career in the software business, sometime between the late 80s and the early 90s, emerging technology vendors were rapidly competing for a dominant global market share. Time was of the essence and no matter the size of their own salesforce, these large multinational companies couldn’t scale to meet the gigantic addressable market that exploded with the advent of the PC and the internet. They quickly turned to the only way they could scale their sales coverage – a centuries-old business model called distribution channels.
In the days when software products had to be shipped to customers around the world (remember those floppy disks that preceded internet downloads?), distribution channel partners would mainly focus on the logistics of moving hardware and software products across the globe, creating inventories that would address demand in a timely manner and dealing with payment terms and foreign currency. Their profitability would come from resale margins covering not only all the costs of these tasks but also providing a healthy profit – which could then be used to expand inventory, offer some technical support or customer service, and finance further market coverage.
Over the following decades we saw internet connectivity and speed explode and companies becoming more global in the positioning and delivery of their solutions to their customers. The threat of disintermediation became obvious with the disappearing need for inventory, logistics, and even payment constraints, and with it, resale margins started to squeeze. Channel partners turned to services not only to avoid disintermediation but to find new sources of stickiness and profitability with customers. From their origins as a scaling mechanism for sales to address markets, they became a scaling mechanism to deliver and implement technology solutions on-premises. Margin from services became the main source of their profitability. They evolved from distribution channels to value added resellers (VARs) and system integrators (SIs).
Channel partners and the cloud
Enter the cloud world. Hosted solutions are now available, ready for use with fewer configuration or setup requirements, and easily accessible through online marketplaces across major public cloud providers. Pricing strategies have evolved to elastic pay-as-you-go models driving a land-and-expand strategy – increasing annual recurring revenue and client stickiness. Channel partners are again challenged with profitability as on-premises implementation service margins threaten to fade from their P&Ls in the coming decade.
The door of opportunity opens. In the new cloud world, adoption is the key word. Adoption of a solution supports land-and-expand strategies and pay-as-you-go pricing models. Helping customers adopt solutions to solve business problems requires new skills – understanding your clients’ industry trends and the impact of technology on increasing their revenue, reducing their costs, or mitigating their risk. Most importantly, business success for channel partners now shifts to the ability to map the journey from the adoption of a technology solution to a business outcome. Successful channel partners bring the ability to support that journey with technology and business services, ideally with a recurring revenue model as well.
At Informatica, we’re constantly developing initiatives to make our partners more profitable with us, either by helping to provide new services, reduce the cost of delivery for our solutions, or rewarding joint go-to-market and new logo acquisition. Early opportunity engagement and a preferred partner policy for each opportunity are established pillars – or rather, standards –of our partnering strategy. We shifted partner rewards from reselling licenses and services to helping us expand our sales coverage, building competence in positioning, and delivering with our solutions. And with channels at the heart of our go-to-market strategy, we’ll continue to drive more profitability initiatives and incentives to make Informatica the best company in the industry to partner with.