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Partner Significance Rises, But Channel Conflict Remains

Solution providers increasingly are becoming more important to creating markets for their vendor partners.

The vendor–partner relationship is fraught with the inability to see eye to eye. But this doesn’t stop them from trying.

In 2018, a stunning 73 percent of vendors expect partner-driven revenues to increase — clearly signaling the increased value of channel partners to create markets for them. 

In the newly released State of Partnering 2018 study from PartnerPath, a measly one-third of vendors reported having more than half of revenue driven by partners, but the results reflect how that will change this year. 

“We call that reliance on the partner’s business — and partners are becoming more important to vendors rather than less,” Diane Krakora, CEO at PartnerPath, told Channel Futures. On average, vendors reported that 26-50 percent of revenue is partner driven. 

At the same time, vendors expect to grow with their top-tier partners at a 21-50 percent clip in 2018; not so surprising given that top-tier partners – gold level, for example – make deep commitments to the vendors with which they do business. 

What's more surprising is that vendors also expect to grow with their entry-level partners – think bronze level – between 11 and 20 percent.

“We thought that figure was high — higher than we expected it would be,” said Krakora. 

Diane Krakora

This healthy figure might be tied to the types of partners that vendors expect to recruit and engage with more in the coming year: systems integrators, MSPs, and born-in-the-cloud partners, in that order. 

Krakora she’s heard vendors talking about the need to recruit different types of partners for a number of years; however, the numbers proved to be somewhat aggressive. Vendors expect to see 11-25 percent growth of MSPs and born-in-the-cloud partners in their programs.

In its 12th year, the State of Partnering study surveyed 114 vendors and 220 solution providers on the continued adoption of cloud-based solutions, the effects on the growth of the channel ecosystem, and program priorities and investments. 

Krakora identified six channel trends: conflict over services, a shift to digital marketing, different types of partners, individualized enablement, a resurgence of communities, and life-cycle selling. 

The PartnerPath CEO identified some of the study results that jump out. 

First, it’s important to define channel partner and to understand that PartnerPath bundles partners into a single bucket and calls them “solution providers.”

The study did ask partners to classify themselves, finding on average that respondents chose 2.7 identifiers. By far, most partners refer to themselves as systems integrators (71 percent), followed by VARs (61 percent), MSPs (45 percent), consultants (42 percent), cloud solution providers (32 percent), and agents (4 percent). 

Partners, like vendors, anticipate fairly aggressive growth this year. Survey-takers expect their businesses to grow 11-20 percent in 2018. What’s key to this number is the source of the growth. 

“A lot of that is in delivering their own services rather than vendor products,” said Krakora. 

Partners also reported that they expect to grow with their top vendors in the same range, about 11-20 percent, a figure that drops to 6-10 percent for their secondary tier of vendors. Partners have an average of five vendors they consider top tier and another 15 that are second-tier. Together, these 20-or-so vendors make up the lion’s share of partner revenue, except for partner services. 

At this point, vendors have to be asking how they get on that list of 20 vendors. Krakora will take a look at the partner journey and provide answers to that question later this year, she said. 

The stable of vendors that partners work with isn’t static. Partners report that they cut 10 percent, or 2 vendors on average, annually.

“In the last three years, that percentage was 5 percent or less,” said Krakora. 

Another eye-opening figure is that partners used to keep their vendor partners around for about 20 years. Now the average tenure for vendors is eight years. 

“This is where we see the solution providers as being much more capable of understanding profitability by vendor. They all have better systems and tools, such as HubsSpot and Salesforce,” Krakora said.

Maturing partners are tracking vendors, looking at how they’re enabled, how they’re certified and how long it takes to close deals. They are really looking at the entire cycle of engaging with a new vendor — getting up to speed, how hard it is to sell, if the vendor competing against them with field teams, and if there is a lot of completion in their channel, Krakora added.

Partners also are critical of vendors who they say don’t always understand what they do, or what makes them good at what they do — making it difficult to align with them. Partners battle with vendors for lucrative services, such as consulting, professional services, integration, implementation and business-process changes.

“One of the mistakes that vendors make is underestimating how important services are to the partner's business,” said Krakora.

Channel conflict has been around for years, and apparently still is. 

The top three mistakes that partners say vendors make are: not understanding the partner business model; too little of a relationship; and conflict and competition.

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