A New Partner Model for New Times

The incentives to move to a more solutions-centric model rack up fairly quickly. The main one is developing a more predictable revenue stream.

July 21, 2011

4 Min Read
A New Partner Model for New Times

By Khali Henderson

Last spring I published a blog called “An Obituary for the Transactional Agent,” which struck a nerve with channel partners. While many readers agreed with the sentiment, some joked about their impending death. Perhaps they disagreed with my diagnosis of their deteriorating health, or perhaps their humor masked a bit of fear or at least uncertainty. Could, in fact, their current business style, which has served them very well for many years, be their undoing?

This is the same question that partners in the hardware/software business IT and telecom have been grappling with for some time. Box pushers,” as theyre called, have been criticized for lacking a long-term strategy. Youre only as good as your last sale, after all. Instead, many VARs have been working on shoring up their services revenue by adding professional services, carrier services or managed services.

Telecom agents so far have escaped the worst symptom of a pure transactional model low or no cash flow, which manifested fiercely among VARs during the last recession when businesses cut their capital budgets for technology. Circuit slingers,” as transactional agents are sometimes called, were spared due to their recurring compensation model and their ability to switch customers to lower-cost providers to save them money. However, their insulation is not necessarily immunity. Commissions have been squeezed on both new sales and renewals, requiring ever more sales to maintain the same income. Like their VAR brethren, some of these agents have been making changes to shore up their recurring revenue streams. One popular strategy has been to develop their own services  professional or managed  for which they can bill independent of their suppliers.

The assumption that the transactional business model is a cancer that must be excised to save the channel may not sit well with some of you. In fact, it is a gross overstatement. And, it is not an opinion that neither I nor most experts would advocate (click here to read the views of leading channel analysts and suppliers). The overriding consensus is that transactional partners will persist while continuing to decline in numbers. Their survival will be at the pleasure of a certain type of customer that will continue to buy technology in a transactional way. One example might be a very small business that doesnt need more technology that they can really buy off the shelf. Another example is the very large enterprise with sophisticated buyers that want to negotiate wholesale like deals for bandwidth.

While there may be a part of the market that is best served in a transactional model, experts question what value those partners bring to suppliers to warrant being part of their distribution channels. Instead, industry observers suggest that some partners will retain an ever-smaller percentage of transactional business while investing more heavily in developing their solutions-based revenue streams.

The incentives to move to a more solutions-centric model rack up fairly quickly. The biggest one, as noted earlier, is developing a more predictable revenue stream that is less vulnerable to swings in the marketplace. Economic fluctuations are just one possibility. Supplier changes as big as mergers and acquisitions or as small as contract language also can have painful consequences.

Expert Channel Partners interviewed ticked off some other reasons:

  • Greater differentiation a consultative focus not only distinguishes you from your competitors but from the status quo

  • More revenue per customer by selling a solution consisting of multiple products and services, your deal size will grow

  • Account protection by having a more holistic view of a customers needs, you will be less vulnerable to solutions-based competitors

  • Lower cost of acquisition customers are more likely to re-engage your company on future opportunities if you are more than just a quote shop

  • Stickier revenue base the more services you provide to a customer, the less likely they are to churn

  • Greater customer satisfaction by selling solutions, rather than a brand or technology, customers are likely to be more loyal

  • Diversified revenue by adding revenue from more suppliers or your own intellectual property, you have fewer eggs in one basket

  • Higher margins selling your own services can carry higher profit margins that reselling

Granted, these benefits do come at a cost a lot of blood, sweat and tears in developing a plan and transitioning the organization. Over the next several months, and with the help of experts, including analysts, suppliers and partners, Channel Partners will be exploring some of the important questions about how partners can transition their businesses away from transactional models, including possible new models and how to get their. We start by introducing you to partners VARs and agents  that have made changes successfully and will continue the discussion at the Channel Partners Conference & Expo, online at www.channelpartnersonline.com and culminating in a Special Issue on Transformation in December.

Looking for More?

Attend the session Trading in the Transactional Model: A Road Map for Transformation” at the Fall 2011 Channel Partners Conference & Expo, Aug. 24-26, in Chicago. For more information, visit www.channelpartnersconference.com.

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