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Partnership in the Cloud: The Redefinition of the Channel

By August 16, 2011Article

There are a wide range of third-party firms that can become involved in a typical transaction between a software manufacturer and the customer. In some cases, these companies are part of a product sales and distribution line from manufacturer to customer. Other types of partners may only sell add-on services such as implementation, training or consulting. The definitions for the various roles and acronyms (VARs/VADs/ISVs/etc.) that are collectively known as “the channel” can vary widely.
The quality of the relationships between the players can also be very different. Questions such as “who ‘owns’ the customer relationship?” or “Who gets a share of which revenues?” or “What if the customer wants to deal directly with the manufacturer?” often are full of tension. Channel conflict has been a steady topic of discussion for decades, and the accelerating shift to the cloud has added substantial new concerns and pressures to the conversation. Is there room for the channel in the Cloud?
Shapes in the cloud
The different definitions of company and role in the traditional industry were based on receiving the bulk of the profit from a sale in an up-front burst of cash. In the SaaS/cloud model, profit is now realized incrementally from the subscription income stream over time. The absence of the bulk infusion of profit means that the old role definitions and compensation schemes for employees and partners don’t work anymore. The new subscription model also prompts a re-visioning of the product as well. Where once the transaction was primarily about a sale of technology, the essence of the SaaS/cloud product is a relationship.

“The vital point is not who provides what service to ensure the longevity of the customer relationship, but that the services are available and effective.”

Is there room for a channel in the cloud?
The need for a range of resources to successfully sell, implement, extend and retain a customer relationship has not gone away. That need has sharply increased from the very nature of the subscription model itself. If a customer leaves, the flow of revenue and profit stops, and what might have been a strategically significant gain can instantly turn into a substantial loss. The signing of the initial contract is therefore only the first step in what must be a continuing effort.
It’s what happens after the relationship has begun that will ultimately determine the profitability of the sale. When you apply that reality across the entire customer base, the meaning becomes inescapable. Customer retention for a SaaS/cloud firm is an imperative, for the long-term viability of the company is at stake. The success and therefore the continuation of the customer can no longer be left to chance or the customer’s own resources.
The redefinition of the channel
Not every software company is going to be able or willing to build their staff to cover the full range of necessary resources to meet all of the customers’ needs. The vital point is not who provides what service to ensure the longevity of the customer relationship but, rather, that the services are available and effective. Here is where the opportunity for a redefined channel begins, as a new and vibrant community of partners and resources working together.
What will the new “channel” look like? How will the economics be structured? Who, if anyone, will “own” the customer relationship? How will companies build and manage their partnership communities?
It’s time for these topics to be put on the table for open discussion and experimentation.
Mikael Blaisdell & Associates, Inc. works with a wide spectrum of clients to increase their customer retention rates and enhance per-customer profitability, and resolve customer contact center and relationship management issues.
Republished with permission; originally published in The HotLine.

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