Partners Cash in on Channel Opportunities

Case Study: A successful channel partnership requires management, but helps partners and customers alike.

Channel partnerships provide a way for a technology provider and channel partners to expand their business by banding together to provide new products and services and, in the process, build or enhance relationships with customers.

In the best situations, the shared customer gets a unique solution while the partners feed off one other in a symbiotic relationship that provides qualified leads, marketing expertise, and increased sales and revenue.

Like any relationship, however, channel partnerships require work and careful management to keep the relationships moving forward, to avoid political wrangling and to make sure that the client gets exactly what it needs. Following is an overview of what goes into a successful channel partnership and how partnerships can help you increase your business.

What are channel partnerships?

Channel partnerships can be tricky to define because the nature of these partnerships is always evolving. But it is clear that channel relationships involve a company, large or small, that partners with another solutions provider, a VAR or an SI (systems integrator), to provide customers with a product or service they couldnt have delivered alone.

John Calhoun, director at Mercer Management Consulting, in Toronto, said the nature of a channel partnership also has to do with the level of integration between the two businesses.

/zimages/1/28571.gifClick here to read about how one IT services company chose a partner to fit its business.

"The channel partnership tends to be something where you are proactively trying to control and manage [the partnership] in an important way, and trying to some extent to be highly integrated with the business model of the [partner] organization," Calhoun said.

This means, according to Calhoun, the technology provider agrees to help the channel partner identify opportunities and has a stake in helping it be successful as a business.

Calhoun said he sees a difference between how VARs and SIs approach a channel relationship. When a VAR comes on board as a channel partner, he said it becomes almost an extension of the technology provider, often providing a single solution geared toward the technology providers business. The SI, on the other hand, could be offering a similar solution but may also bring other vendor solutions to the table.

"Systems integrators have a channel relationship, but they are not reliant on your offering in any way," Calhoun said. "They are going to respond to what the customer wants, as opposed to, Im going to build a certain skill set on a certain offering and that is what Im going to go sell."

But Calhoun said that as customers develop a better understanding of product offerings and what they want, the distinction between channel partnerships with VARs versus SIs is beginning to blur.

Donn B. Atkins, general manager for IBM Global Business Partners, in White Plains, N.Y., said he sees SIs and VARs as part of a single channel partner system and he does not differentiate between the two. In fact, Atkins said he sees them working together to build a total solution for the customer.

"We define partner relationships in the broadest sense," Atkins said. "My role really talks to all our distribution partners, resellers and solution providers in that value chain but also our systems integrators (from largest global systems integrators to local and regional systems integrators) and ISVs. My vision is that the total solutions ecosystem is the real key to success in delivering value to customers."

/zimages/1/28571.gifIBM is recruiting ISVs and partners for the software-as-a-service industry. Read more here.

Atkins also said that when you have parties working together toward a solution for a customer, it benefits everyone, and he works to advance a situation where that can happen.

"I really focus on how we can tie [all the parties] together and create an environment for identifying where opportunities are and helping those different partner types work together to come up with the most complete solution [for the customer]," Atkins said.

Michael Wilding, senior vice president for technology solutions and training at Computer Generated Solutions, a New York-based VAR, said that when he looks for a company to partner with, he looks for a channel partner such as what Atkins describes.

"When youre looking for a channel partner, you are really looking for a great solution. But the other thing that is critical is that you are looking for a company that has a way to create awareness in the market and create leads and opportunities for your company," Wilding said.

How big is channel marketing?

One thing is clear, as Atkins pointed out: The channel provides an outlet for tremendous opportunities and gives companies access to revenue streams they might not otherwise have. Atkins said that IBM has more than 90,000 partners around the world, and they accounted for $32B, a full third of IBMs revenue, in 2004, and an increase of a whopping $29B from 2003 partner revenues. He said that is why IBM is betting on the channel, and, so far, it is paying off.

Richard Flynn, director of the Worldwide Partner Program at Microsoft, in Redmond, Wash., reports that his company has more than 600,000 partners worldwide. Of those, Flynn said 300,000 are actively engaged with Microsoft, with 5,000 achieving the Gold Certified ranking, the highest ranking in the Microsoft partner hierarchy. Although Microsoft has an enterprise staff to help service partners in larger client settings, Flynn said the company relies on partners almost exclusively for their sales.

Whats in it for each partner?

Clearly, technology providers benefit from increased sales when they take on channel partners, as IBMs $29B increase in one year bears out. VARs and SIs also clearly gain by getting better support, training and marketing dollars. In fact, Wilding said he looks to the technology provider to provide his staff members with the background and training they need to deliver solutions with the partner companys product. He said he also knows that his company must deliver sales to justify that investment by the channel partner.

"Our partner might supply training for my technical or sales team, or they might give us marketing funds," Wilding said. "They could give us software and hardware for internal use and development. That always helps us do a better job. But, in return, they want to know [that] if they invest money in us that we are going to commit [to selling their products]. If we are going to train 25 engineers in their products, we are building a skill base to [sell and] service their product."

Flynn said that Microsoft also views the partnership as a two-way street. Microsoft supplies a variety of tools to help the partners succeed, and the partners sell Microsoft products in the channel and add value for the customer in the process.

Can anybody work in the channel?

Large companies are not the only ones taking advantage of the channel. Small companies are increasingly getting in on the act, too.

Calhoun said many small companies get into channel partnerships for the same reasons that larger players do; its only the scale thats different.

"I think they need to look at it the same as bigger players. Its a different level [in terms of numbers], but its the same mentality," Calhoun said.

Next Page: Managing the relationship.