April 2011 Feature

Channel and the Cloud: Top 4 Challenges to Consider When Working With Partners

Insights from Ian Moyse, EMEA Channel Director for Webroot

by Anna Johnson

In today’s marketplace, more and more customers are choosing cloud over product offerings for ease of use, maintenance, and implementation – not to mention the cost savings in this budget conscience climate. Vendors like Salesforce.com and Cisco’s WebEx have paved the way by bringing services to market and analysts like Gartner and Forrester have created a whole nomenclature to make cloud cool. But where does that leave the channel?  If our short cloud history is any indication of what is to come, then are we to believe that SaaS can only be brought to market by a legion of direct sales reps? Or is there an opportunity for vendors to embrace a historically product-based channel sales force that is stirring in the wings and waiting to be transformed? After all, they do own the relationship with the very customer you are vying to gain. Seems like a win-win situation? So why the slow turtle pace at finding ways to get both vendors and partners to capitalize on the trend?

Channel Management Insights sat down with Webroot’s EMEA Channel Director, Ian Moyse to discuss the top four common challenges vendor’s face when selling cloud-based services through the channel and how best to overcome them.

Challenge #1

You want to sell service when the channel is used to selling products.

“This is an easy transition if vendors employ solution selling sales trainings,” says Moyse. Prospects buy solutions that address a business or technical pain, not function/features. It won’t matter to prospects whether the solution is a service or a product. If the vendor has conducted sales trainings using the pain/solution method then the change from selling products to service should go smoothly. Suppose, however, that some channel partners sell features despite all attempts to train on solution selling. “Uncover the channel partners who are used to solution selling and who do it well,” says Moyse. Roll out the cloud-based service to the solution selling partners, gain traction, and use them as examples to get the other channel partners on board. It only takes one or two big wins to get prospective partners to take notice.

TIP: Have a strong solution story that will remain consistent despite changing from product to cloud, making it easier for the channel to make the transition.

Challenge #2

Cloud-based compensation vs. product-based compensation.

“Sales compensation is a tricky topic to address,” admits Moyse. For decades, the channel has been compensated with a commission for every customer transaction.  Since most cloud-based solutions are recurring fees occurring on a monthly, quarterly, and sometimes annual basis, vendors are likely to pitch a switch in payment terms to the channel. Often times, this pitch falls on deaf ears. The last thing a partner wants to hear is how their one-time payment of $50K for selling software will reduce to $3K per month when the customer transitions from product expenditures to a monthly SaaS solution. “Partners don’t like changes so if you can emulate a product-based compensation model then you have a better chance of attracting partners,” says Moyse. For example, consider the option of a partner selling a three-year contract for a similar amount as what it would cost a customer for purchasing a product-based solution. If you can find a way to compensate the partner a one-time fee upon the customer signing the contract, there’s little difference in the “tradition” of a product-based comp plan.

The question is, what is the likelihood a customer will sign a three-year contract?  It all depends on the customer, service, and competition. But in the event the customer isn’t sold on a three-year contract but IS SOLD on the service, the partner will become more agreeable to a shorter-term contract with the likelihood of renewing in order to save the deal and keep the customer happy. Have a few different compensation models in your back pocket with one of them emulating a product-based compensation plan to reel in interested channel partners. Partners will appreciate your forethought and flexibility in compensation models as they enter into the unchartered waters of selling cloud-based services.

TIP: Have a few different compensation models ready in your back pocket to address a variety of sales situations, with one of them emulating a product-based compensation plan to reel in interested channel partners.

Challenge #3

Customization vs. Installation.

Dum dum dum. In walks Dr. Doom. What happens when the majority of your partners make a lot of revenue on installation and selling cloud-based services doesn’t require installation? Chances are those partners are going to shy away from selling cloud anyway. “There are a couple different strategies you can employ to get over this hurdle,” Moyse says.  “The first strategy is to uncover the partners that don’t rely that heavily on installation and push more deals through them.  It’s not a kind strategy when you’re trying to woo a variety of different partners who own the customer relationship.”  Moyse continues, “The second strategy is to develop a partner training program that emphasizes configuration instead of installation.” Cloud services turn on in vanilla mode. This allows customers to gain account access quickly. But for the service to be adopted, someone must configure it to meet the customer’s business requirements. The second strategy offers two benefits. For partners who don’t rely on installation revenue, they may be intrigued by the opportunity of adding configuration revenue to their business model. “Depending on the service, configuration might be easier, require less manpower, and be less costly than installation.  In certain instances, configuration might offer better profit margins than installation too,” says Moyse.

For partners that rely on installation revenue, vendors who offer a proven path to configuration revenue will win the affections of this type of partner. “Change is always hard but the channel is beginning to see a partial demise of selling product-based solutions. Customers know there isn’t value in installation and that’s one reason why they are choosing SaaS over products. But customers do see the value in configuration to their specific business requirements and will look to their trusted VAR to do it for them,” says Moyse.

TIP: Develop a partner training program that emphasizes configuration instead of installation to provide a revenue migration path for partners who rely on installation revenue.

Challenge #4

Customer Engagement.

Cloud-based solutions offer new ways to engage with the customer during different points of the service lifecycle. As the vendor, consider all the different opportunities partners interact with the customer beginning with the sales and marketing process, account activation, configuration, training, usage, support, billing, and ending with the renewal and the upgrade process. At each customer interaction, consider how working with partners may affect the overall experience.

As a vendor, you may consider allowing partners to own the entire customer lifecycle by offering a white-labeling service. White-labeling allows partners to rebrand and sell the cloud-based service as their own but does prevent partners from using your case studies, service awards, and brand strength as a technology provider. This option allows vendors to minimize their contact with the end-user and avoid the costs associated with training and supporting the end-user. However, with minimized customer contact also comes less control over the customer experience.  While clearly not for everybody, it has been a successful approach for some.

Perhaps you want to own and control the majority of the customer experience by only working with the partner during the sales and marketing process.  While this option seems simple to the vendor it can be too limiting for the partner AND the customer. Your prospects that are seeking to migrate to a cloud-based service like yours are used to purchasing product through partners and also rely on them for expert advice, training, and upgrades. As a customer they may have simplified their accounts payable process by relying on a single supplier and this is where SaaS has its shortcoming.

Most partners who are setup to do the billing are only configured to bill customers in a product-based model. This presents a problem for both the partner and the vendor. How does a partner who owns the customer relationship become flexible enough to offer new recurring billing terms? How does a vendor offer a flexible billing system so that partners can participate?

“There is a simple solution vendors should consider when working with channel partners that want to own the financial relationship with the customer,” says Moyse.  “Distributors like Ingram Micro provide billing services on behalf of resellers who sell SaaS solutions.” This option uniquely simplifies the billing process for everyone. Vendors can offer resellers the ability to bill customers directly without having to work with them one-on-one and the channel doesn’t have to invent a new system to accommodate the new recurring billing terms.

TIP: Consider working with a distributor like Ingram Micro that provides billing services on behalf of resellers who sell SaaS solutions but can’t accommodate the annual, quarterly, or monthly subscription billing terms.

Conclusions

The advent of “cloud” has disrupted the way companies use and purchase technology to make their business more innovative and efficient. As the market for cloud-based offerings matures there is an important role the channel provides, especially when introducing and supporting cloud-based solutions to the SMB and mid-market enterprises. It’s not a matter of “if” the channel will participate but “when.” Many of the challenges to bringing your cloud-based solution to market through the channel are centered in the key question of “who owns the customer relationship?” If the channel does, then white-labeling your product and relegating all configuration, invoicing, renewal responsibilities, and maintenance can be your partners’ responsibilities. If you own the customer, then perhaps you want to take on all those functions. However, your ideal answer may fall somewhere in the middle. In any case, be sure you have a strong solution sales message to the channel that allows them to support their go-to-market strategies with a new revenue model and with compensation terms that will resonate with them.

Ian Moyse has over 25 years of experience in the IT Sector, with nine of these specializing in security. With over 23 years of channel experience, Moyse currently heads up the channel partner program for Webroot in EMEA. He sits on the board of Eurocloud UK and the Governance Board of the Cloud Industry Forum (CIF). Moyse was recently awarded global ‘AllBusiness Sales AllStar Award for 2010’ and The ‘European Channel Personality of the Year Award for 2011.’