3 Steps to Monetize Your Alliances: Step 3 – Choose the Right Business Model to Drive Revenue Impact

Part of a Series: Are Your Alliances Missing the Money?

• 3 Steps to Monetize Your Strategic Alliances
• Step 1 – Build a Complete ATM Bridge to Your Customers
• Step 2 – Set up your Alliance and Bus Dev organizations to both “hunt” and “farm”
• Step 3 – Choose the Business Model that Matches How Alliance Solutions are Sold
• Measuring Alliance Impact:
  • Options to Measure the Revenue Impact
  • Are You Operating in the Stone Age of Deal Registration?

In the past few weeks, I’ve been talking about how companies can drive revenue from their strategic alliances and answering the question, Are your alliances missing the money? Below are 3 steps that companies can take to drive revenue.  In talking to companies over the years, I’ve found that many (most?) companies are not able to measure revenue impact from most of their alliances. In today’s high tech industry, if you can’t measure it, it does not exist – and the resources to execute will also not exist…

Figure 1 below depicts this challenge visually. As discussed in Step 1: Building the Bridge, you need to have a complete set of programs to get to the customer – AND you need to have a closed loop feedback mechanism to measure your success (in terms of pipeline and revenue).

Figure 1: Measuring Alliance Impact – Across the ATM Bridge

The challenge for alliances is that sometimes this closed loop measurement is hard to accomplish. Figure 2 below shows the common business model options that are part of the first element of the Bridge – Solutions.

 

Figure 2: Alliance and Solutions Business Models

 

Depending on how solutions are packaged, measurement can be easier or more difficult, but the business model must make sense for how the products contribute to the solution, or you will not drive revenue.

 

• OEM relationships – are appropriate for alliances where one partner’s offerings are sold as an add-on the other partner. Note that the value proposition for this joint solution is an extension of the OEM seller.
  • A big advantage of OEM is that they are (relatively) easy to measure. The OEM sells their products with your products as an add-on and you can see the sales impact by reporting on sales to the OEM or getting royalty reports from them on the end customers (if this is negotiated).
  • A hidden challenge with of OEM agreements is that the outbound OEM partner tends to lose control of how their products are sold and the perceived value of their brand, since you are relying on the OEM or its partners to sell your product as an extension of their product and their messaging through their sales channel, they tend to commoditize your offering and attribute all the value (and capture most of the margin) for themselves.
  • Although there are pros and cons to OEM, I’ve found that many alliance organizations default to OEM as the primary way to monetize an alliance – because it can be measured – not because it is the right business model for the relationship…

 

• Reseller agreements – are often put into place when two products work together as part of a joint solution. Vendor A is selling into customers and if they buy Vendor A’s product, they may need Vendor B’s product as well. So Vendor A sells vendor B’s product.
  • The challenge with reseller agreement between technology vendors is that customers and sales channels often game pricing to bet the best unbundled pricing.
    • Let’s look at two ways to order:
      • (Normal resale with Distribution) – Vendor A to Distribution for A to Reseller of A to customer
      • (Tech Resale) – Vendor A to Vendor B to Distributor of B to Reseller of B to customer
    • Note the extra step in Tech Resale, – and if Vendor A lowers their price of unbundled, branded product to Vendor B, it creates pricing disparities to the rest of Vendor A’s channel.
  • Technology Vendor Resale can work – but it works best when:
    • Resale is into a dissimilar market and channel. For example, a healthcare equipment vendor reselling a healthcare specific to healthcare customers.
    • Product is embedded in another product or pre-configured (so there is not an unbundled price comparison)
  • Hard Bundles – when a vendor sets up a pre-configured set of products as a sku at distribution.
    • This makes measurement easier, since it is a “product”, but creates complexity for distribution, resellers and customers and ultimately collapses because the customer wants to unbundle the bundle (I love your virtual storage appliance from NetApp but can I get it without their deduplication engine (I use another vendor for this)?
    • Not convinced – just tell one of your top distributors you are looking at “hard bundle” program – and wait for them to bombard you with reasons not to do this…
  • Soft Bundles – include a list of products and configurations that make up the overall solution. Configurations are available to the channel and customers, but customers can buy the products separately.
    • When you hear people talk about “meet in the channel” programs, this is the scenario they are talking about.
    • While this model is the most flexible and customer-friendly there are 2 main drawbacks that push alliance organizations away from soft bundles

1. It can be challenging to market and sell soft bundles (but there are ways around this. See my post, The Solution Blueprint: A Visual Tool for Creating Alliance Messaging that Speaks to Customer Needs
2. It can be challenging to measure the sales for soft bundles

Up until a few years ago this second challenge was overcome with a series of manual workarounds but now leading companies are using more effective ways of measuring sales of soft bundles. I will talk about topic more in my post next week.

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