I’m still surprised after talking to senior executives that there is still a mysticism and sense of the unknown when you describe what a “channel” is and how it operates. Now, don’t get me wrong, most people understand the basics of the channel, such as their company having strategic partners and avenues that resell or refer your software but it usually ends at this topical description.
This vague awareness of the channel is why at some companies you will see the “channel” thrown around in an aggressive or competitive way or treated like the proverbial runt of the litter when it comes to sales hierarchy, while some other companies may not even have the slightest idea of what a channel is and how a typical channel is broken down into functional parts.
I remember during a conversation a very high ranking sales executive once told me that channels, where “were bad reps go to retire", and he meant it! Now in my opinion that judgment is misguided and typically comes from the fact that most companies are still heavily depending on direct sales and the view of the channel is one that can be competitive at best to downright hostile at worst.
In this article, I’m going to break down the core components of a channel into digestible bites which can be explored in greater detail in future articles. Now, it is unfair to categorize all channels in one definition or even use the same acronyms cross industries, but for this breakdown, we will use standard definitions and components that are focused on Information Technology which applies to several types of channels.
What is a Channel?
A channel is a group of partners that sell products or services on behalf or support of the host company, provide technology integration that enhances either companies products, or works with the company to produce a multi-vendor marketing or strategic technology alliance.
In plain English, the Channel ecosystem is a group of people who have a symbiotic business relationship and are stronger together because of that relationship.
How is the Channel Broken Down?
The “Channel” is actually broken down into very focused partner types and relationships, many of which can or will overlap as the relationship develops. The top partner types are listed in no particular order.
Suppliers are just what their title suggests, a group or entity that suppliers something that the vendor will create and the channel will contribute to selling. This is a cross industry term and can mean physical goods, software goods, or any component that makes up a product or service.
Vendors ( referred to as Independent Software Vendors, ISV’s in Technology) are the actual creators of the end type product or service. Rarely vendors will produce the entire product or service from scratch, although this does happen time to time in limited ways. Most companies outsource either product, service or other components to create a final product. Tesla and Apple may be a close example of a company trying to create a “closed channel”. More on that below.
Large Account Resellers (LAR) – These folks act as a “pass through” for licensing. They typically work with large corporations who sell quite a bit of licensing and will capture a percentage of the sales, typically .05 to 3% of the gross profit of the license revenue plus rebates. Large account resellers are about moving volume and offering expertise in license management and multi-vendor procurement strategies. Customer loves LAR’s because of the convenience of software procurement, license reporting and compliance and the intense focus on customer service. Often entities such as the federal government will have to work through a reseller and receive 3 separate bids (see below) in order to purchase.
Value Added Reseller (VAR) – Value Added Resellers (VAR’s) have a critical place in the channel partner ecosystem. VAR’s, as their name describes offers a particular value that is inclusive yet separate from the Large Account Resellers. VAR’s typically have a technical skillset that lets them offer different value to the host partner. These skillsets can range from deep technical expertise, vertical knowledge of a particular industry, Federal Government specialties or any mix in between. VAR’s are typically a software and services delivery arm and add a crucial level of resale and delivery strategy that the host company may not have had without them.
Niche Resellers – These resellers typically are much smaller than both the LAR or VAR and offer a very focused expertise. For instance, a niche reseller may have a certain relationship with a large company, or have an expertise such as experts in data science that may be very attractive to the host company.
International Resellers – International resale partners are typically more aligned with VAR’s in the technology vertical and may move toward a LAR in physical product categories. International resellers have the relationships or rights to resell in their country of origin and are often the easiest way to start expanding internationally or outright required in order to do business with the host company. International resellers may also establish technology providers in their own right and require sophisticated contractual and business strategies to expand into their country.
Distribution Partners act as intermediaries between the Software Vendor and Resale partners. Often the volume of sales could overwhelm a software vendor and a distribution partner is recruited to supply software and license rights to the resale channel. Distribution is one tier of the 3 tier software resale channel (Distribution, Reseller, End User). Distribution partners are extremely important if you expect a high volume of goods or services that will be sold, or you have a large reseller ecosystem.
An original equipment manufacturer is a company that produces components that may be marketed by another company. Also called white labeling, this could be a physical component that becomes part of a larger offering (such as a vehicle or machine) or a piece of software that embeds (integrates into) another software application to make the product or service more robust.
White Labeling – The act of offering a product or service without any identifiable labeling from the original equipment vendor.
OEM Contract – The contract agreed upon by the original vendor and the OEM customer that allows resale of the original component as a part of the product or service. This is typically a multi-year commitment with revenue sharing or lump payments based on sales projections.
Revenue Sharing – The contractual details on how the original OEM vendor will be paid when sales of the end user customers product or service are calculated.
System Integrators (SI’s)
A System Integrator is a person or organization that specializes in bringing together and connecting subcomponents into a holistic solution. Often times an Enterprise solution will require integration into several subsystems to be functional. System integrators are typically also involved with automation or making the interconnected components work together seamlessly.
Global Integrators – The largest of the System Integrators typically work on large scale enterprise integrations and automation and skilled at providing Enterprise Scale application and services. These integrators are vital to the success of product components working in massive data rich environments.
Regional Integrators – Regional Integrators focus on specific verticals or markets and have specific expertise and clientele in a certain market. These partners are exceptionally good at maintaining regional relationships and will often have “consultants” in the market they are serving.
Technology Partners are strategic partners who offer a complimentary technology, marketing, or service that strengthens your overall solution or service. Technology partners may fit into any of the partner categories and are typically marketing partners or “Referral Partners”.
OEM or Integration partners – Either embedding their technology into your solution or you embedding into theirs. See OEM above.
Technology marketing partner – Technology marketing partners are folks that provide a complementary good or service that you can combine into a marketing message to reach a wider market.
Managed Services / Cloud Services
A Managed Service Partner (MSP), is the practice of outsourcing a component or service to a partner to provide this service on your behalf. In the partner context, a (MSP) may be someone you utilize in the channel to offset costs or service that is best not managed in house. For instance utilizing AWS or Azure for infrastructure management while you concentrate on your application and its development would be an MSP partner.
Alternatively, MSP’s may also be customers of your that provide components which are utilized as part of their overall offering. This type of partnership closely related to OEM.
Consultants are business practices that specialize in providing expert advice in a particular subject matter. Consultants are typically “agnostic” to technology but do prefer technology products and services that help implement their strategy in the most efficient way and therefore can be very beneficial to your partner ecosystem.
Partner marketing is the combination of two current partners product content that appeals to both companies user bases or combines to create a message relevant to a new market. Partner marketing can consist of digital assets like white papers, or physical on presence marketing such as trade shows or conferences. Partner marketing is a critical component in delivering your message to a much wider audience.
MDF – Funds that are allocated to the indirect sales channel for production of mutual partner events, content, or lead generating activities to spread enablement and awareness of a brand.
A partner program is a program a vendor, supplier, or good sand services vendor creates to incentivize, train, educate and enable their partner ecosystem. A strong and well-defined partner program will create stronger partners and in turn create greater partner revenue.
Partner Portal – A partner portal is a section of your website that is utilized for partner training, enablement, deal registration, and any other partner activities.
Partner Relationship Management Software (PRM) – A PRM is the central technology utilized to manage partner relationships. This could be the suite of software solutions or one large interconnected solutions. Typically this type of system will also integrate into a customer relationship management (CRM) system for lead and deal tracking.
Partner Compensation – Partner compensation is the revenue incentive you supply to your channel partners to resell, refer, or embed your goods. (We will cover more on compensation in future articles)
Sell Through – Sell through refers to selling through a channel partner as compared to “selling direct” through your internal sales team.
Master Partner Agreement (MPA) – A general hierarchical agreement that outlines the general terms and conditions of your partner program. This may include general terms and conditions for partner marketing, use of logos, support, development, and other use rights. MPA’s are typically the contracts the spell out the general terms of the partnership and may have other agreements or addendums that outline specific rights and responsibilities for each partner type, such as OEM.
Partner Tiers – Partner Tiers are a way to classify partner types, discount percentage offered or other revenue terms. This is typically set to outline revenue expectations, isolate skill sets, and incentive partners to sell more or become more proficient with your goods or service through training and certifications.
MDF – See Partner Marketing
A Closed Channel ecosystem is one where a vendor tries to limit the number of outside components, parts, or services they integrate into their product or service. A completely closed channel ecosystem would use all internal partners or subsidiaries to produce their product or service
An open channel ecosystem is one where you are actively recruiting partners to complement your product or service and require services, products or technology that is not available in-house
Partner Market Share
The amount of market share your partners control in a particular industry. This could refer to their product or service or the market share of your product across your partner ecosystem.
Partner Business Models
This is your partner’s Go-To-Market Strategy which may involve market development funds from the original vendor. Partner business models and strategy is very important in creating successful partners.
The act of training and enabling your partners to help them understand your product, service or solution as well as supplying them with the information they need to sell, refer, or explain your product and service to their customer base.
Training – Typically a subset of the partner enablement program and can include online virtual training, live virtual training, or in person training. Training material and documentation is often part of the training regimen.
I hope you enjoyed this topical view of the partner ecosystem. Hopefully, you have learned some of the key acronyms and definitions that make up a partner ecosystem This document is in no way definitive and will continue to grow and expand as our channel expands.
The Channel as you can see is a comprehensive and vital part of any sales process, and if nurtured correctly can be a significant part of your overall sales strategy.
Omniom Technology Group is a channel consulting and imoprovement company.
Sean Gately is the founder of Omniom.