Why channels might not care about channel margins

Competitive EdgeNot all channel partners care about the channel margins that software vendors are willing to give out. There could be many reasons for this, but what I have seen for the most cases is that the potential channel partner have realized that they have to sell and invest heavily to the sales operations for that specific product to carry to the cost and not all channel partners are ready to do that from their own pocket. The math is pretty simple. Just calculate the cost of one sales person and potentially one marketing person and factor that in your cost/revenue model and see how many subscriptions/software licenses you have to sell just to cover the cost. I did this exercise as part of my educational program in TELLUS Academy and some of my students were very surprised about the findings and also surprised why they did not think about this before.

We are now moving into new business models with apps, mobility and the cloud being the drivers. What we are seeing in the market is the move from software resellers and value-added resellers (VARs) to identify solutions that would differentiate them from all of the numerous other vendors that are doing the same thing. If you look at a typical system integrator (SI)¬†web-pages, you will see that most of the vendors do the same thing, claim the same thing and have the same value proposition. How could a potential end user customer be able to differentiate these different vendors from each other if the value proposition is exactly the same? The short answer is that they can’t.

What we are seeing on the marketplace today is that software resellers are looking for new business models with something that could differentiate them from the rest. This is where the app model comes to play where a service provider might resell something that another one does not have. In many cases, the reseller really is not there to try to make money on the app, but to be able to win the business from another similar service provider. It is a race of who has the best value proposition towards the end user organization and who can provide a solution that gives also a competitive edge to the end user organization that is consuming the app/service. I think many organizations are looking at the new business models in the wrong way and some even not seeing the app model as a viable approach to future profits. I think this is a grave mistake and we have seen this types of mistakes in the past. Just look at Netflix and failed Blockbuster and what happened to Blockbuster as they ignored the new rising business model.

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