7 Open Secrets of the Channel’s Long Tail
The channel has a love-hate relationship with the long tail, mostly because of misconceptions about the composition and dynamics of low-performing partners. Here are 7 common misconceptions or overlooked facts about the channel’s long tail.
By Larry Walsh
A recurring debate in the channel is the value of the long tail – the large number of low-performing companies that make up the majority of partners in vendors’ programs. Some people see the long tail as an untapped opportunity that’s rich with partners with the potential for high performance (if nurtured). Others, including me, see the long tail as a drag on overall indirect-sales performance.
The long tail does have value. When these opportunistic and transactional partners make a sale, it’s typically a profitable one. In fact, partners that don’t consume support resources, qualify for incentives, or receive preferred discounts make sales that are more profitable than even those of top-tier partners.
So, we long-tail contrarians agree that the long tail has some intrinsic value. Partners in this tranche do yield profit, but they also incur costs. They require nurturing and support, so they cost vendors. Further, trying to move these partners to higher levels of productivity and value often costs vendors more than they get in return.
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This debate rages mostly because of misconceptions about the long tail. People have the notion that the long-tail is a uniform collection of businesses with untapped potential. The following are seven open secrets of the channel’s long tail that many people overlook.
- The Long Tail Isn’t 80/20A common perception is that the long-tail ratio is 80/20, meaning 80 percent of the revenue flows through 20 percent of the top-performing partners. In that scenario, the long tail is the 80 percent of partners that generate 20 percent of the revenue. In truth, the ratio is much more skewed. It’s more like 95/5, with 5 percent of the partners generating nearly all of the revenue. Understanding the ratio is important in gauging the true potential of the extended channel community. The 80/20 ratio is so generally accepted that it leaves many channel managers with the impression that a greater number of their partners are more productive than they actually are.
- The 80/20 Ratio Applies to Top Partners TooSome vendors try to obfuscate their channel-performance ratios by counting only top-performing partners or those that qualify as top-tier players – Diamond, Platinum, Gold, Silver, etc. In many cases, counting only credentialed or high-performing companies reduces the total number of active partners by 75 percent or more. However, even this accounting isn’t enough to break a channel program’s high-low performance ratio. In many cases, not counting the “registered” or “authorized” partners only results in partner performance being right around 80/20.
- The Long Tail Isn’t UniformBy definition, the long tail is a collection of partners that decline in productivity the further down the list you go. Some people don’t think of it this way, but rather as a monolithic set of companies with relatively equal levels of performance. In truth, the long tail isn’t uniform and isn’t always positive. In many channel programs, as many as one-third of long-tail partners are actually posting negative revenue, meaning they’re returning more product than they’re selling.
- Long-Tail Partners Don’t Know They’re in the Long TailMany partners acknowledge being small businesses or not being a top performer in a channel program, but they don’t necessarily know or understand that they’re in the bottom four-fifths of the network. No one wants to think of themselves as “small” or “underperforming.” Instead, they see themselves as successful businesses that generate revenue and profit, regardless of their actual contributions to vendors’ coffers. To them, the sales they make are positive contributions to vendors that warrant recognition and appreciation.
- One Vendor’s Long-Tail Partner Is Another Vendor’s SuperstarJust because a reseller or integrator is part of one vendor’s long tail doesn’t mean it’s in the long tail across the board. An underperforming partner for one vendor could be a superstar in another vendor’s program. The lesson: You can’t judge a partner simply by its status in one channel program.
- Stimulating the Long Tail Costs Top-Performing PartnersFrom time to time, vendors will get an idea for applying attention and resources to the long tail to stimulate its revenue production. And why shouldn’t the long tail thrive? Long-tail partners have customers; a vendor will double its revenue for each long-tail partner that sells just one more unit than normal. Unfortunately, stimulating the long tail costs more than it can return, in the aggregate. Also, it takes away opportunity from the top-performing partners. The total addressable market is finite, which means any downstream stimulation of the long tail will divert opportunities away from the partners that consistently deliver revenue.
- Vendors Are Partly Responsible for the Long Tail’s ExistenceThere’s no avoiding the channel long tail, but vendors’ long tails are often unnecessarily large. As noted above, many vendors will count only their credentialed partners when calculating their channel performance. That’s an internal exercise. Externally, vendors love reporting the large number of partners they have – including long-tail partners. Many vendors will support – if only through lip service – long-tail partners because they don’t want to lose the revenue they generate (little as it may be) and don’t want negative press from disgruntled resellers. This leads to vendors establishing policies, programs, and distribution relationships that support underperforming partners in the long tail. And any time you talk about “support” in a channel initiative, you’re talking about a vendor that ends up spending money.
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None of this is to say that vendors should dismiss the potential or value of the long tail. But having a greater understanding of the long tail’s composition and dynamics will help vendors make better decisions regarding partner programs and strategic development initiatives.
Larry Walsh is the founder, CEO and chief analyst of The 2112 Group. Follow him on social media channels: Twitter, Facebook, LinkedIn.
