Loyalty Is Overrated; Relevancy Is Everything

As more partners transform themselves into professional services organizations, vendors will need to adapt to a channel in which loyalty is less important and relevancy is paramount.

By Larry Walsh

Sitting in a nondescript conference room, I stared at the screen on which my client projected sales figures and trends by partner type. Representatives from different regions and product teams went around the table explaining the numbers and gave examples of how different partners go about generating revenue. The glaringly low numbers belonged to global systems integrators (GSIs).

The director overseeing GSIs explained that the client was struggling to generate revenue with just a handful of those partners in the program. Moreover, the GSI team couldn’t seem to find the formula for attracting and signing more of them. It was a major problem for the company, whose executive team believed that having more GSIs would be a quick way to augment revenue.

The channel chief asked, “How do we get the GSIs to sell more product?”

My response: “You’re asking the wrong question. What you need to ask: How do you become relevant to the GSIs so they include you in every plan, architecture, and build they deliver to their customers?”

GSIs – companies such as Accenture, Atos, Deloitte, IBM Services, and Wipro – are the professional services organizations that serve large enterprises and global accounts. They provide the expertise and muscle to get large technology projects designed, implemented, and supported at a scale that few others, including vendors, can achieve.

The GSI segment of the channel is rich. Vendors see these partners as gateways to large accounts that they can’t effectively target with conventional partners or even direct-sales teams. If they can enlist the support of GSIs, they’ll generate as much revenue through one account as they will through dozens of midsize partners working multiple more accounts.

Typically, GSIs recommend product rather than selling it. They design systems and maintain reference architectures that include classes of vendor technologies. Think of GSIs as designer-builder hybrids, developing systems based on their expertise and recommending products to their customers. The customers will buy from third-parties – vendors or resellers – and the GSIs will then use those products to build holistic systems.

When I told the channel chief that relevancy, not incentives, was the way to attract and engage GSIs, the room got quiet. In a channel culture where incentives drive partner behavior, sitting back and waiting for products to flow as a byproduct of relevancy doesn’t really make sense.

But relevancy is the next big thing in the channel. And channel chiefs will need to figure out how to be more relevant to partners transitioning to services.

Loyalty Is Fleeting

Vendors often speak of partner loyalty as if it’s their ultimate goal. Some don’t view loyalty necessarily as the be-all and end-all but still feel they need to earn it. Others are more domineering, demanding partner loyalty as if it’s something owed to them. The middle ground is occupied by the majority that see loyalty as a means of predicting future partner performance.

In the evolving channel, they’re all wrong. Partner loyalty – as a goal and metric – is grossly overrated and irrelevant in a services-dominated market.

Satisfaction is and will remain a measure of partner affinity and vendor performance with partners. However, the real metric going forward in the services era is relevancy. How relevant are a vendor, its products and services, and its channel program to partners? That’s the big question.

Services are the revenue and profit drivers. The average partner earns as much as two-thirds of its revenue through some form of service – cloud, managed, or professional. In a recent blog, “Envisioning a Future Without Transactional Partners,” I noted how partners are increasingly less interested in product sales because of the low profitability. Carrying low-margin products dampens their aggregated profitability and valuations.

Services are nothing without product. It’s impossible to connect to a cloud-based resource without hardware. Users need endpoint and network equipment to make their digital organization run. Cloud providers need immense volumes of equipment to build the infrastructure that delivers their services. And no one vendor can deliver all the required equipment for this service-driven digital utopia.

Loyalty is a useful metric for vendors when partners have a choice of suppliers with similar or competing products. In the age of product sales, partners would remain “loyal” to their vendors because of superior product and support, as well as the cohesion created by mutual go-to-market strategies, profitability schemes, and incentives. But that loyalty-driven system doesn’t work so well in the age of services – when partners aren’t dependent on product-sale margins for revenue and profitability.

And in some cases, partners can be extremely loyal to a vendor and yet not productive. (Read “Partner Loyalty Is a Fleeting Target.”)

Quest for Relevancy

As more vendors push deeper into services, they’ll need partners with expertise to help customers define needs, identify products, deploy and implement services, customize features, and maintain systems. None of these activities have anything to do with reselling. Partners may still do some reselling, but they’ll make their money in advising customers on purchasing decisions.

As partners become more akin to professional services organizations, vendors will need to shift their thinking from monetary incentives to technical enablement, from product marketing to solution architectures, from quotas on product sales to quotas on product inclusion in reference architectures. In addition, vendors will need to start measuring partner influence on product sales rather than the sales themselves.

As more partners figure out that the future isn’t necessarily tethered to channel programs’ captive economic models, vendors will need to figure out how to become more appealing and indispensable elements of partner go-to-market models. In other words, partner loyalty will shift to vendor relevancy, with the burden placed on the vendors.

Larry Walsh, The 2112 Group

Larry Walsh is the founder, CEO and chief analyst of The 2112 Group. Follow him on social media channels: Twitter, Facebook, LinkedIn.