A Referral Model by Any Other Name…

Vendors are embracing the agent model, in which partners refer sales opportunities to direct teams or marketplaces, and partners aren’t fooled by what this shift means to them.

By Larry Walsh

Earlier this month, Palo Alto Networks kicked over a hornet’s nest when it unveiled its SaaS Deal Referral program, through which partners receive commissions and other incentives for sending customers to the security vendor’s marketplace and direct-sales team.

Understandably, partners are furious. While Palo Alto argues that the sales strategy is about ease of access and efficiency, partners see their rich margins and customer connections slipping through their grip.

Palo Alto isn’t alone in shifting more sales to marketplaces. In recent weeks, several vendors announced new or expanded marketplace strategies for delivering products and services direct to customers. Microsoft changed its Azure licensing agreement to encourage SMBs to buy cloud services direct. Amazon Web Services established a segregated marketplace for solution providers to transact products. Symantec launched a new managed security service that’s sold through direct sales. And several other vendors are looking to expand their use of marketplaces to augment and replace their existing channels.

The fascination with marketplaces isn’t new. Vendors have operated and sold through -commerce portals and marketplaces for years. Businesses and individuals can buy PCs and other equipment through online stores operated by Dell, HP, and Lenovo as easily as – if not easier than – they can buy through resellers. In fact, businesses often get better prices online than they do through resellers because of the removed markup and distribution costs.

The 2112 Group published a special report last year, “Strategies For Engaging Automated Digital Sales Channels,” which details how vendors can and should shift to marketplaces and automated routes to market.

Vendors don’t want to cut out their reseller partners entirely. They realize that moving too quickly to marketplace models will disrupt existing channel relationships and revenue streams. So many vendors are embracing what’s called an “agent model.”

Agents, by the new definition, are partners that actively sell products but don’t take title to accounts. They assess customer need, register opportunities, collaborate with vendors on the sale, and facilitate the purchase. They don’t bill the customer, but they do get paid for creating the sales opportunity.

Does this sound familiar? It should, because it’s known by another name – i.e., the referral model.

Vendors recognize that they’re dressing up the old referral programs as agent models to take the sting out of the transition away from the transactional reseller channel to the automated digital sales route to market. Partners aren’t oblivious either. They see what’s happening, and they’re none too pleased about it. Their worst fears are coming to fruition – the loss of control over customers, the diminished rewards for reselling, and the lower compensation for referrals.

One reason partners bristle at the agent, or referral, model is that it disrupts the illusion of what they consider their value. Many vendors operate fulfillment channels, in which resellers are the recipient and not the originator of sales. The partners provide influence to help the vendor close the deal and then take over the account for product fulfillment. For this, they earn healthy margins and opportunities to provide value-adds such as managed and professional services.

Under an agent model, partners have to depend more on their own demand-generation and selling skills and capacities, and on their value-add capabilities. This shift is uncomfortable for many partners, as they’ve never had to develop the marketing and sales muscles required to go to market somewhat independently.

A strong argument is that this shift will make some partners stronger; after all, they’ll have tremendous influence over the customer experience. Despite having the ability to sell direct and through marketplaces, vendors can’t scale experience. They’ll still need partners to deliver the assessment, implementation, customization, integration, and support services for which they don’t have capacity. (I’ll dive into the rise of the CX channel in another blog soon.)

Vendors can talk all they want about the evolving channel and embracing an agent model. Partners recognize what it is. Or, as Shakespeare might say, “A referral model by any other name is still a referral model.”

Larry Walsh, The 2112 GroupLarry Walsh is the CEO of The 2112 Group, a business strategy and research firm servicing the IT channel community. He’s also the publisher of Channelnomics, the leading source of channel news and trend analysis. Follow Larry on Twitter at @lmwalsh2112 and subscribe to his podcast, Pod2112, on iTunes, Google Play, and other leading podcast sources. You can always e-mail Larry directly at lmwalsh@the2112group.com.