Partnerships, Channels & Alliances – Who Does What Exactly?

The IT community has many residents, all co-existing and depending on each other. It’s what we dub the IT ecosystem – a system where suppliers and users co-exist and are mutually dependent on each other to survive. Or as Iansiti / Levien said in 2004:

“In networked industrial environments, the performance of any organization is driven in large part by the characteristics and structure of the network, which influence the combined behavior of its many partners, competitors and customers.”

Vendors realize that in order to reach their objectives, they cannot or do not want to go it alone, they need partners. And the combination of vendor and partners will only be able to compete if it is part of an ecosystem or creates an ecosystem. Business success depends for a large part on how the various entities within that ecosystem are able to work together, co-develop, co-deliver or collaborate in any other form.

Those companies holding leadership roles may change over time, but the function of ecosystem leader is valued by the community because it enables members to move toward shared visions to align their investments and to find mutually supportive roles (J. F. Moore, Harvard Business Review (1993)

So, why use partners in the first place? For starters, partners are used to complement strategic business directions like:

• Increase Market Power & Market Penetration
• Market Expansion & Accessing New Markets or New Business
• Innovation & Acquiring new Skills or Technology Transfer
• Gaining Scale & Improving Supply ChainMarket Defense & Protection

Now there are many terms for partner activities; channels, ecosystems, alliances, they all mean different things to different persons – hence the difficulty trying to classify and segment the partner market. We’d like to share our take on it – just so in future reference you understand how we see the various entities within the IT community.

Partner community (or partner ecosystem) is a generic term used for all partner types. The partner community can be broadly divided into:

Alliance Partners –represent a more qualitative opportunity – opening new markets, building new business, accessing new markets, create new product / solution offerings, and innovate. Alliances are less transaction oriented (if at all), and measured in business benefits (soft dollars). Alliances are more long-term strategic partnerships, interactive and creative by nature.

Channel Partners –represent a more quantitative opportunity: a means to get the product from A to B. Usually there is a transaction involved, partners may or may not add value to the product, but the product they sell is usually someone else’s. Focus is on improving supply chains and creating economies of scale. Channels are more transaction oriented, benefits are usually measured in volume and discounts. End-user reach and loyalty are important elements. Channels are a delivery mechanism, driven by economics or efficiency.

Basically, channel partners are more transaction oriented, whereas alliance partners are more interaction oriented, as visualized in the graph above.

The lines are blurry though, and various partners may offer solutions and products that fall outside the traditional thinking. A system integrator may focus on equipment, an ISV may have high consulting revenues, a business consultant can have an IT integration division. One size does not fit all. We do emphasize though that partners should be classified to their activity. Below we have characterized the core activities of the various channel and alliance partners.

Looking at who does what, exactly, we have to connect the IT activity to the partner type. Alliance partners have more interaction oriented activities, whereas channel partners have more transaction oriented activities. Below we mention the most common channel and alliance partners in the broad enterprise IT ecosystem.

Alliance Partners

Business Consultants – Business Consultants focus on business issues within an organization, organizational or operational by nature. They focus on improving results. IT recommendations are part of an overall business strategy advice. They usually have an influential or trusted advisory role, as they do not want to jeopardize their independency to their clients. Business consultants are companies like Boston Consulting Group and KPMG but could also fall outside the IT industry such as coordinating organizations within a specific industry, or accounting organizations pur sang.

System Integrators – System Integrators traditionally realize a substantial part of their revenue (more than 40 %) from IT consultancy and system integration. They are different from a business consultant in that they also take title to product. Main characteristic is that they are able to connect and integrate various subsystems in an IT environment. They have a generic approach to IT systems, but also have access to dedicated and certified product staff (Microsoft certified for example). In a cloud computing environment, cloud integrators fit into this category. Companies like Centric, Cap Gemini and Atos

ISV – The major revenue stream of an ISV comes  from repeatable  software licenses sales, either direct, indirect or through the cloud. ISVs have a one-to-many business model. Increasingly, the business model also includes higher levels of service & maintenance revenues. An ISV takes ownership to the product, however, they do not always have direct customer ownership. Microsoft is an example of a vendor who still gets a large part of its revenue from license sales, SAP gets a very high portion of revenues from services as well. Salesforce.com gets most of its revenues from software license sales on a rental (SaaS) or cloud model.

Channel Partners

VARs – A VAR usually excels in one or more specific IT roles -either horizontal (e.g. CRM or Mobile solution specialist) or vertical (public sector, financial sector etc.). A VAR builds a solution around one or two specific vendors, the solution often consisting of hardware, software and a service component (one-stop shop). VARs resell hardware and software, but most of the revenue stream comes from service & integration and complete solution offering. The value add of a VAR also lies in the fact that they often have customer ownership – they have direct access to and knowledge of the client base. Serac is a VAR for SAP solutions for example,  Imtech ICT Performance Solutions is a VAR in the area of business intelligence and corporate performance management.

Hardware & Infrastructure Providers – Hardware & Infrastructure Providers deliver the goods. These type of partners, also OEM, embed products in their products and resell. Hardware and infrastructure providers make their margins on equipment & product sales. This category can also contain data center providers and hosted solution or (web) service providers. Vendors like KPN, but also Cisco fit into this category, or companies like Voipro.

Resellers – The reseller mainly supplies IT products without any modifications to a specific end-user market (large account reseller, corporate reseller, consumer reseller etc.). Margin is in volume. An example is iCentre, an Apple reseller.

Distributors – A distributor does not sell to the end-user but to other channel members. Their value add lies in volume, but they often provide other services such as finance offerings, license management, technical support & training. An example is Copaco, who distributes but also educates & certifies for Microsoft, but also recently launched its cloud reseller program 2tCloud, or Portland, another distributor focused on cloud distribution.

The list above is not comprehensive, nor is it exhaustive. And the type of channel and alliance partners mentioned above are the traditional ones, however, they do capture most of the activities performed by the partner community. New types of partners may (and will) emerge, but when segmented to activity, it makes it easier to integrate these partners into existing partner categories. The type of partner that one needs depends on the type of direction one is pursuing, combined with the value a partner can provide. In most cases though, it will be a combination of various partners.

What’s your take? Is your partner ecosystem well balanced between interaction and transaction partners? We’d like to hear!