The IT Ecosystem Problem ... From A Partner's Point Of View

If an IT Vendor Could Achieve an Ecosystem Strategy … Would Their Partners Actually Benefit?

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Prompted by my recent articles, I’ve been having some excellent conversations about GTM strategy and ecosystems in the IT channel: why vendors adopt the ecosystem approach … why ecosystem strategies fail … how vendors can make progress towards integrated ecosystem operations. This week I was reminded of a massive blind spot in this whole conversation: how does all of this benefit the partners and participants in these so-called ecosystems?

You’ll recall my essential points. 1) Essentially all vendors claim to have adopted an ecosystem strategy that incorporates multiple types of partners and multiple sales routes in their GTM. 2) Very few vendors actually operate an ecosystem model due to a long list of obstacles that include disconnected systems, lack of internal alignment, and uncoordinated sales cycles. 3) Vendors can fix this problem … and it starts by evaluating their people, systems, and partner experiences.

Which begs the question: why are you building an ecosystem?

To hear it from the vendor point of view, the driving force behind this strategy shift is customer alignment. In other words, to align / connect / engage with more customers via the sales channel preferred by the customer … to cover more market opportunity and win more deals. And as a baseline business strategy that makes sense.

Customer expansion / cross-selling remains a major challenge for IT vendors. In our ongoing GTM research, it was surprising to find that for vendors who sell 5 or more products in their portfolio, the typical customer adopts approximately 1.25 of those products. Why so low? Most often the answer is that each product has a distinct set of technical requirements and the individual partners who win individual deals often do not possess the full scope of capabilities. So if a vendor can bring an additional partner into the relationship who has complementary skills or provides specialized services, the customer is more likely to adopt additional products. Cross selling is good. (For the vendor and the partner who gets paid.)

But what is that experience like for the partners involved in this scenario? And why would an ecosystem be good for them? To be clear, this is an academic question; I have been deeply instructed in benefits of an ecosystem for partners. But I wonder how widespread these motivations and metrics are. Meeting more of the customer’s needs … expanding your reach in the market … earning agent fees or commissions for solutions and services sold into your customer base, and so on. The point I’m making is two-fold: first, either those benefits are not actually happening for partners in the real world; or second, the process of working in an ecosystem is so complex that it prevents partners from recognizing the benefits.

Plus, (this is a long-time rant of mine, so I’ll spare you the details right now) we cannot ignore the fundamental logic that the only ecosystem reality that makes any sense to a partner is one that includes multiple vendors. Because a product is not a solution. A solution includes multiple products … from multiple vendors … plus services … plus changes to customer business processes. I’ll revisit this topic in a future article.

Still … vendors persist with the ecosystem talk. So it’s good to pause occasionally and hear how this story is landing with the audience. We’ve been interviewing and working with partners who belong to various vendor “ecosystems” around the world … across technology categories, partner models, vendor strategies, etc. And the consistent feedback we hear from partners is that the ecosystem experience is either entirely buzzwords or a massive pain in the ass.

When discussing this feedback with vendors, we hear reiterations of vendor strategy and economic justifications for why ecosystem is a more effective strategy for maximizing market coverage … but we don’t hear much in the way of practical ideas about how to make it work better for partners. If there is any hope to make this strategy function as intended and achieve the goals for vendors and for partners, it’s vital that vendors step outside of their personal point of view and see things through the eyes of partners.

To that end, these are the 5 primary learning points we hear from channel partners who are involved in vendor ecosystem projects … and they tell a very challenging story:

More Partners = More Competition: While the essence of an ecosystem strategy is to engage multiple types of partners who bring complementary skills, partner perception is that vendors are merely engaging more partners who they believe will compete for the same deals with the same customers. This represents a failure to persuade partners of the benefits of the “more partners” strategy or communicate the basic operating dynamics, and also a lack of clearly defined swim lanes that protect the interests of different partner types. Have you merely added more partners, or are there natural complementary connections you are building to enhance the opportunities for your current / legacy transactional partners?

Operational Chaos: In isolated opportunities, the workflow of ecosystem collaboration can seem simple enough. Vendor resources can be identified and deployed as needed, partners have authorization to participate in appropriate stages of the opportunities, and communication between vendors and partners is smooth. But in the real world – and at volume – there are few systems in place to support or structure these kinds of interactions, and deals are often delayed while the vendor tries to identify which reps need to be involved, which contracts are in play, what pricing is authorized, and so on. What details need to be managed for a multi-partner deal to happen seamlessly in your partner ecosystem?

Collaboration DIY: Some partners have customers who need services or products beyond their capabilities … other partners have capabilities that add value to those customers. Partner A connects with Partner B … together they meet the needs of the customer … everyone gets paid, and the vendor sells more product than they would have if the partners remained isolated. Cool. But are these connections supposed to happen organically, or are you actually driving the strategy and causing collaboration to happen? In the vast majority of collaboration opportunities we’ve heard about, the vendors are the last ones to know that multiple partners are working together. This introduces confusion and complexity for the partners, and it places significant risk on the vendor. Because if the collaboration goes wrong, it’s your logo in the center of the fubar.

Shifting Compensation Metrics: A stated objective of vendor ecosystem strategies is to recognize / reward / compensate partners for value-added contributions to the business in addition to product transactions. I’ve discussed this at length with Jay McBain and with many vendors, and the ideas are compelling. Shifting from margins to a point system is a popular idea to recognized the contributions of multiple partners at points throughout a sales cycle. And while that is a noble intention, it’s not realistic to believe that vendors will add additional compensation to the overall GTM calculation to pay for these additional contributions. Rather, the existing Cost of Sales for the indirect revenue machine will be reallocated to fund the rewards for partners in the new non-transactional categories. For a vendor, this makes sense: your sales costs stay the same but you get more activity across the buyer’s journey and this produces more revenue. But what will happen to the margin available to a partner who actually performs the transaction? Obviously, that number will decline. How will you explain / justify that reduction to your transactional partners? (Correct Answer: shift your business opportunity focus from margin >>> multiplier and demonstrate the total partner opportunity including service attach. Which is also a whole separate topic.) But don’t kid yourself: your loyal partners will demand an answer about why you are paying their “competitors” to do non-transactional things.

Multi-Vendor Incompatibilities: As mentioned before, a “true” ecosystem that can be relevant to a partner would include products and partners that cross multiple vendor boundaries. But not only is that not available in practice within vendor ecosystems, according to partners the chaos of identifying and engaging with complementary partners creates an active dis-incentive to participate in a vendor ecosystem. Think about it: if I’m a partner in your ecosystem and I sell your product, it’s reasonable to assume I also sell other products from other vendors. And so do all of the other partners in the ecosystem. What do we think the chances are that all of the partners are aligned to all of the same vendors in all of the categories? Nil. Which means that when one of your partners engages a collaboration partner, chances are the new player will introduce a new potential point of competition – for the partner and for the vendor. Which explains why vendors are keen to build walls around their ecosystems that minimize distractions and prevent partners from introducing “outside” products to their solutions. And in practice, this looks to partners like vendors spending a lot of time telling them why they cannot participate in the ecosystem rather than inviting them into the game.

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Let me say this again: while it may not sound like it, I am actually an avid supporter of the ecosystem strategy and I actively encourage both vendors and partners to embrace the multi-dimensional approach to market coverage and complete customer solutions. But that’s not what I see when I explore the programs labeled ecosystems these days. My hope in this process is to spark a conversation that improves vendor capabilities for building and operating effective ecosystems. My question is: whatever you have done to adapt your GTM towards an ecosystem strategy … do you partners actually like it?

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