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Why Tech Execs Can’t Ignore the Partner Ecosystem During Their Transition to Usage-based Pricing

For the greatest technology companies of the 21st century, partner ecosystems played an indispensable role in their journey to the top.

From Google to Oracle to NVIDIA to VMWare, these industry titans relied on a robust network of partnerships to drive their go-to-market strategy. Their channel and alliance strategies allowed them to gain a foothold in every part of the world, driving the large-scale growth necessary to achieve billions in annual revenues. A partner ecosystem was recognized as a must-have for any tech company with truly global ambitions.

However, the last five years have seen a significant change in the way companies buy and pay for software. Instead of paying once for a license, enterprise SaaS customers now pay according to their usage. The success stories are impressive: companies like Google, Microsoft, Hubspot, MongoDB, and Snowflake have all used usage-based pricing to reach their pinnacle of growth.?

However, the steady industry-wide shift to usage-based pricing has had an unintended consequence. Large tech companies no longer have a clear understanding of how alliances, channels, and partnerships fit into their overall go-to-market strategy. A robust partner ecosystem shouldn’t be a short-term priority for every SaaS company; some need to improve their internal GTM execution before turning to partners.

For mature companies that are trying to grow from seven figures to eight in annual revenue, figuring out how the partner ecosystem and usage-based pricing fit together can become a matter of success or failure.

For two years, I led global alliances and channels at New Relic as the company navigated this very transition. Here are my thoughts on how SaaS companies can maximize returns through a comprehensive partner ecosystem while shifting to usage-based pricing.

Why partners matter It’s important to recognize that while the pricing model for enterprise SaaS companies has changed, the fundamentals for sales and worldwide growth haven’t. Companies with ambitions to reach every corner of the world and a wide range of verticals can’t do it alone — they need to rely on channel partners to increase their resources and leverage their partners’ existing reputations and relationships.?

Channel partners are essential because they can both accelerate the timeline and reduce the costs of selling into certain regions and verticals. Regional and global service partners are sometimes the final decision-makers on behalf of a customer when choosing a technology vendor, and strong relationships can deliver exceptional value over the long term.

Building an indirect sales function — and in this case, tailoring it to a usage-based pricing model — takes time and investment. However over time, the indirect sales function will still deliver stronger performance productivity than the direct business, regardless of how the product is priced and packaged.?

What changes with usage-based pricing

The transition from license- to usage-based pricing is a challenge for every team within a SaaS organization; it requires strong executive sponsorship and company-wide buy-in to succeed. For sales teams in particular, the job gets harder before it gets easier. Not every customer will be enthusiastic about the shift, and many will try to hold onto their legacy pricing model for as long as possible.

The majority of partner and channel leaders are used to license-based pricing, and they’ve established consistent best practices to build their organization and drive growth with this model. But usage-based pricing is a different beast entirely, and partner leaders will have to start from scratch as they create strategies to drive consumption among their partners.

Advocacy matters during this transition. Many of today’s tech companies are led by engineers and follow a product-led growth strategy. This isn’t a bad thing — it just means that partnership leaders need to take time to educate their colleagues on the importance of indirect sales in the overall go-to-market strategy. While the pricing model has changed, the fundamentals haven’t — you need resale, distribution, referral, technology, and service partners to reach the pinnacle of a global growth strategy.?

Best GTM practices for a usage-based pricing transition

Just like the usage-based pricing needs to be embraced on a company-wide level, so too does the partner function. These best practices can ensure that both strategies work in tandem to increase revenue growth:

• Remember the importance of relationships and mutual trust: Even as our world becomes more analytical, SaaS enterprises need to recognize that their partner ecosystem depends on relationships and trust. There are no shortcuts. Value is a two-way street: relationships can help your organization grow from seven to eight figures, but you'll need to consider what value you're bringing to the partnership in exchange. Or to put it another way — it takes a village to build a SaaS leader.
• Take a top-down approach to compensation and change management: Your sales team is already feeling significant pressure as they adapt to a new pricing model — adding channels and partnerships without careful planning can take the situation from bad to worse. Compensation neutrality and a friction-free sales team experience is essential to ensure that no area of the business is neglected, and C-suite executives need to be actively engaged on the partner strategy to ensure everyone is rowing in the same direction. Executive sponsorship here is crucial.
• The consumption-based strategy must be inclusive of partners: Consumption-based pricing means new strategies, new metrics, and new tools for nearly everyone in the organization. For a partner ecosystem to succeed, they need access to the same tools and resources — particularly with regard to data — as the direct sales teams. Having a clear, detailed understanding of the customer consumption data will help channel leaders and partners to make more effective decisions for the growth of their ecosystem.
• An effective partner leader can’t be siloed: Alliances and channels aren’t just a matter of sales. A strong partner ecosystem also needs seamless integration with the company’s product, finance, and support teams to ensure that partner customers are given the same level of service as those who signed up with the company directly. This reinforces the need for the partner ecosystem to be a C-suite imperative rather than a subsection of the sales organization — every functional leader reporting to the CEO should be invested in the success of their indirect sales team.

The question of how to integrate the partner function into a usage-based model is one without simple answers, but the potential payoff is immense. Business, product, and sales leaders alike need to recognize the value of their partner organization — a rising tide that could lift the entire organization to billions in annual revenue.