Business of Software: What Heads of Sales and Marketing Need to Think About To Grow? … Hint: Keep Your Channels Close
Knee-Jerk Reaction: Online Commerce Leads to Software Channel Disintermediation
The popular press has been filled with articles about the ongoing disintermediation of channels coupled with the rise of direct vendor to end-consumer relationships. Examples of disintermediation abound across industries — Dell’s direct to consumers and businesses model, in-store video rental disrupted by Netflix’s home video distribution, Politico.com as an example of the break-up of traditional newspapers and how news is consumed by readers, the rapid rise of Apple’s AppStore, and not to mention the near disappearance of software retail (when is the last time you saw an Egghead Software retail store in the US?).
The Cloud Accelerates Software and SaaS Business Model Changes
The rise of the cloud has ushered in a rapid change of how software is being delivered — shifting from just over 33% in 2010 to over 71% in 2014 being delivered online. Sales are affected more by search and social recommendations rather than the big software publishers who delivered packaged products to the limited retail shelf space. This has opened up opportunities for publishers of all sizes to compete in almost any software category and across virtually any channel.
Online delivery also lowers the barriers to entering new markets, such as international and local niche markets. But being able to address so many new customers around the world also means that companies who are not expanding into new markets are effectively losing market share to other companies who are entering those markets. This reality has further impact on horizontal software categories, such as PC Utilities and Security, as they feel increased worldwide competition on product, price, and business models.
With the flurry of competition, the consumer software industry is being forced to move from “pay up front” to “pay as you go” subscription-type revenue models. Customers are increasingly expecting the ability to buy software on trial, freemium, and subscription basis where they can expose and pay for more functionality over time. Salesforce.com does a nice job of summing why subscriptions / SaaS are a no brainer for businesses, as well.
While Online Adoption Encourages Disintermediation … Low Digital Goods Channel Costs Keep Channels In Place:
Last week, I sat down for a quick chat with Harvard Business School associate professor, Ben Edelman, and talked about channel evolution. He agreed that channel disintermediation was a natural result of digital disruption removing all non-value added players from the value chain, thus enabling greater market visibility and a more efficient system. In the same breadth, he turned around and said that for Digital Goods, channel costs are correspondingly low, potentially resulting in even more intermediaries, not fewer – search, discovery / marketing, logistics, settlement and trust being the obvious functions of the channel.
At the same time, partner order and revenue management platforms further lower the cost of finding, contracting, managing the order taking and fulfillment, financial reconciliation, and most importantly, renewals and providing end-customer visibility and engagement.
Publishers Increasingly Need Channels to Reach New and Fragmented Markets
Even as large eMarketplaces like Amazon and Apple’s AppStore commoditize horizontal software categories, channels are increasingly helping software publishers accelerate their sales.
- Reach an increasingly discerning and educated consumer earlier in their decision process – As popularized by Google’s new book, Winning the Zero Moment of Truth (ZMOT), publishers need to engage prospective buyers earlier and in context. This is especially true for technology purchases where a shopper will view over 14 sources of information before making a decision. To reach the rapidly fragmenting consumers, publishers must consider leveraging Affiliates and Resellers to increasingly reach end customers, provide potential buyers sources of information and validation, and convert customers within the context of their buying process.
- Enter new geographic markets – Above the 30%+ increase in conversion publishers can see by localizing their eCommerce customer experience (see AVS4YOU as a case study), resellers and affiliates localize the product marketing to reach out through regional comparison sites, events, and tweaks to the product offering (e.g., SiliconAction in Brazil).
- Enter disperse / new markets – Andreessen said it best in his article, ”Why Software Is Eating the World” – we are in the middle of a broad technological and economic shift where software is becoming critical to large swaths of the economy. Like Microsoft with Columbus IT, and other publishers who are entering multiple micro-vertical markets, publishers will rely on channel partners to enter, create solutions for, and support increasingly niche software verticals.
- Engage, sell, and support end-customers as software moves to subscriptions that are actively managed and renewed by the channel over time – Tim Harmon, Principal Analyst at Forrester, points out that leading tech companies are investing in programs targeted to helping channel partners more effectively span the entire customer technology adoption and renewal life cycle. “The successful channel today is more than a sales channel; it’s an engagement channel: a fully fleshed-out marketing, development, sales, delivery, and support resource. Cisco Systems, IBM, Juniper Networks, and Microsoft are examples of tech companies that resource their channel as an engagement channel.”
The Bottom Line: Channels Will Be A Source of Competitive Advantage – Keep Them Close
A recent Revenue Architect whitepaper, The Software Distribution Channel: The Reports of Its Death Are Greatly Exaggerated, seems to agree. Their surveyed software publishers stated (i) they are investing in deeper channel integration and enablement this year, even as (ii) they see next year’s challenges focused on enabling their channel partners to better handle new customer touch points, new revenue models and new markets on their behalf.
With channels playing a key role to grow sales and reach new markets, publishers need to consider how to expand their multi-channel initiatives, as well as establish barriers to other publishers getting distribution through their channels by being the easiest and most profitable with whom to do business. Marketing and Sales leaders need to look strategically at their channel network – what value does it need to provide, how to secure and expand it, as well as the systems needed to enable it.
Rethinking your reseller channel? Considering whether eMarketplaces, affiliates, or re-publishers are right for your business? Have you tested balancing your sales across multiple markets, expanding your reseller programs, sourcing new partners from a partner marketplace? Add your comments to the blog, or reach out to me at firstname.lastname@example.org.
Tags: accelerate sales through channels, cloud software, digital goods channel, online commerce, reach new markets, reseller channel, saas business model, software business model, software channel, software channel disintermediation, software channel evolution, software channel network, software distribution channels, software industry