JCL Blog

The Third Wave of Partnering

Thirty years ago the PC revolution spawned a significant number of companies that today we call “the channel”.  These companies resold computers, parts and pieces, software, and expertise.  Since no company could reach the entire market with an internal sales staff, the millions of people in the channel built the big technology companies like Microsoft, Intel, HP, and Cisco.   These companies have experienced extraordinary change as the decades have passed. 

The first wave of the channel was driven by the mark up associated with selling retail, and it ended about fifteen years ago.  It was replaced by the opportunity to sell services.  This second wave started with simple network administration services and grew to the full complement of services we have today.  The big vendors then got into the game.  Lead by IBM as it recreated itself as a services company in the ‘90s and now generates over half of its revenue from services.  In the last few years, HP bought EDS for $14 billion in 2008, Dell bought Perot Systems for $4 billion in 2009, and Xerox bought ACS for $6 billion in 2010 making the services business – very big business indeed. 

The service offerings of these large firms include everything imaginable and are sometimes easy to visualize: Xerox for example sells document management services instead of copy machines.  And other times incredibly complex: like EMC’s high availability enterprise network attached storage in the cloud.  We are watching big iron make its comeback as each of these big companies builds monstrous data centers and offers a cloud solution for everything.  Wasted processor cycles and storage capacity are being wrung out of these systems and IT labor is being used more efficiently driving down the incremental cost of computing quite rapidly.  Enterprise computing budget line items that used to be over $1 million now seem to cost $50,000 and those that used to cost $10,000 now start at $15 per month per user.  All of this disruption will present many opportunities for add on services – which is the hallmark of the second wave – so the companies in the channel will thrive in the cloud.

If that is not enough excitement for you, the third wave is forming.  At the risk of using another already overused word, let’s call this the platform wave.  There may or may not be a better word, but at least we are not calling it the “Cloud Wave”. To review, in the first wave channel partners marked up hardware or software products, in the second wave channel partners charged for their time/expertise (still a big business), and in the third wave channel partners are part of a platform ecosystem.  Sure, this has been part of the Microsoft strategy for 30 years. Microsoft pioneered the transition from big proprietary platform systems offered by IBM, HP, and DEC in mainframes, to their own small proprietary platform system:  Windows.  Along the way, Microsoft has grown its partner ecosystem to over 600,000 partner companies that have millions of employees worldwide implementing, customizing and maintaining solutions built on the Microsoft platform.  So it is tempting to say that there is nothing new here.  However, one dominant platform is one thing, a dozen is something different all together.

The new platform builders look different because their consumer focus can obscure the view.  Is Google search or a platform, is Facebook social or a platform, is Apple a shiny device maker or a platform, is Amazon a giant online department store or a platform?  They are all of the above, and even if there is a small chance search, social, devices, and shopping could coexist; there is no chance all of these platforms can.  Both Facebook and Amazon made significant announcements last week with the Open Compute Project and Amazon Cloud Drive respectively.  Google, with Docs and Gmail have been in this space for a while, as has Apple with Mobile me, and Microsoft with their rebranded Office Live services and Azure.  Salesforce.com, Oracle, SAP, HP, and Dell are also developing cloud solutions.    

As stated above, the second wave (services) is likely to get bigger as these platforms deploy because companies are going to need more help than ever to take advantage of all of the new offerings.  So what exactly is the third "platform" wave? 

Wikipedia defines a computing platform as:  some sort of hardware architecture and software framework (including application frameworks) that allows software to run.

The third wave is the new products built on top of the platforms. There have always been products built on platforms (think MS Office on Windows, or Garage Band on OS X), but this era is different because the platforms are not machine dependent (i.e. are accessed by devices ranging from smart phones to set top boxes), and there are so many products.  If you still think this is the same old thing, consider Dropbox, Evernote, Zotero, or SpotCloud, or even a Wordpress server running on Amazon’s EC2. These new applications run on the platforms, and also enable other new applications – Zotero can be made more portable by storing files in Dropbox. 

At present there are over 380,000 active apps in the Apple App Store and over 250,000 in the Android Market.  Amazon does not publish numbers, but the growth of its EC2 and other cloud offerings is pervasive.  The opportunity to carve off a small specialized piece of this new marketplace is attracting many new entrants to the channel – and converting a sizable number of existing channel partners.

In the months ahead, channel partners will be spending considerable energy evaluating the merits of the platforms offered by these and other companies and success or failure will ride where they choose to make their investments.  

Who Is Driving Technology Sales: The Consumer or the Enterprise?

Even though a significant majority of technology purchases are made by businesses, the consumer is rapidly gaining a meaningful position in the market.  According to Gartner, in 2010 businesses will drive 72% of technology purchases.  The iPhone/iPad revolution is largely driven by consumer purchases.  As these devices are introduced into the enterprise computing environment, IT professionals are developing strategies for managing them.  Forward thinking technology marketing people are presently working to understand how these changes will impact IT purchasing decisions in the enterprise.

Here we examine the arc of this revolution and make an attempt to help marketers position themselves for the evolved technology marketplace.

The Cost of Selling is High for the Enterprise and Low for the Consumer

Maybe it is cheap to sell to the consumer because consumer products are cheap, or maybe consumer products can be offered cheaply because it is cheap to sell them.  Either way, it costs much less to sell to the consumer than the enterprise, and in some cases the cost of customer acquisition is approaching zero.   Alternatively, over on the enterprise end of the spectrum, we find companies like Salesforce.com – whose largest expense is for customer acquisition.  For 10 years SFDC has spent over 50% of their gross margin on sales and marketing – and this year they will spend over $700 million.  Ten times as much as it will cost them to deliver their services.  Right behind Salesforce.com are Oracle, IBM, HP and Microsoft each spending over 20% of their gross margin on Sales and Marketing. 

When it comes to selling the approaches cannot be more different, consumer companies like Google sell by getting their customers to act as their own salespeople (filling out a form on the web), quite a contrast to Salesforce.com and the others who are seeking business customers by blanketing the earth with salespeople and partners.

Getting to Market:  To Advertise or Not To Advertise

Even companies with buckets of money must select a go to market strategy and concentrate their resources in what they believe are high value activities.  There are as many opinions about which strategy works best as there are CMOs – but just about all CMOS will agree that resources must be concentrated in high value activities consistent with their strategy.  Anyone spreading their resources thinly over too many activities is doomed.  The decision tree starts with advertising.  There are companies like Apple and Dell that go big on advertising and PR and companies like Microsoft and HP that invest their resources in building partner ecosystems.  A completely different third approach is lowering prices so far that solutions sell themselves.  Google and Craigslist price their services at 1/10th of their offline competitors.  Prices this low promote themselves – a $3,000 car or a $1 movie ticket would not require advertising or salespeople – the newspapers would write about it and the message would spread virally.

Let Someone Else to Pay

There is no charge for using a search engine or web service like Twitter or Facebook.  Using a free product does not make you a customer however.  The customers of these companies are the advertisers, and their payments for advertisements make it possible for companies like Google, Twitter and Facebook to offer valuable services for no charge to those benefiting from them.  No monetary charge would be a little more accurate.  The truth is:  those not paying for a service are not the customer, they (or their data) are the product being sold to someone else.  This is where the gulf between consumer and enterprise gets interesting.  Individuals are much more willing to give up their data in exchange for a free service.  Enterprise data is almost always a strategic asset and therefore most businesses are reluctant to trade their data for services.  Salesforce.com’s clients are businesses and they pay for the service because giving up their data to be sold to a third party would undermine their viability.  Google gets right up to the line on this one because they are selling the data they have about their customers to third parties – and many of their customers are businesses.  Admittedly Google is not going to one client and saying they will sell the content of another client’s searches or emails.  They will however allow one client to present advertisements to a targeted audience that is likely to include its competitor’s customers or employees.  This is evidence that the gap between consumer and enterprise buying habits is closing.

Mixing it up:  Put the Blender on Whip

Twenty years ago, with the exception of a few intrepid door to door salespeople, the consumer went to the store and salespeople called on businesses.  Then Amazon.com brought the store to the consumer’s home, and Dell cut out the salesperson by giving businesses the ability to serve as their own salespeople over the phone and web.  The consumer and business buyers including those in the technology market had been oil and water, and they were about to get poured into the blender.  When the first killer app for the consumer oriented Mac turned out to be the business oriented use case of desktop publishing – it was like hitting the chop button on the blender.  Employees connecting their home computers to corporate networks, enabled largely by broadband deployment, was the equivalent of the stir button. Social media tools like MySpace, Friendster, LinkedIn, Facebook, and Twitter turned the blender up to puree.  And as we are learning in our one question survey this month, the iPhone and iPad have cranked the margarita making machine up to whip and the water and oil have emerged as thick as chocolate mousse.  With consumer tech and enterprise tech all whipped up together, selling technology now takes on a combination of enterprise selling and consumer selling tactics. 

Enterprise Marketing Must Change

Right now there is a great deal of energy being invested by enterprise marketing people in social media.  This is important, but not the only area where the enterprise / consumer collision is impacting the market.  We will never know if the big brains at Apple developed their iPhone/iPad strategy with an eye on the enterprise market.  Intentional or not, their shiny new devices are changing the marketplace and buying patterns significantly.  Starbucks is moving to HTML 5 and away from dot net as a result.  Flash is being marginalized.  And products like those from Parallels that tie the new environment together, are ramping fast.  Enterprise marketers need to free their minds from a focus on making the things they have always done more efficient and start experimenting to develop new strategies that are effective in this new marketplace.

On the Horizon

As participants in technology marketing for the enterprise, these are the trends we expect to see accelerate as a result of the blending of the consumer and enterprise markets:

Social Media:  Clearly social media will be central to these changes, both driving and being driven by the marketplace evolution.  The key to social media is authenticity.  They key to authenticity is flexibility and IQ.  Companies with intelligent and autonomous actors on social media platforms will win.  It does not hurt that the highest value customers are the early adopters of social media.  100 years ago, when telephones had been deployed in 10% of the households, companies realized that the early adopters of the telephone were on the high end of the socio-economic ladder and should be treated as such.  Once telephones achieved 98% penetration, and the overwhelming majority of phone calls came from average customers, companies shifted their approach from high investment in high value customers to cost containment.  This is why a Comcast customer can get a high quality response from @comcastcares, and not from the Comcast call center.  Comcast knows the demographics of their social media savvy customers.  It will be some time before social media is democratized.  To Do:  Get smart people into the social media game.

Computer Operators:  Before the computerization of the telco central office, switching was done by telephone operators.  An operator could manage approximately 200 telephone lines.  We now have 180 million land lines and over 200 million mobile lines in the US.  If we had to rely on manual switching – we would now require 1.9 million telephone operators.  Thanks to automation we only have 22,000 telephone operators now and none of them are switching calls.  In the early days of the computer an operator with significant training was required to run the device.  This continued during the early days of the PC.  The devices were complicated enough that every user was essentially a trained computer operator.  It has only been in the last 10 years that computers could be operated without the barrier of significant training.  The iPhone and the iPad are revolutionary in that they require no specific training at all.  A child can pick one up and figure out how to use it.  Many businesses now operate without a single IT resource on staff.  Computer operators are not dead however, they have shifted to managed IT service providers, web service operators, and application developers.  This trend will continue to accelerate.  Business will be less technically aware and will purchase services from specialized service providers.  The service providers will have all of the computer operators and accordingly will increase in sophistication and technical capabilities.  This will split the marketplace into the sellers of the services and the sellers of the underlying technology.  The services will be purchased by people with business needs and a low level of technical sophistication.  The underlying technology will be purchased by people with an extremely high level of technical sophistication.  To Do: Market services by business use case and technology by engineering merit.

Partners Migrate to Service Sales:  The bifurcation of technology into unsophisticated (technically that is) buyers of services and very sophisticated buyers of the underlying technology will force a split in sales and marketing strategy.  The big technical deals will get bigger and will be increasingly sold using internal salespeople.  This will shrink the high end of enterprise technology sales and marketing done through partnerships. Who is going to sell servers to Amazon.com?  IBM, Dell, HP, and others will be competing for that deal directly.  Who is going to sell desktops to the law firm?  Channel partners.  Historically those partners have been companies.  Of course because partnerships are relationships, and relationships are between actual people, the reality has always been that the success of these partnerships depend heavily on the relationships between the people inside the companies.  For fifty years, people have been getting more and more mobile, a trend that has been accelerated by the latest economic challenges, and facilitated by social media tools.  Technology companies that are able to shift their thinking from partnering with companies to partnering with people will jump well ahead during this transition.   To Do:  Orient partner programs to individual people that sell services.

In the years ahead businesses will remain the most significant source of revenue in the technology industry. Businesses will however increasingly behave like consumers when purchasing service offerings. They will be looking for cost effective solutions to their most pressing needs, and they will be buying those solutions on short lead times and with relatively low technical sophistication. Vendors and solution providers that position themselves for this change will win in the transition.

Are You Twittering or Communicating?

During the Channel Management Summit this week it was no surprise that we ended up talking about social media.  It was interesting that we got onto the thread of how we talk about what we are doing in social media.  When using Twitter, we have a tendency to think of our activity as using Twitter, or Twittering, or Tweeting.  In fact we are really communicating with our followers.  

This tracks back to an earlier concept I wrote a post about:  The difference between the How and the What.  In this case the what is:  communicating, the how is using Twitter.

When we insert this concept into the context of channel marketing, we would do better to talk about what we are doing more than the how we are doing it.  Marketers have always had multiple ways to communicate with their customers or partners -- many hows.  Twitter is just one of those hows.  

Credit due:  Axle Shultze of the Social Media Academy deserves credit for bringing up this point.

Good People with Good Ideas

Put 75 people together in a room and you never know what the conversation is going to turn too.  That is the magic of conferences and what keeps me coming back.  The Channel Management Summit created this effect and then some.  Yesterday I made a forecast about how I thought the conversation would go and well, it went a whole different way.  There were some great panel discussions, and good presenters.  The conversation quickly departed the stated theme of “From Volume to Value”.  That being said several of the channel partner program owners did indicate that they wanted to invest more meaningfully in a lower number of partners – which seemed to fit the bill.

Here were the items that stuck out for me in my notes:

Look in the Mirror First

If you want your partners to respect you, make sure you have your act together and that starts by working internally to ensure that everyone inside your company understands and agrees with the direction and is willing to stick with the messaging.  This will result in fewer random changes, a greater ability to explain the reasoning behind your decisions, and less confusion.  All seemingly simple, but in real life – quite a challenge to execute.

Get in their Shoes

We can get so caught up in our own stuff that we lose touch with the reality of our partner’s businesses.  Take the time to actually talk with them, figure out how they make money, understand their pain points.  We had a great conversation about what partners will and will not do.  Will sell your product (if it works), will work side by side with you, won’t penetrate new markets, won’t lose money.

The Death of Leads has Been Exaggerated

Instead of killing leads, social media has increased the volume.  Along with this increase has come a decrease in quality.  This has increased the importance of good process, professional qualification, and rigorous feedback tracking.  This was great validation for us – because it is what we do at CSG.

There were also some good presentations about measuring investment in partners – partner by partner – and comparing it to revenue generated.  Some ideas about how to start using social media tomorrow (get your partners to do it).  And good thoughts about specific things you can do with your most valuable partners. 

All together a great conference.

Getting from Volume to Value

One day in 1906 the Italian economist Vilfredo Pareto discovered that 80% of the peas produced in his garden came from 20% of the pea pods.  Ever since that day, channel partner program managers have been trying to grow just the highly productive pea pods.  For the next two days, those of us attending the Channel Management Summit in San Jose will be talking about how to escape Pareto’s 80/20 rule and get from Volume to Value.

I have the pleasure of chairing the event today.  Here are a few of the thoughts I hope to use to get the conversation going.


  • Why now?  After 104 years of living with the 80/20 rule why do we think that we can now escape it?
  • What happens when we cut off the less productive 80 percent?  Pareto also found that if you deconstruct just the top 20 percent, the rule still applies – 80 percent of the peas produced by the top 20 percent of the pods are produced by 20 percent of those top 20 percent.
  • How do we find the top partners of next year?  The top 20 change over time so shouldn’t we invest most heavily in the partners that are going to be the most productive next year?
  • Are Value and Volume mutually exclusive?
  • How are social media, better data management, and automation changing the game?
  • Is the environment getting more competitive?  Could the partners we turn away from become the top 20% for someone else?  Does that matter?


I am very much looking forward to the conversation.  

Parallel Universes

Anyone in tech not watching Cranky Geeks is really missing out.  In the past few weeks, John Dvorak and Sebastian Rupley have become the new Smothers Brothers with the straight man - slow guy routine.   Of course they claim to be covering the tech news, and they do regularly have good guests, but it is much more entertainment than anything else.

Now I don't know if either of the geeks has any musical talent, and their humor is certainly not  as widely appreciated, but I find myself busting up every time John Dvorak asks who Om Giga is.  One could say the Cranky Geeks are a parallel universe of the Smothers Brothers show.

This brings up something I wonder about often.  Of the people that participate in the technology industry we seem to have a few parallel universes.  Three that I think about are the Channel, the Geeks, and the New Media.  People and companies often operate in more than one universe, but sometimes it surprises me how much distance there is between them.  

The Channel is concerned mostly with how technology products are sold to businesses and the discussion is usually around the channel partner programs of the main vendors and how the go to market propositions differ from vendor to vendor.  The leading commentators are Everything Channel and Channel Insider and the leading association would be CompTIA.

The Geeks are concerned mostly with the technology itself and the discussion often revolves around new product launches, technology standards, and how the makers of the products are getting along.  The commentators include PC MagazineTechCrunchCnet and the leading association would be CEA.  The Cranky Geeks are probably in this group and maybe Robert Scoble and Leo Laporte.  I sometimes cannot decide where those guys actually fit.

The New Media are the bloggers and maybe some institutions like the New York Times.  The discussion in this group is mostly about how technology is changing the way we consume information and the impact on the newspapers, TV stations, movies, music, and ultimately our society. The commentators include Jeff Jarvis, Dave Winer, David Weinberger, and many others of course.  

As a follower of people and organizations in all three universes I am often struck by how the conversation in one universe can be disconnected from the others.  I will be writing more about this phenomenon and would be very interested in comments on your experiences.