In January 2009 I wrote my first blog here: “Open Source Channels: Critical But Different.” My goal was to explore, question, and understand how open source is changing the world of partner programs and channels as we know it today. I posed more questions than I had answers to so I thought it would be interesting to look back and see if the picture is any clearer.
While that was only 4 months ago, one thing is clear: In the open source channel, things move at light speed and everything is interconnected and constantly changing so this is just a snapshot in time from the perspective of one person. I would love to hear from others about their experience and insights.
For software providers (independent software vendors, ISVs), I asked the question:
“How do you get partners excited about your solution if there is little to no opportunity to make money on licenses?”
The obvious answer is services. But how does an ISV enable this in ways that differentiate them from others. Sure license revenue is sometimes a component and many of the bigger open source ISVs offer an Enterprise version that is tested, supported and sold on a subscription basis — but the real money for partners is still in service delivery.
Here is what partners look for:
- The software needs to be well designed and surrounded by a vibrant, active and growing community of developers around the world who are learning the technology, implementing it on their own, and contributing back with additional extensions and capability. This viral activity is critical but not something that is easy to create or control.
- The software must have the backing of a solid and real company channeling all of the community activity and input into a cohesive product roadmap, providing necessary support that users and partners need, and ensuring that the product continues to advance with new functionality and integrations with other solutions.
- The software vendor must be committed to a partner channel that is the primary way in which they sell and delivery services to customers and they must actively promote partner success and create market awareness that drives new business to the partner.
- The software vendor must able to capture inbound interest and effectively convert it into leads that partners can pursue. Many tools exist today to automate and help potential customers move through the sales process on their own to ultimately become a qualified lead for partners.
- Validation of technical competency that recognizes and provides a “stamp of approval” for the skills and capabilities of partners differentiates partners and allows them to command higher rates that enable them to get a better return on the investment they are making. Formal certification also give customers — especially large ones — the confidence that the project will be a success.
- Formal backing and support from the software vendor in the form of specialized services that compliment partner services or ensures that partners can deliver on support SLAs allows partners to provide a more comprehensive solution with greater assurance that they can deliver and be successful with bigger and more complex projects. Customer will select a partner or pay more if they know that partner has the backing and support of the vendor.
Still, the challenge remains for open source software vendors who need to grow but are limited by the free or low cost of software that the market expects and by their ability to deliver services in ways that don’t compete with partners.
Software vendors enable and drive an incredible amount of service revenue for their partners but in most cases don’t benefit from that revenue stream which is not the win-win scenario necessary for long term growth. Perhaps a better model is required to address this changing environment. If software vendors can truly provide substantive value that partners can leverage to grow their services business why shouldn’t there be a revenue or profit sharing model that benefits both?
Contributing blogger Scott Dahlgren is an independent consultant helping small and mid-size technology companies extract greater value from their partner and channel relationships. And he also runs marathons through the woods of Connecticut. Here are all of Scott’s blog entries. Follow The VAR Guy via RSS; Facebook; Identi.ca; Twitter; and via his Newsletter; Webcasts and Resource Center.
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‘“How do you get partners excited about your solution if there is little to no opportunity to make money on licenses?”
The obvious answer is services.’
I did read the article in January, and it is obvious that you are well learn’d in the technology and the channel. I disagree with the obvious answer. The correct answer is:
If you can’t make money on the licenses, sell something else that you do make money on, as the recommending vendor – who supplies the equipment and the O/S and software will get the integration business, too – THANK GOODNESS WE DON’T HAVE TO WORRY ABOUT THE SCENARIO WHERE WE RECOMMEND AN O/S, AND DON’T MAKE 30% on the O/S sale, because we sure as hell ain’t going to cede this business to an online software retailer. So double bonus margin is out there instead of single bonus margin. And check out manufacturer’s spiffs on the hardware and software. Pretty soon you will be making a great margin selling the sofware at the current street price. In other words, any integrator or var should be able to go to computershopper.com and type in the software SKU and make 30% margin selling the O/S and ancillary software at the lowest listed price and make a good 30% margin, selling it at the lowest street price among the legitimate online resellers, like CDW.com, bestbuy.com, staples.com, etc, etc. Otherwise sell something else (I am looking straight in your eyes snd telling you this like Clint Eastwood looked into that one dude’s eyes and said ‘go ahead, make my day!’). And if you can’t find a decent O/S to sell at street price and make a 30% margin, then find something else to do like opening a pizza parlor. Most people may say that Neil Sedaka is stale, even though I like his hit: ‘Breaking up is hard to do’. But like Neil said: ‘When the Beatles hit the scene, it was all over for me.’ And that is where Linux is. You are the Brady Bunch when you need to be Beverly Hills 90210.
I love thevarguy.com, keep up the good work, as I read you regularly…
Scott,
Sorry, kinda need to tone down the message, as I just got through the bullet points and read your summary.
I think now that I over-reacted to the statement in your article:
‘“How do you get partners excited about your solution if there is little to no opportunity to make money on licenses?”
The obvious answer is services.’
But after reading your conclusion, it seemed your article was well-balanced like Newt and Barack are well balanced. But I am like Sgt. Schulz awakened by the Hogan’s Heroes gang, tip-toeing in front of me. Immediately I may raise my gun and cry out, but I will eventually revert to the usual: ‘I see nothing, I know nothing… and then fall back into a slumber’
Sorry again. Can I change my comments from?:
‘fall back into a slumber’
to:
‘fall back into a deep slumber’
(It is the first time, that I triple-posted before a response, but when Billy Jack said: ‘My right foot will hit the right side of your face and there ain’t going to be a damn thing you are goin’ to do about it’ he went ahead and thwarted the threat to his livelyhood, but mostly to the kids. This is a natural reaction, when threatened, once again, sorry for the over-reaction.)
HurdyGurdy: Always good to hear from you… even when you allegedly “over react” to a blog entry. The VAR Guy would be a pretty boring destination without engaged, opinionated readers (folks like you).
Thanks for reading,
-TVG