Companies across the technology ecosystem are finding it more appealing to add innovative emerging technologies to their customer-facing solutions and resale efforts more rapidly today than ever before. Factors influencing the increasing pace of adoption include margin constraints with traditional hardware solutions and the movement to SaaS and Cloud environments. In addition, resellers are realizing how innovation can significantly enhance relevance and stickiness with customers.
Overcoming Margin Constraints
Margin is the backbone of success when reselling technology. Unfortunately, once a technology gets big enough, vendors begin capping margin and come up with different programs to lower margin profitability to the “technology channel.” The large technology vendors start telling resellers, solution providers and integrators that a better strategy is to make money on the professional and managed services around their technologies instead of the resale of the technologies themselves. We have seen this happen aggressively over the last two years with the movement to SaaS and Cloud companies. Examples are companies like Amazon Web Services (AWS) and Cisco; when the channel resells AWS, the partner margin averages about 7% (excluding services), and Cisco limits the amount of margin partners can make on large enterprise accounts because of programs like DSA pricing. Now, more than ever, the channel needs to adopt innovative companies more quickly to improve margins and net income. Average margins for reselling innovative, emerging technology companies range from 25% to 35% depending on the maturity of the emerging technology company given their motivations toward aggressive customer acquisition. Most venture-backed emerging technology companies worry less about the cost of customer acquisition as they care more about adding ‘new logos’ to their customer base. It’s becoming a best practice among innovative channel companies to complement their lower margin, traditional products with higher “innovation margin” products that help alleviate the constant pressures on margin and profitability.
Movement to SaaS and Cloud
CIO’s continue to invest in the cloud. In fact, much of today’s innovation is directly or indirectly related to rapid adoption of cloud and software technologies. At first, customers only focused on certain workloads; now, research shows that customers are rapidly expanding that initial scope to include a higher spend in SaaS and Cloud offerings. CIO’s are deploying more and more public cloud infrastructure given the enhanced agility and cost savings received. In addition, cloud offerings are now easier to deploy, and a plethora of tools are available to make it easier to leverage “multi-cloud” interoperability; CIO’s like leveraging multiple cloud platforms to reduce risk and maximize options. The data supports this: according to Forrester, in 2017 the global cloud market hit $146 billion, and this year it is expected to grow to $178 billion. Even more telling is that public cloud adoption is expanding with companies just getting started on their cloud journey, with more than 50% of enterprises going directly to public cloud for their first forays into the cloud. The wave is here, and it is undeniably a massive IT disruptor. The common practice is for channel partners to develop services in order to hop on the wave and survive the disruption -- but being on the wave is not enough, channel partners should also sell innovation to capture the limited spend CIO’s are now allocating for non-cloud and SaaS strategies.
Enhancing Relevance with the Customer
Selling innovative technologies to end customers helps expand customer relationships by driving important customer and business benefits:
Competitive Advantage: Resellers help customers gain competitive advantage by leveraging innovative technologies; studies show customers can gain a 12 to 18 month advantage when implementing the right emerging technologies.
Increased Revenue: Creating an innovative culture drives huge customer relevance for technology resellers. When channel players sell the ‘same old’ vendors, they are not challenging their customers nor are they educating them on how to innovate using technology. What results is a dangerous customer perception that the reseller only cares about selling product and not developing strategic relationships. The reality is that customers will continue to buy the ‘majority players’ and their laggard technologies -- and for the right use cases they should. However, if resellers positioned strategically as a driver of innovation, customers will not only buy those technologies but also will expose additional opportunities in the data center where they could be open to innovation.
Robust Solution Sets: Customers leverage innovative technologies as part of more robust solution sets that not only positively impact their environments but also save money and time. We call this the “Planet and Moon” strategy. Planets are the large investments customers have made as core to their technology roadmap; examples include technologies from the likes of Cisco, VMware, EMC, Dell, etc. Moons are innovative technologies that complement the planets in the ecosystem. For example, prior to the acquisition of AppDyamics by Cisco Systems for $3.7B, AppD was a moon to Cisco. Customers benefit from strategies that include these complementary moons to the big planets that resellers provide; monetizing them together leads to a more robust solution set.
Developing a culture around innovation doesn’t need to be complicated; four easy actions can shift the focus toward innovation today:
Educate - Educate the market on what innovation is doing to disrupt various industries. This does not mean every innovative emerging technology should be resold by every channel player. Instead, stay ahead of the curve by keeping clients informed on what’s out there and how other customers are benefitting. Leverage platforms like the Vation Innovation Platform (VIP) to connect with the entire technology ecosystem and help customers see real market feedback instead of promotional sales content.
Curate - Help customers be pragmatic when selecting the right innovation for them after educating them on what’s available in the market. The coolest technology may not be the most practical solution. Find realistic solutions that can help clients TODAY, while keeping them educated on the potential, theoretical Innovation coming in the future. We call this Pragmatic Innovation.
Leverage - Sell and implement innovation into the customer ecosystem and develop strategic relationships with those innovative technologies that contribute to robust solution sets. On average, 5-10% of venture-backed innovative companies become successful companies at scale. Developing relationships with these innovative companies early not only provides first mover advantage as well as a favorable position as an innovative channel partner but also drives significant leverage with the emerging technology companies, leading to profitable relationships.
Extend - Educating customers on innovation, curating the best innovative technologies and leveraging the relationships to sell and monetize pragmatic innovation becomes a learned behavior that can be expanded to more and more emerging technology companies -- ultimately driving channel players to a position of an even greater innovation influence!
I am a huge proponent of leading with innovation. The world is changing more rapidly, and the technology ecosystem is one of the key drivers of this change. Customers are buying innovation today more than ever, and as a result, the days of only buying the “big” vendors are over. The new mandate is becoming clear: pragmatically innovate, monetize, differentiate, disrupt.
At Vation, we connect innovation to the market. Contact us today to find out how we can help you resell innovation, improve margins and increase your relevance with your customers.