What Happened to the PLM VAR Channel?
It’s no secret that performing as a channel partner or Valued-Added Reseller (VAR) in PLM software solution markets (e.g. PDM, CAD, CAE, CAM, MBSE, CM, DMfg, etc.) is challenging enough during the best economic conditions. It’s even more difficult during a recession, if not nearly impossible in a shut-down of industry due to a global crisis like the Coronavirus pandemic.
It was not always this challenging. Not that many years ago the reseller partners of large enterprise solution providers (ESP) or small independent software vendors (ISV) in engineering software markets enjoyed relatively simple products to demonstrate, exclusive territories to sell into, few direct competitors, buckets of leads, easy access to buyers, and lucrative profit margins.
Once upon a time for fortunate partners of well-known products, the value in “valued added” was often that you took the phone call from a prospect – or lead from the principal – then showed up with a demo machine and price quote, and then proceeded to close a departmental deal within a few weeks time.
However, it could not have been a more different process and difficult experience for bold partners representing new software products that employed bleeding-edge technologies, developed by unheard-of providers, selling into the left side of the chasm to early adopters or into the right side of crowded established markets. I often felt it was criminal that the channel margins offered to partners were typically the same in both of these very-different scenarios.
When Everything Changed
Everything actually changed long before the Covid-19 crisis. The best evidence of that change is that today many engineering software products are first self-demonstrated in a no-cost trial license, given away as a freemium, licensed as open-source, or accessed with pay-as-you-go tokens. Often, the user never has to make a decision to actually buy anything!
The central question, pre or post-pandemic, then becomes what value is actually needed from a channel partner when the product is marketed as free with no risk, prospects can educate themselves from a plethora of on-line materials, no installation or IT help is required, little formal training is needed, support is self-serve within an on-line user community, and maintenance upgrades are automatic since you never actually own a license to manage.
In my annual survey on the State of the PLM Channel at https://plmalliances.com/alliance-survey/alliance-survey-2020/, and over follow-up conversations, some will privately pronounce that the VAR model for our industry has been ailing if not effectively dead for several years. Others may confidentially confess it is on life support to make the OEM solution provider’s channel program and managers look successful for their venture capital investors or public shareholders.
Alternatively, a few channel chiefs will argue that using the channel to sell and service the SMB/SME market thru partners is less costly, risky, and attention consuming than through their own well-compensated, high-maintenance enterprise sales organizations. And that alone makes it successful and worthwhile to keep. This today may be the most valid business justification for having a channel. But if or when the enterprise sales organization itself is no longer needed or goes away – and the cost of sales heads to zero – how does a partner compete with that math?
An Inconvenient Truth
Let’s confront a truth that has now become obvious to most industry watchers but rarely discussed openly; solution providers no longer “need” partners to run lead generation campaigns to find prospects, then engage them, demo them, sell them, close them, install them, train them, support them, or eventually upgrade them to the next new thing.
Yet, many providers can and do “choose” with enthusiasm to employ a channel for many of those same functions which they themselves struggle with, and find more efficient to externalize or economical to outsource. The latter includes deployments with complex customizations and costly integrations, although the industry is quickly moving away from the necessity of these.
This is not said to disrespect those channel programs and partners which have found mutually-dependent success and created long-term profitable relationships that were also good for the end user customer. There are numerous examples of these success stories I will write about in future Alliance Alchemy posts, so until then send me your channel success stories.
A Short History
So how did we get to this state of the PLM channel; was it inevitable and if so, how do partners adapt to survive, or do they? Let’s start by looking at some of the specific challenges that have confronted partners over the past decade:
• The range of products and solutions from just one solution provider can be overwhelming. Each of the enterprise PLM providers have many dozens of products and permutations which they have developed or acquired over the years. A price book I once had access to as a partner rep had hundreds of pages which always required lengthy assistance to decode. It was so constantly changing that our proposals were rarely accurate and perpetually obsolete. It occurred to me much later that the provider’s own sales force, with whom I often competed for the same deal, may have wanted it that way.
• The capability and complexity of software products which partners must master challenges even the solution developers themselves. It has become unreasonable to expect resellers to learn these applications sufficiently for a prospect to think of them as the first-line go-to experts who they can count upon for support.
• The rapid pace of innovation in the underlying technologies behind these software products is breathtaking. Just look at the field of Simulation and Analysis – what we use to call CAE – to explore the ever-increasing sophistication of solutions in CFD, MBSE, MDO, SPDM, FEA, MPS and more.
• Over the years delivery models and software licensing have moved from mainframes to department servers to workstations to the PC desktop and now to SaaS and the cloud. Some years ago I started out my sales career selling access to extensive libraries of engineering software running on remote supercomputers over proprietary global time-sharing networks (yes that dates me Before Internet), using 300 baud phone line modems or (gasp) punched card decks. (Ugh, I guess that once made me a dinosaur too.) It was not pretty but our value proposition to customers was that they did not have to evaluate, buy, install, support, or maintain the software and associated hardware nor indulge the IT staff for help. And they paid for only what they used. Sound familiar to today’s cloud sales pitch? (If only I would have called it the “cloud” way back then when my customers asked me where was the software running.) You can read more about the impact of SaaS on the reseller business model in this insightful Beyond PLM article from Oleg Shilovitsky at http://beyondplm.com/2020/01/12/how-different-will-be-a-reseller-model-for-saas-plm/.
• Many large well-established solution providers have trouble finding, growing, compensating, and retaining their own professional staff who need a multitude of competencies to be successful in their roles. This scarcity is often true whether they are lavishly funded by early stage investors or enjoying record stock market valuations. Yet, somehow, they mistakenly think channel partners working as privately held companies with poor capitalization, shrinking margins, no investors, and little intellectual property of their own to monetize can do all this. Read more about this in Myth-Stakes of Partner Building Lesson 105.
• Face-to-face access to users, buyers, and decision makers is nearly impossible today, even before Covid-19. Having a partner sales force located in the geographic region with customers was once a big advantage. They could drive across town and get in front of decision makers to overcome hesitation and objections in real time. Or better yet take a prospect to lunch with an existing customer and have them provide a testimonial. Trust me, it was much more personally enjoyable and professionally motivating than today’s outlooking, zooming, gotoing, skyping, linking, teaming, or chatbotting.
• Finally, some solution providers are just inept at understanding all it takes to build and operate a successful channel business. In this previous Alliances Alchemy post Myth-Stakes of Partner Building Lesson 107 I addressed the fallacy that selling through an indirect channel will somehow take less time, skill and investment than through a direct sales channel. I also dispelled the fantasy that a partner will invest in a provider’s software business to create or complete all the things required to be successful. This includes competitive positioning, sales presentations, case studies, industry-specific demonstrations, proposal templates, and selling playbooks. Partners don’t have sufficient bandwidth to do that for their own business much less for each of the providers they reperesent.
None of these trends can be erased or halted, nor should they be. Most changes have been good for growing our industry and serving its customers. In fact, many of these are accelerating and the disruptors themselves are now being disrupted. And it certainly has not depressed total investments but turbocharged them. As example, the PLM Market Research firm CIMdata reports in their latest Simulation and Analysis Market Report https://www.cimdata.com/en/news/item/12245-cimdata-publishes-simulation-and-analysis-market-report that CAE investments are expected to double from just over $4B to nearly $8B in a 6 year period.
Is Covid-19 a Fatal Blow?
If the primary value of a channel partner, or even the provider’s sales force, was due to their geographic proximity to customers, face-to-face accessibility to users, and personal relationships with influencers and buyers, the answer is likely yes. As with many other industries and business models, Covid-19 has become the driver of digital transformation and overnight disruption of the old ways of doing business. Whether many of us who built our sales careers on lasting relationships with customers like it or not, innovation and investments in digital marketing are far surpassing those in legacy direct sales organizations.
However, savvy partners in the past decade realized those old models were already becoming obsolete and started transitioning ahead of them. For these businesses a global pandemic like Covid-19 does not have to drive extinction as an asteroid strike once did to dinosaurs.
Many strategies have been tried to adapt. Some partners expanded their solution offerings taking on more and more products thinking that growth and size would protect them. But the opposite was often true. Others formed alliances to share marketing and technical resources. A few split their businesses up into separate entities so they could sell and support competing product lines. Many were merged and acquired in a channel consolidation strategy orchestrated by the OEM providers. Some closed up shop all together or moved into all new software solution markets. And a few smart ones realized that less was more by reducing the products they sold and industries they focused upon. They often downsized to become right-sized for their targeted market.
What About the Good News?
Is there any good news; is there a future for the channel? Most certainly yes, at least for those partners who have made the transition to hyper-specialization and crafted out a sustainable right-sized position aligned with the size of their opportunity and level of their competencies.
By specialization I don’t mean specializing in software products or in their training and support. Instead, I mean specialization in the one element that most software vendors no matter how big – or especially because they are so big – struggle to perform themselves. That is having first-hand experience and intimate insights into the business opportunities, industry trends, operational challenges, growth risks, delivery problems, competitive dynamics, and organizational motivations of their targeted industrial customers.
In my experience it is far more important for a partner to be an expert in the industry of their customers than to be an expert in the software products which they are selling. And that is value-added expertise most software providers do not always have and rightfully value the most from a partner. Having deep experience with the application of a new technology into a specific industry to solve a unique set of business challenges and technical problems is a very defendable value proposition for both the end-user customers and software suppliers of a channel partner.
One of my favorite presentations on the role of specialization in the VAR channels is from Jay McBain at Forrester Research. Check it out at https://alliances-partnership-online-summit.jumpp.tech/talks/critical-factors-for-a-successful-partnership-in-the-digital-era/
What’s Next: The Channel Partner Performance Cube
In the work I perform for my PLM Alliances consulting practice I am often asked to conduct a 360 degree independent assessment of the channel programs and partners of solution software providers. Several years ago I introduced the Channel Partner Performance Cube© to help my clients understand the 3-dimensional performance space in which they operate as seen by customers.
The three axes of competitive competencies a partner must acquire, develop, and maintain if not dominate in are: technology product expertise, application solution experience and industry user knowledge. Depending on the performance grade of competencies along each axis a partner can fall into 1 of 8 assessment blocks. This chart is also useful in illustrating why trying to sell too many products with too many applications into too many industries is problematic if not impossible to do well today.
In the a future Alliance Alchemy post I will share a few example uses of the Channel Partner Performance Cube. Until then you can follow the lessons learned as well as myth-stakes of partner building here in the Alliances Alchemy blog or by following me on LinkedIn.
To contact PLM Alliances for your own channel performance assessment send an email to firstname.lastname@example.org.