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In Thomas Lah’s paper, “An Industry Snapshot of XaaS Transformation in On-Premise Hardware Companies,” he points out that it is very hard to find solid examples of hardware companies that have successfully transformed their traditional, transactional, product-focused business to a cloud-enabled consumption, subscription business. Learn more about how you can buck this trend to position your company and/or partners for success in the XaaS/SaaS model.
As I think about the business challenges that TSIA members have articulated to me in the past twelve months, I recognize that there is zero denial that this XaaS transformation is happening and that technology suppliers and their partners need to transform. But now the pivot is around the simple question, “How?” “How do I help my best partners to make the transformation?” and “How do I help make both parties successful?”
Companies that self-identify as hardware companies typically have a healthy, traditional partner channel which has, over the years, handled the “sell through” partnering motion for them. The partners get these hardware technology suppliers penetration into SMB markets, into hard-to-reach countries and regions, and into certain verticals, such as governments, which require pre-approved partners that follow government requirements and have proper certifications for procurement agencies.
These hardware suppliers are struggling with navigating their business transformation from a highly partner-centric business in the traditional product hardware market to (ideally) a highly partner-centric business in the as-a-service market. They have a much more difficult transformation to make than their software supplier counterparts.
Attempting to drag along a legacy partner ecosystem into the as-a-Service evolution is part of their struggle. I have seen the following partner channel ecosystem plays in my “virtual travels”:
Let’s explore each of these approaches in a bit more detail.
The concept of revamping your traditional partner program to suit the needs of your XaaS LAER lifecycle is not at all a bad idea. However, the main issue with the notion of a “revamp” is that you are taking a current system / program and adapting it to meet a new set of needs. If these XaaS needs were requiring minor tweaks, then this would be a viable approach. But this is not the case.
In the hardware supplier partner ecosystem, these partner channel companies are typically superb at hardware installation, integration, and break-fix. Ideally as the hardware supplier develops their as-a-service hardware offers, the types of partners needed to support LAER and deliver the value-added services for your Hardware-as-a-Service offerings, are not likely the same types of companies that you utilized in your traditional partner channel program.
The successful partners in the as-a-Service sales and delivery lifecycle have optimized their business around LAER and PIMO (Plan-Implement-Monitor-Optimize) as applicable to their individual company’s business model. These are the companies that will be successful in an XaaS sales and delivery partner ecosystem.
Attempting to carry the encumbrance of the traditional, sell-through partner channel model into the XaaS partner channel ecosystem model oftentimes relies on the former key performance indicators of that old system. This includes discount points based on volumes of certain products, program criteria and acceptance based on product-level certifications and sales of product premium support and consumables.
Another approach that has good intentions but misses the critical “target” is the approach that some hardware suppliers take to put a “full-court press” on training and enablement around LAER capabilities, in particular, customer success, without having a true set of XaaS offers for the partners to be selling, enabling, and driving adoption in an XaaS subscription context at the customer.
Sometimes this is due to the fact that the hardware supplier wants the partners to “XaaS-ify” the solution (which may be a bundle of products from primarily one vendor, and some pieces from other vendors).They do this by purchasing the offerings from the hardware supplier and creating an integrated three-year lease with the customer with recurring payments back to the partner which makes the financial transaction appear to be a type of “recurring revenue.”
Although the payment scheme may “feel” like a subscription model, this is not truly an as-a-Service offer nor a consumption model. Therefore, “customer success” in this case is not the true definition of it, nor does this solution require the skills of customer success professionals.
Partners in this context may feel like completing training and certifications in customer success are more of a box that needs to be checked than a requirement, and may hesitate to participate. Since the customer has basically paid for the entire solution, there is no pressure on renewal and no pressure on driving adoption.
Therefore, the Customer Success partner training effort falls flat with the partner ecosystem. A lot of important fanfare, investment, and energy is spent on a motion that has limited partner consumption and value.
TSIA has found that the winning approach to creating an effective investment in your XaaS partner channel ecosystem is to start with a clean sheet of paper. Remove expectations of bringing in any of the preconditions of your former partner programs (and even the former partners, for that matter!). It is critical to take a true open-minded approach to the effort.
TSIA regularly references the three conditions for building a profitable services business, and they are outlined in Figure 1 below. As you can see, it all begins with defining your cloud-first subscription offers which are created for LAER and align to the capturing and validation of customers’ business outcomes.
TSIA launched a survey in mid-2020 called the XaaS Partner Trends and Directions survey. One of the questions was, “Does your company have a separate and defined channel go-to-market strategy for its XaaS offers vs. its traditional offers?” In the data from that survey, it was reported that 40% of both hardware and software companies said, yes, they do have a separate and distinct channel go-to-market strategy for their XaaS offers.
When these “yes” responses are correlated to the growth rates of technology subscription (XaaS) revenue for all direct and indirect channels for those companies, you can see below in Figure 2 that there is a strong and positive correlation between having a separate and distinct channel go-to-market strategy and very healthy XaaS annual revenue growth rates.
Anecdotally, when I have spoken with various companies who have a productive partner channel ecosystem serving their technology subscription (XaaS) business, I have found some other common characteristics. These companies tend to have:
As you decide how to bite the bullet to transform your partner ecosystem into an XaaS partner channel ecosystem, consider the pros and cons of these alternatives and make the difficult choices to start with the offers first. Then, design your partner channel ecosystem surrounding those offers to best meet customers’ needs while giving partners the opportunity to drive revenue and profit leveraging your XaaS offers and platform.
In my session at the TSIA Interact virtual conference on May 4, “Helping Partners Transform their Business Models to XaaS,” I shared specific examples of partners participating in both hardware and software suppliers’ ecosystems that have transformed from the traditional transactional partner channel model to the XaaS partner channel model.
This interactive session provided insights into the ways that partners have successfully transitioned their business models to XaaS, paving the way for others to consider how to approach their own transformations with and through their partners.
Post Date: April 1, 2021
Anne M. McClelland is the vice president of XaaS channel optimization research for TSIA. In this role, she works with closely with member companies to deliver research and advisory programs that help them optimize their channels to drive incremental revenue at scale for XaaS offerings. Throughout her career as a global partner and channels executive, Anne has built new partner organizations from the ground up, driven revenue from new partner communities, and launched programs and tools to support these partner efforts.
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