E-commerce created the magic of Christmas whenever you want it. You go to some Web site, pick out your perfect widget (in just the right color, too), tap in a credit-card number (always look for the SSL padlock in the corner just to be safe) and, in three to five days, you have a package on your door begging for opening. Joy!
The promise of any e-commerce site is that it can reach multiples of potential customers without actually having to incur the expenses of stores, overland distribution, labor, etc. Most of the work is done by the customer when he's surfing the portal for goods. For the Web site (think Amazon, eBay and iTunes), it's a high return on low customer touch.
If the e-commerce company is good, it'll selectively present products that may interest the shopper based on his purchasing history or the buying patterns of people who looked for similar products. Amazon does this to me all the time; I'll look up a new business or writing title, and it will recommend books based on other peoples' similar reading habits. Amazon and BN.com will even bundle selections with a recommended book for a discount. The efficiency in scale is astounding, and it keeps getting better.
Now, some vendors are considering e-commerce models to support low-end solution providers who neither have the volume nor the market reach to attain higher-tier status in channel programs. Here's how it would work: Solution providers would create accounts through a portal. The portal would serve as more than just a purchasing center; it would provide solution providers with essential information and support elements -- product announcements, marketing materials, rebates and sales incentives, and more. Imagine going to a "partner e-commerce portal" looking for a quote on a server, and automagically being presented with options for bundling that server with management software and discount incentives if you bought three today -- all based on your continuously updated profile.
The concept makes sense given the difficulty vendors have in reaching the far end of the channel's long tail. Consider this: The reason vendors tier their channel programs is so they can reward and support their best solution providers. The top tier receives the deepest discounts, the best pre- and post-sales support, advance information on product releases and those precious gold leads. But whether they're called Platinum, Gold, Silver or Super-Duper partners, the top tier only constitutes a fraction of the total channel population. It's a reflection of the 80/20 rule, in which 80 percent of the revenue flowing through the channel is generated by 20 percent of the top solution providers. (Some say the ratio is actually 90/10, while different vendors report variations depending on product lines and targeted markets -- needless to say, results vary).
Vendors know how to support their best solution providers, since those partners provide the most predictable revenue streams. Below tier-two, though, the expense and effort of supporting partners becomes exceedingly difficult and counterproductive. If the cost of making a dollar at tier one is 20 cents, the cost of making the same dollar on tier four or five is 60 to 80 cents, and the volume is significantly lower. Part of the reason distribution exists is to manage the unwashed masses, which neither qualifies for higher levels nor has the capability of growing beyond incremental sales. Distribution receives the volume discounts of the top-tier solution providers and provides its solution providers with similar support as their larger counterparts.
The e-commerce model may help vendors achieve part of their goal of reaping more revenue from their low-end solution providers at a lower cost of sales, but at what cost? Solution providers need more touch than just through some automated portal. They need real support, guidance and enablement. Self-service tools -- such as marketing programs and materials -- won't do any good if the solution provider doesn't know what to do with them. Lead pass-along will remain vastly underperforming since the biggest and best ones will still go to the top tier. Channel stuffing may happen when incentives get solution providers to buy more than they need but can't resell. And little automation will replace the technical support most small solution providers need.
The e-commerce model may solve some channel problems, but not all of them. Solution providers may have no choice in using them; stay tuned to see how effective vendors' efficiency tools will be.
