The Doobie Brothers Sang About Taking It To The Street: Will You Opt To Do It?
As I’ve stated in the past, that’s fair enough. But if multiple vendors adopt this approach, these programs may very well cause a narrowing and then an expansion of the channel over the long term. Before you dismiss that as a contradiction, let me explain. If three competing vendors have similar programs under which you earn more if you increase attach rates, then to some degree you could be at a disadvantage if you don’t make a choice to drive sales with one of them higher.
Let’s play that logic out. You and your competitor are bidding on the same solution: One is driving a single vendor sale, and the other is pushing a mixed environment. The single vendor sale carries a profit incentive that is used all or in part by one solution provider to drive down the cost to the customer in order to win the business. In other words, the additional profit vanishes: The solution provider’s margin doesn’t improve, the vendor’s margin doesn’t improve. The solution provider takes the margin to the street, and the benefit transfers to the end user. This is a real possibility in a competitive environment.
If this scenario happens often enough, the losing solution provider will sign up for the attach-rate program as well. Whether he or she signs on for the same vendor or not, the solution provider is essentially opting out of one or two other vendors’ programs. That means there is a contraction in the size of the channel representing multiple vendors.
If you believe any competitive advantage a channel program provides one vendor will eventually be copied by the others, then we can assume that over time all competing vendors will have relatively similar programs, prompting lots of decisions by solution providers that are attempting to remain competitive.
So, if three vendors that used to share 30,000 solution providers all have similar programs that force solution providers to make a choice, we can assume each vendor will end up with 10,000 partners in the attach-rate program.
This may result in gaps in coverage for vendors, and the law of the channel jungle says if there is a territory without a predator, it will be filled in. So, potentially, either a new solution provider is born or a solution provider that didn’t compete in the space before enters that portion of the market.
To be fair, perhaps I am completely wrong about this and what will end up happening is that the additional “profit” these programs have the potential to offer isn’t used to reduce the street price of the solution. And maybe I’m crazy to think any gaps in coverage resulting from this will be filled.
In that case, what will happen is that margins will rise for solution providers, and vendors will gain share with fewer solution providers, resulting in reduced channel management costs and improving financials for the vendor as well.
In my more than 20 years of watching these types of things play out, though, I’ve never seen an innovative approach like this not result in at least a major portion of the additional profit finding its way to the street. That’s not the vendors’ fault, but it is the reality of a free market in a competitive field.
Time will tell. Hopefully, as vendors try to improve margins for their solution providers and capture market share, both they and their indirect channels will benefit financially. I’m just not betting my house on it.
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