3 Shifts in Technology Alliances
For thirty years we’ve been helping technology vendors foster alliances with other hardware and software companies. I have to say, most of those technology alliances produced very little value in comparison to the effort involved in building the integration or extension.
The goal of these technology alliances was to tackle the challenges of rapid tech development. Driven by the product and engineering teams, a technology alliance could reduce the costs of research and development, speed up getting products to market, and increase the customer solution stickiness. Even with large development investments on both sides of the alliance, many of these extensions and integrations were expensive shelf-ware. They just sat there in the online solutions directory. To avoid these pitfalls and the wisdom of experience, we’re now seeing a few key shifts in how technology alliances operate which help balance the scales for everyone involved.
1. Drive customer engagement.
Times have changed. In our current global economy, companies cannot afford to waste engineering resources on products that don’t produce a return on investment. Organizations are still eager to increase customer stickiness by surrounding the purchased product with additional hardware and software that is optimized to work together. However, deciding where to assign engineering resources is now driven by customer demand. Neither side of the partnership – the technology vendor with the core product or the alliance partner developing the extension or integration – has the luxury of investing in product development without first evaluating the financial payoff. Are customers asking for this extension? Will this integration increase the number of licenses a customer purchases? Is an optimized solution of two products working seamlessly together going to guarantee the renewal of both products? These business decisions are now driving the development of technology alliances.
2. Align go-to-market actions.
Solution directories and marketplaces are not enough. Almost every technology vendor we’ve talked to in the past five years is either posting an online listing of compatible software and hardware products on their corporate website or developing a “marketplace” where customers can find and purchase products that extend or enhance the core product. HubSpot has developed one of our favorite application marketplaces. But even as avid and longtime HubSpot users, we’ve only purchased one application directly from the marketplace. Being listed in an online directory is not enough to justify the application development investment anymore. Alliance partners are now demanding go-to-market alignment. How are customers driven to the online marketplace? Are the technology vendors’ salespeople compensated on helping the customer find and evaluate solutions from the alliance partner? Are salespeople aligned in the field to conduct joint sales calls for the joint solution? Will there be joint marketing to drive customer awareness and opportunities?
3. Share the revenue.
The shift to customer engagement and go-to-market opportunities has also shifted the financial commitments of both the technology vendor and alliance partner. Most technology vendors charge a flat fee to alliance partners depending upon program level. For example, at the base level, the vendor might charge around $10,000 for minimal benefits (e.g. listed in the solution directory). As the benefits to the alliance partner increased to include things like product roadmaps, joint development and marketing alignment, so did the fee the alliance partner paid to participate in the program. We’ve seen fees at the top level of a technology alliance program exceed $200,000 a year! We’ve also seen dozens of companies pay that fee, for multiple years, and not sell one customer on the product developed from the alliance. Half a million bucks and no additional sales is not a good deal.
To combat the risk of a huge upfront investment without an associated increase in revenues, we’ve seen many technology alliance partner programs shift to a revenue share model. Instead of randomly choosing an alliance program level and paying the vendor upfront, the alliance partner pays a percentage of each sale back to the technology vendor. Thus, they are only paying when the application actually sells. The alliance partner must still do the homework of understanding customer demand (#1 above) to decide to invest in development. And both partners need to invest in joint go-to-market motions (#2 above) to make the solution successful. However, the financial transaction between the parties only happens after the customer purchases.
Balance the scales
These three shifts in technology alliance partnerships start to balance the scales of investment and return for both parties – the technology vendor and the alliance partner. Instead of the risk being all on the alliance partner to build the extension in hopes of future sales, the technology vendor also has commitments to align go-to-market activities and delay financial return until the customer purchases. This balance is a fairer approach and will ultimately benefit both sides of the partnership.
Diane Krakora is CEO of PartnerPath with over two decades of experience defining the best practices and frameworks around how to develop and manage partnerships. She's gathered friends across the partnering industry and enjoys hosting quarterly roundtables with Bob, Beth and John and other partnering executives.
