The Shifting Role of Channel Partners in a XaaS World

As tech vendors shift to XaaS delivery and subscription revenue models, they are adjusting their go-to-customer strategies to accommodate changing customer needs. XaaS customers demand more engagement over a longer period across pre-sales, sales and post-sales activities. Vendors must engage earlier in the buying cycle and allow customers to sample solution offerings in their own environments. In particular, tech vendors must ensure the successful implementation, adoption and expansion of those solutions. As a result, vendors are actively questioning the role of channel partners in the new go-to-customer construct.

Historically, many of the indirect sales motions deployed by legacy hardware and software vendors revolved around deploying value-added resellers (VARs), distributors and other resellers to deliver and install on-premise solutions at the end-customer site. Often, the reseller regarded the end-customer as “their customer” and the vendor had little customer involvement after the initial booking. The subscription world mandates a different approach: the natural question is, “Does this obviate the need for partners entirely?” Naturally, this has created considerable uncertainty and anxiety in the partner community.

Fortunately for partners, vendors (particularly those that are growing) are not abandoning the use of indirect channels. In fact, according to a recent Alexander Group survey, tech growth companies with an indirect channel play are actually spending about 15 percent more on partners as they transition to XaaS. The investments vary but include enhanced internal partner support personnel, better digital enablement and automation, increased marketing collaboration, and other key partner growth enablers.

While vendors are clearly investing in the channel, it is important to note that most are directing the investment to a smaller set of more capable partners. Channel leaders are focusing on culling the “long tail” of their partner community to maximize their investments on those partners that can complement the move to XaaS. Alexander Group’s recent engagements indicate a coalescence around four primary areas of focus:

1. Lead Identification: XaaS deals tend to be much smaller than traditional perpetual or on-premise deals. As a result, vendors require more “at-bats” with customers to reach revenue objectives. Vendors collaborate digitally with partners who can provide scale and reach to identify new customers and prospects. A capable lead identification partner can greatly improve the vendor’s ability to trial and land new XaaS opportunities.
2. Solution Aggregation: The XaaS landscape is complex and difficult to navigate for many potential customers. Many prospects are eager to migrate to public and private clouds for a variety of internally and externally focused capabilities (applications, platforms, infrastructure); understandably, they feel daunted by the crowded vendor landscape. In addition, the customer often seeks a solution beyond the capabilities of a single vendor. These factors make partner relationships with Managed Service Providers (MSPs) and Systems Integrators (SIs) increasingly attractive for vendors.
3. Ongoing Service and Training Delivery: Though vendors are playing a much bigger role with customers post-sale by expanding capabilities around account management, customer success and other post-sales functions, there is an ongoing need for training and professional services in the XaaS market. Many vendors are either not adequately staffed to provide these services and/or unenthusiastic about the margin implications of generating a significant services business. Capable service partners provide a vital avenue for vendors to improve the overall customer experience, thereby increasing the likelihood of renewals and upsell/cross-sell opportunities (expansion).
4. End-to-End Sales: The nature of XaaS makes many solutions viable to more customers and prospects, particularly small and medium businesses. The conversion from large capital purchase to manageable OPEX inherent in XaaS spend has substantially increased the prospect universe for many tech companies. Additionally, XaaS products tend to be less complex to deploy and can be managed remotely, an attractive proposition for small companies that lack significant internal IT capabilities. However, tech companies traditionally focus the bulk of their marketing, sales and service resources on large enterprise customers. This creates a natural conduit to deploy partner-led strategies down-market, enhanced by vendor investments in marketing and enablement, to cover SMB opportunities efficiently.

The XaaS paradigm is changing the way tech companies reach, engage and service their customers and prospects, so it should come as no surprise that the role of channel partners is changing as well. The good news for channel partners is that if they are willing to enhance their capabilities to provide what XaaS vendors need, they can reap the benefits of increased investments to grow their own businesses. The partners that remain viable will be those that understand gaps in their vendors’ coverage capabilities and develop complementary capacity to drive XaaS bookings and revenue growth.

Is your channel partner program working at your company? Contact Alexander Group to help maximize key partner investments that will complement your XaaS transition.

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