Stephen Hurrell's Analyst Perspectives

The idea of partnerships in business is most definitely not new. Wholesaling through distributors and retailers is centuries old. For some industries, their entire model is selling and servicing through partners. Think auto parts, and the auto part stores visible in most neighborhoods. But what is new is that partnerships are moving beyond this reseller model towards product partnerships, where a seller’s products and services are supplemented by other vendors’ offerings from adjacent and complementary markets.

More organizations are looking to add value to existing offers with complementary products and services that increase the benefit realized by the customer, whether another business or an end consumer. This added value results in additional revenue, but also stickiness leading to a longer relationship, which for many organizations is key to customer profitability.

There are some simple, traditional examples of this relationship, such as purchasing mortgage and title insurance while taking out a loan to buy a house. The insurance is not a product of the lending institution but offered from a third party as a bundle. These additional products and services may also be offered as a subscription. This is discussed in more detail in my Analyst Perspective on reseller subscriptions.

More complex examples include business models such as car rental, where often the actual asset – the car – is owned by a third party. At the time of booking, a customer can also secure a hotel or flight. Or, the car rental reservation can come from a third-party site, such as an airline site or a travel aggregator.

Adding on new revenue models such as subscription and usage creates further challenges for organizations, as the linear model of manufacturer to distributor (reseller) to buyer starts to break down. With the necessary emphasis on customer experience to ensure retention, the arm’s-length engagement model is less successful, and efforts such as warranty and product registrations (to know who is using your product) produce uneven results at best. Other requirements involve allocating revenue from sales that either originate through third parties or include third-party products and services, or in service-level agreement performance monitoring and enforcement, enabling a single point of contact for support questions, regardless of the owner of the product or service.

We estimate that organizations are predominately using a series of existing applications to handle many of these tasks, including a combination of traditional partner relationship management tools for indirect channel management, spreadsheets, enterprise resource planning platforms and home-grown systems. Many of today’s 90-plus PRM systems specifically target the indirect channel for managing leads, sales enablement materials and market/business development funds. And although there are no specific platforms to handle all aspects of a true ecosystem, there is a new generation of applications that recognize different types of partner ecosystems beyond the traditional reseller model, including strategic alliances as well as technology partnerships. Still, these do not accommodate the true partner ecosystem.

In fact, by 2025, we believe that fewer than 1 in 10 organizations whose business model uses third-party products and services will have a dedicated billing system, that also deals with partner settlements. We recommend that, when it comes to managing revenue allocation tasks from third-party ownership or origination or licensing, organizations should look to enterprise subscription management and billing solutions. These systems manage complex pricing and costing rules, enabling the posting of accurate and timely revenue allocations to existing accounting and accounts payable systems. This also aids a better understanding of product and customer profitability when coupled with a PRM that supports more analytic data around opportunities and bookings as well as forward-looking forecasts.

Although the ideal, comprehensive, true partner ecosystem is not yet available, there are many applications beyond spreadsheets and home-grown systems that address key needs of the ecosystem. We recommend that organizations looking to introduce additional value for customers through development of partner ecosystems look beyond traditional PRM systems. Consider platforms that pay attention to new business models, with a focus on using data to create a better understanding of the end customer that supports product innovation and the customer experience.

Regards,

Stephen Hurrell