The words channel partner used to be synonymous with an individual or company that resells another companies’ product. Nowadays channel partners come in all different shapes and sizes.
We see the labels being thrown around for MSP’s, systems integrators, VAR’s, distributors, agencies, referral partners, affiliates, and other variations of these.
So, what is the difference and why so many different types?
Let’s break it down and look at each profile individually.
We will start with the traditional reseller, also known as the VAR or value-added reseller to give it it’s full name
A value-added reseller is a company that sells licences under it’s own name for a particular vendor or set of vendors.
The vendor invoices the VAR who in turn invoices their customer and margin is made across the transactions. We will cover more on billing methods in a later article.
The value-added reseller does exactly what it says on the tin. They resell products but add value to that sale. The value add may be in the line of support, consulting, training or implementation.
With more than 500k VAR’s globally, they are by the far the most represented type of channel partner in the ecosystem.
Evidence suggests that the number of VAR’s in the entire channel ecosystem is reducing through in favour of the next type of channel partner, the MSP.
MSP or managed service providers are largest gainers on the number of partners in the ecosystem.
An MSP manages the services of companies that they look after. The MSP is essentially the customer of the vendor and the MSP manages the licence that they have bought from that vendor on behalf of their customer. There is one bill from the vendor to the MSP which grows as their customer reach grows.
A typical MSP licencing model is billed monthly with adjustment to the licence made during the term. The licence can be scaled up or down month by month and it provides flexibility to the end user.
The MSP model has been popular in the US and Northern Europe for over a decade and is slowly becoming popular in other regions globally. The advent of Azure and AWS make it easy for MSP’s to operate as they can manage the services that they provide on these platform. Prior to public cloud offerings, MSP’s would have their own data centres that they could bill usage of to their customers or they would provide break / fix services to customers on premise.
The MSP generally provides infrastructure services such as remote desktop, productivity solutions, VoIP and some aspects of security such as managed firewalls. An MSSP on the other hand is primarily focused on providing cyber security products that are managed by them on behalf of end users.
There are over 50,000 MSP’s globally right now but this is increasing every day due to the switch away from on premise to cloud hosted services.
A systems integrator specialises in bringing multiple software / hardware products together to perform an automated action. Systems integrators are what makes the magic happen when you close a deal as won in your CRM and it automatically generates the invoice in your ERP system.
With the ease of integration within software products these days and the advent of the MSP, are systems integrators going to last the course?
There are 1000 systems integrators around the globe and 20 of them being global systems integrators. The global ones are going nowhere as they are household names within the channel.
Systems integrators work with a selection of products that they specialise in so they can sell the systems as a package and bill additional charges for the integration of the products. They bill under their own name like a reseller but they specialise in the connectivity of these products.
Referral partners come in all shapes and sizes and work on the principle of introductions into accounts that the vendor can sell into. They don’t only work at vendor level but also reseller level and distribution level.
The referral partner is given a finder’s fee for business that is generated from their introduction and can range from a couple of percent up to around 10% depending on the situation.
They don’t transact to the end user and they are purely making introductions to other people that can purchase the services of the company they are representing.
Referral partners can be found in all industries and there is a chance that you have been a referral partner yourself and not even known about it. Mobile apps that ask you to invite your connections for the promise of free usage or credits is the exact same principle as a referral partner.
Affiliates are the bridge between VAR and Referral partners in the sense that they market the products of a particular vendors to drive customers to purchase directly from the vendor. The acquisition of the customer is tracked against the affiliate partner and the affiliate is paid out based on conversion of the prospect to a customer.
Some affiliate programs pay out on repeat business from that customer, and some pay out only on the first purchase.
Affiliate partners are quickly becoming a main stay of software companies selling low ticket items that require very little technical knowledge. Watch Youtube videos and you will see the “paid promotion” that is being done by the Youtube “stars” for VPN’s and similar products.
They are good for low ticket items that demand volume of sales but not necessarily good for technical products that require knowledge about the industry.
Notable affiliate programs include Amazon where an affiliate marketer can advertise products on Amazon, someone purchases that item through the link provided by the affiliate and the affiliate makes commission on everything that the person purchases when they have clicked that link.
There is often confusion about what a distributor does that is different to a reseller. The aim of a distributor is to recruit resellers that can sell the products of the vendor.
Distributors do not sell to end users; they only sell to resellers/MSP’s.
A vendor recruits a distributor when they want to increase their reach in a particular territory and gives the distributor margin on sales to do this.
The distributor is able to support, train and enable the resellers in their territory and thus remove the need for the vendor to have dedicated people focused on this area inside of the vendor.
Take note, distributors do not sell to end users! They have their own pool of partners that they sell multiple vendor solutions to and in turn they already have the reach in place to position new products that are complimentary to the products that they work with.
There are multiple types of distributors in the market. The large global distributors that have reach into multiple countries and territories, the mid scale distributors that work across borders but generally in regions where they speak the language and then there is the small scale distributor who focus on one particular country.
The vendor doesn’t even need to have contact with the resellers in some instances as the distributor is the representative of the vendor in the set geography.
What types of channel partners do you work with?
What types of channel partners would work for you?
Have you thought about your strategy for expanding into new territories?
Are you selling low ticket or high ticket products?
Do you products need supporting on the ground?
Are you going for volume over price?
What does your typical sales cycle look like?
What is your average sales price and is there enough margin to share across the channel?