As cloud goes mainstream, partner channels mature

SUMMARY:

Cloud is growing up. Measured against a 5-phase maturity model for cloud partner channel ecosystems, NetSuite Salesforce and Workday are all at level 3 or 4

Teamwork concept with hands and jigsaw pieces © Coloures-pic – Fotolia.comAlmost two decades after the first cloud software companies started emerging, at last some maturity is coming to the way they manage their partner channels.

It’s taken a long time, but this new wave of software companies have faced a stiffer challenge than merely finding the right partners to help deliver their solutions to customers. The difficulty that any young vendor faces in recruiting partners has been compounded for cloud application vendors by their as-a-service delivery model, which has forced channel partners to devise new working practices and business models.

The industry is now past those early growing pains. The shorter projects and more collaborative, iterative development style of cloud implementations have become mainstream. No one puzzles these days over how to incentivise sales teams for selling annual subscriptions in place of a single lump sum contract for the entire software and hardware stack. IT services companies are learning to become digital transformation consultancies, guiding their clients through the business changes that cloud applications bring in their wake.

A cloud ecosystem maturity model

With all these issues now more or less settled, vendors are moving into the fourth level of a partner ecosystem maturity model whose five phases look like this from the vendor’s perspective:

  1. Just DIY. When no one understands your product and you’re still developing a referenceable customer base, you’re better off taking direct charge of implementations and support. This is doubly true when your technology changes the rules of how enterprises buy and implement their business systems. No one else cares about getting this right the way you do.
  2. Wild West. Once you start to experience some success in the market, rising demand will rapidly outstrip your internal capacity to support the fast-growing customer base. This is especially true if you first gain traction in the volume SMB market. You’ll be grateful when partners emerge to fill this gap, but with your own resources constrained, you’ll end up dismayed at the patchy quality of provision. Some of these brand new businesses will establish groundbreaking practices that set standards for the entire industry. Others will be a downright embarrassment that you’ll want to quietly remove from your ecosystem before they cause irreparable damage to your reputation.
  3. Going mainstream. At last, the world is starting to take you seriously and you’re able to forge links with established players, up to and including world-class systems integrators that have traditionally worked with the incumbent vendors to whom you’re the upstart challenger. Your early partners who were the first to believe in you will accuse you of selling out, but these larger players have the standing and influence to secure your presence in the global enterprise market. Your main worry is making sure they adopt the right mindset and methodologies to deliver successful implementations. You may need to exercise patience while they catch up with what’s needed.
  4. Let’s grow up. Finally you’ve reached light at the end of the tunnel. You have a fully rounded partner channel that understands your portfolio and how to successfully deliver it to customers. Now that struggle is over, you suddenly realize that partnership is a two-way street. You have to invest in really understanding and guiding your partners to ensure that both sides are getting maximum value from the relationship. Cloud application vendors are now entering this phase, and we discuss some examples below.
  5. Now we’re a platform. This phase still lies ahead for the cloud application vendors. It’s uncharted territory because of the loosely coupled nature of cloud architectures, which allow different layers of functionality to coexist and evolve without having to re-engineer the connections. The partner ecosystem for any given solution may therefore consist of many ISVs and several contributing platforms along with a team of professional services implementers. Maintaining order in this kind of federated ecosystem may require unprecedented diplomatic skills.

NetSuite moves to phase 4

This week I met with Doug Kennedy, who this summer took up post as VP of global alliances at cloud business systems vendor NetSuite, after a three decade career at Microsoft and Oracle, most recently managing channel operations for Microsoft Dynamics. NetSuite has war stories to tell from each of the first three phases I’ve outline above, and it’s clear from what Kennedy told me that the vendor is currently moving into phase four, engaging proactively with its partner ecosystem in hand.

Whereas previously NetSuite largely left partners to figure out for themselves where they were going to operate, the vendor will now monitor which geographies or specialist areas each partner has strengths in. Sales teams will direct customers towards the partners that are seen as the leading players in specific markets, which will allow the partners to invest more in those areas, said Kennedy.

We’re spreading the service dollars across way too many SIs. I’m trying to get more prescriptive on who we’re working with by vertical or geography.

NetSuite will also share its product roadmap more openly with partners so that they know where it will be investing in developing its own functionality, and which ‘white spaces’ will need to be filled by third party offerings.

You could argue we’ve been all things to all people. We’re going to be clearer to the ISVs and the GSIs where we’re going to deeply focus.

The prescriptive approach is being taken to an extreme in one particular geography. NetSuite announced this week that Capgemini will have an exclusive reseller agreement in France. This is a special arrangement based on Capgemini making an investment in a local sales team that NetSuite was not yet ready to do itself. Michael Otto, regional director of business development for EMEA told me:

We would have not invested into France for some time had it not been for the opportunity to do something special with Capgemini.

The collaboration has been brewing for the past year and Capgemini has contributed to the localization work for the French market, he said.

Workday still in phase 3

Last month’s news that IBM has bought Workday implementer Meteorix led to my diginomica colleague Den Howlettraising a red flag at the rampant consolidation in the cloud HR and financials vendor’s partner ecosystem. In the past year or so, we have also seen Aon Hewitt acquire Kloud, Mercer’s acquisition of Jeitosa and KPMG’s acquisition of AXIA’s Workday consulting team.

These moves are a sign that the larger professional services players recognise they need to get serious about Workday. The vendor is clearly in the midst of phase 3 in the evolution model outlined above. But while Workday has carefully controlled the expansion of its partner ecosystem (no Wild West episodes here!) it has not yet stepped up to the kind of nuanced engagement that is characteristic of a vendor that’s reached phase 4 of the model.

Salesforce enters phase 4

Last month I described the growing recognition at Salesforce of the importance of its ecosystem and its increasing investment in actively engaging with it. There was also Accenture’s acquisition of Cloud Sherpas, signaling a significant stepping up of the firm’s commitment to the cloud market. With phase 3 achieved, Salesforce is now in phase 4 territory.

There’s a lot to do though, and it goes beyond working with partners to ensure judicious coverage of geographies and verticals. The rapid expansion in the ecosystem is putting pressure on available resources, leading to a shortage of Salesforce developers for example. Proper engagement with the ecosystem includes making sure that the skills base continues to develop and grow to keep pace with demand.

My take

For enterprise customers, the growing maturity of the cloud partner ecosystem removes one more barrier to effective adoption of cloud applications and technologies. But caution is still necessary as vendors continue to evolve their partner strategies and act to plug remaining gaps in provision.

Disclosure: NetSuite, Salesforce and Workday are diginomica premier partners.

Image credits: Teamwork concept with hands and jigsaw pieces © Coloures-pic – Fotolia.com.

    Comments are closed.

    1. says:

      Where do SAP, Oracle, and SuccessFactors fit into this model?

      1. Phil Wainewright says:

        That’s an interesting question. This model describes the journey of pureplay cloud application providers who started out with no partner channel. SAP and Oracle are in a different position because they already had partners but those partners were familiar with the on-premise model. Microsoft similarly.

        Their journey is therefore different. Microsoft’s challenges have been most publicly on display due to the visible discomfort of existing partners when it started selling its cloud applications direct to customers. Getting partners to transition to the practices and business models that work well for cloud is even tougher when those partners have ongoing on-premise business with the same vendor. 

        I remember SAP used to complain that a suitable partner channel for Business ByDesign didn’t exist and had to be created somehow from scratch. That ultimately was overshadowed by other issues with ByDesign, but it’s typical of a vendor that has started out at level 1 and then finds problems transitioning into level 2. 

        I think therefore I would conclude that there are two paths for the likes of SAP and Oracle. The journey always starts with DIY and then it diverges. For a product that targets the SMB space, phase 2 comes next. If larger customers are targeted, then a jump direct to a hybrid of phases 3 and 4 follows with established players brought on board. 

        There’s an added complication if the vendor shares a propensity with the partners to treat cloud as just a deployment model that otherwise is pretty much business as usual. That may delay the development of successful implementation practices.