Have You Developed a Partner Ecosystem?
In recent conversations I have had with entrepreneurs, the word “ecosystem” has popped up quite often. There seems to be a significant shift in recent years in strategic thinking about why and when a technology company should consider building or joining an ecosystem, that is, a network of partners, third party vendors, evangelists, and plug-ins providers that revolve around the company’s core technologies and product offerings.
In the past, only large, established technology behemoths like Microsoft, IBM or Apple talked about building and growing an ecosystem. In those cases, the “behemoth” at the center of the ecosystem typically wields enormous influence on their partners and often defines the character of the network. In some cases, they exercise so much power that they effectively hold their ecosystem partners hostage — see the dominant relationship Apple has with its vast army of “unpaid R&D” apps developers, whose plights were recently documented in the New York Times.
Nevertheless, the rise in prominence of such ecosystems has given popularity to the idea that having a value-adding network of partners and collaborative organizations can be an important competitive advantage. Large companies have been very successful at doing so, but we are also seeing the rise of another type of more diffused, less centralized ecosystems that arise organically between technology companies that are more equal and collaborative partners.
Good examples are the fast growing ecosystems that have risen around tech darlings such as Twitter and Pinterest. These have contributed to the increased prominence of ecosystem development in startup strategy development. Having a clear ecosystem development strategy has become an essential part of the growth plan at a much earlier stage in a company’s lifecycle.
Varieties of Ecosystem Partners
To fully appreciate the benefits of having ecosystem partners, we should recognize the full range of partnerships that a technology company can build with other organizations and individuals. The list below will attempt to discuss the most common types of partnerships in the software industry. It is in no way a comprehensive list, but I hope it provides a broad enough starting point for a comprehensive map of prospective ecosystems.
1) Sales and Marketing Partners
When we discuss partner channels these companies come first to mind. They form the distribution network for a company’s product and services and are essential to a successful sales and marketing strategy, as the distribution network lends massive scale to any fast growing technology providers.
- Co-Marketing Partners: Partners who market different solutions to the same customer base.
- Value-Added Resellers/System Integrators: An individual or company that specializes in building complete computer systems by putting together components from different vendors. Unlike software developers, systems integrators typically do not produce any original code. Instead, they enable your company to use off-the-shelf hardware and software packages to meet your company’s computing needs.
- Referrers: Vendors or VARs who do not distribute a vendor’s product directly but can refer their customers to the vendor.
- White Labelers/OEM Partners: Partners who incorporate a vendor’s product/solutions into their own proprietary solutions. Also include “white-labeling” partners who label a vendor’s product with their own branding.
- Bundlers: Resellers who bundle various solutions into a single bundle for their customers. They can be VAR or simply distributors/resellers of unaltered solutions.
- Managed Services Providers: A category that has been growing dramatically in recent years, these are partners that provide not only the infrastructure and initial implementation services but also services to help customer use and manage the product, the network, and infrastructure supporting it.
- Industry-Specific Products and Services Resellers and Distributors: Partners who specialize in providing IT systems/solutions to a particular target industry. They can either resell a vendor’s solution with vertical-specific services or verticalize a vendor’s platform to serve a particular industry.
- Retailers: End retailers of IT or software solutions.
2) Technology Partners
These are technology providers whose products can be integrated into or built upon another vendor’s product. They are essential to the company’s product and market strategy because they allow the company to capture and enter new adjacent markets without having to invest heavily in new product developments for those markets.
- Platform Extenders/Third Party Application Developers: These are add-ons or plug-in providers who build applications on top of the platform offered by your company’s product or another company’s product. They help extend the functionality of the solutions, increase the value of the platforms to end users, and form a solid base of support for the company’s products.
- Implementation Tools Providers: These are software vendors who specialize in “tools” that help customers better use your company’s product or platforms. They add value to your product and enhance its reach and competitive advantage in the market.
- Strategic Technology Integration Partner: Another vendor whose technology can benefit from deep integration with your technology to strengthen both products’ features and competitiveness. For example, integrating web analytics with email marketing solutions to provide an A to Z, closed loop marketing and analytics package for the end customers.
- Verticalization Specialists: In many cases, customers from different industries have very different data model usage levels or functionality requirements that your company is not willing to build into the core product’s roadmap, because the market opportunity in those niche vertical industries is too limited. That’s where verticalization specialists come in. These are specialist companies that focus on customizing software platforms to build industry-specific solutions for these customers. Their business models allow them to focus on the niche industries (by offering a whole range of solutions, not single point products), and they are better positioned to serve customers in those industries.
- Joint Product Strategy Partner: These are technology vendors with whom your company can jointly develop and market a unique product to capture a specific market segment of customers that have unmet needs the product makes addressable.
- Platform Providers: In contrast to platform extenders, platform providers are vendors whose platform your technology depends on. You want to build a long term strategy with them so that there is a mutually beneficial relationship that leads to tighter integration and better technologies for both you and the provider.
- Major Platform Users/Technology Licensees: In contrast to platform providers or platform extenders, users are vendors whose solutions are built on top or customers who are utilizing your platform heavily. They are typically thought of as customers, but should ultimately be considered another type of partner, because of the level of influence they will have on a company’s backlog and reputation in the market. By treating them as partners, a company can align its product and distribution strategy better with these major customers for the mutual benefit of both.
Note: For any technology ecosystem, there exists an entire universe of relevant service providers who are often overlooked because they do not directly resell or market technology products, or because they do not offer technology products themselves that can be integrated into a vendor’s technology stack.
However, for any technology company to offer a full whole product to its customers, service providers are crucial to the strategy. They help fill the gap in the service that can not be addressed by product features, and they also play important role in evangelizing new products and solutions, even before the sales and marketing strategies take root.
In the next post of this series, I will discuss the different types of professional service providers that exist in an ecosystem, along with the opportunities and challenges associated with building partnerships with them.