This is the first of a three-part series where I’ll share my perspectives on the current state of collaboration between Services Firms and SaaS, which I find to be surprisingly limited with substantial untapped value for partners and customers.
· Today’s state of SaaS and Services collaboration (i.e., Partnerships) is sparse and unexplored
· Simplistic referral paradigms dominate this landscape but do not sufficiently address the mutual needs of partners and customers
· A product-centric engagement model may be more effective solution to develop higher-order partner ecosystems
The average company uses 137 SaaS products.
It’s safe to say that the Services and SaaS markets are massive.
The SaaS industry is expected to reach a value of $171.8 Billion in 2022; the consulting industry is no drop in the bucket either, estimated at $132 Billion. With two massive markets in mind, how can we design better collaboration and ultimately add more value for our customers?
Fundamentally, we’re at odds with two opposite business models. One is focused on driving subscriptions with profitability through economies of scale. The other, on maximizing bill rates through management of human capital. I’d be remiss not to mention that there is plenty to discuss on strategies in play across global ecosystems like Salesforce, Microsoft, and AWS. However, we’ll save that for another series.
So, what types of partnership practices do we see today?
Today, the data shows that SaaS companies over-index on building referral channels out of all partners, not just Services Firms. Crossbeam’s 2020 State of the Partner Ecosystem Report indicates that 88% of organizations leverage a percentage of the sale as an incentive, followed by 41% offering discounts on their product.
My experiences mirror this data. Partner Agreements are paraphrased as “If you introduce me to your clients and we close deals, I’ll give you a slice of my subscription for the first year.”
Simple and scalable. This isn’t necessarily a bad thing for all organizations. Mobilizing affiliate and referral armies, and opening distribution channels to drive top-of-funnel demand at scale are undoubtedly critical in many scenarios, which makes none of this unexpected or unreasonable.
However, a referral incentive is unfortunately not a very compelling offer and won’t gain traction with most Services Firms.
Services Firms are preoccupied with their own primary revenue streams and maintaining client trust. Most prospective partners just don’t see enough value in the referral. The cost of participation outweighs the benefits, and the incentive represents a conflict of interest. The problem is exacerbated when Software / SaaS organizations look at Services partners to fill pipeline without a solid product-market fit.
Overlooked Services partnerships are particularly a weakness for SaaS companies selling complex solutions. Things like APIs, new domain-specific languages, altered processes, and consumption-based billing /cost management quickly become an adoption and change management hurdle for end customers. This is the “High Growth / High Solution Complexity” subset of SaaS companies, where we see the most fertile ground.
Examining the dichotomy
We need to understand this Services / SaaS dichotomy more deeply. Throughout a series of articles, we’ll examine the tensions between the SaaS business model versus Services models. We’ll dig into unexplored synergies and address fundamental tensions. Ultimately, we’ll challenge established roles, accountabilities, organizational structures, processes and incentives to re-design a better approach.
Shaping the future of partnerships
The reality is that healthy partner ecosystems contain a variety of partners and accommodate different business models with competing priorities. Partnerships have a significant opportunity to diversify beyond the traditional affiliate and referral paradigms led by the marketing and sales organizations. We firmly believe that the future of partnerships spans across all of Enterprise Architecture. It is anchored in the Product Lifecycle, Customer Journey, Human Capital Management, Vendor and Supplier Management.
Part 2: Diving into SaaS Partnerships Today / Recognizing the Need to Adapt
Part 3: Building a Better Model for Collaboration
You can find a more in-depth version of this article here.