Across the industry, the emergence of new XaaS business models are causing changes in the partner channel, forcing technology vendors to rethink their channel partner strategy and optimize these channels for XaaS. But what exactly is XaaS channel optimization? To answer that, we should first start with what it’s not. It’s not about perpetual license models, nor about sales of up-front, all-you-can-eat, one-time charge contracts of technology offerings only available on-premises.

XaaS channel optimization is about the “as-a-service” subscription offerings which are sold through, sold with or sold to a partner in order to meet a customer’s technology solution business requirements. Ideally optimizing the channel partners’ abilities and capabilities will both meet customers’ needs and drive reach and scale for vendor companies at the same time.

XaaS Channel Optimization Term Definitions

Before I get into more detail, let’s define some terms for context:

• XaaS: XaaS means “anything-as-a-service”. While “aaS” stands for “as-a-service”, “X” is merely a placeholder for anything that can be delivered on an as-a-service basis, such as software-as-a-service (SaaS), infrastructure-as-a-service (IaaS), platform-as-a-service (PaaS), device-as-a-service (DaaS), etc.
• Channel: Business-to-business channels involve transactions between two companies. A channel partner is a person or organization that provides services or sells products on behalf of a software or hardware vendor. Value-added resellers (VARs), managed services provider (MSPs), consultants, systems integrators (SIs), original equipment manufacturers (OEMs), and distributors may all be called channel partners in XaaS models.
• Vendor: In this context, this definition specifically refers to a technology vendor. A vendor is a company that develops and “ships” hardware and/or software (regardless of whether or not they also have services as well). It may be served up on-premises or in the Cloud, or more often both.
• Partner Ecosystem: The broad ecosystem of partners that are part of the technology solution offering that customers need in order to stand up successful solutions to solve their business problems. This may include partner companies such as independent software vendors (ISVs), systems integrators (SIs), managed services providers (MSPs), cloud services providers (CSPs), and others.
• LAER: LAER refers to a new customer engagement model developed by TSIA, which consists of four stages: Land, Adopt, Expand, and Renew.
• Land: All the Sales and Marketing activities required to land the first sale of a solution to a new customer, and the initial implementation of that solution.
• Adopt: All the activities involved in making sure the customer is successfully using the solution.
• Expand: All the activities required to cost-effectively help current customers expand their spending as usage increases, which includes both cross-selling and upselling opportunities.
• Renew: All the activities required to ensure the customer renews their contract(s).

What is XaaS Channel Optimization?

XaaS channel optimization is the creation and execution of a channel strategy that is specifically designed to be used in the as-a-service market. The traditional channel created for the technology market was designed in the days of the personal computer, where boxes were configured, shipped to the channel partner, loaded with additional software, oftentimes customized based on user requirements, shipped, and installed by the channel partner personnel.

Also, these installations were typically sold with user training and first-line support provided by the channel partner, backed by the technology vendor.

How Are XaaS Business Models Impacting Technology Vendors and Channel Partners

In today’s XaaS evolution, as-a-service solutions such as SaaS (software-as-a-service) can be purchased for a group of users for a period of time with a selection of features and functions that can be curated for specific users and user groups. These solutions may be sold through a SaaS channel partner, however in this case, the partner may not take physical possession of the SaaS solution like they ordinarily would in the traditional model. These SaaS offerings may be hosted either by the technology vendor or by a managed services provider.

In the case of SaaS offerings, the contract may be executed on the channel partner’s “paper”, which may also include other complementary SaaS offerings to the total customer solution. The contract may also include services provided by the channel partner, such as on-site training and adoption assistance. In this case, the channel partner relationship is less transactional, as they have more of a hands-on role with the customer to assure that the SaaS solution is properly used and the software’s functionality is adopted.

This evolution of partner and vendor roles when it comes to XaaS technology offerings demonstrates how the new normal may involve the vendor being more in the driver’s seat when it comes to the actual physical distribution of their offering. In the traditional model, it was the channel partner that was in this fulfillment role, but in the world of XaaS, the channel partner is now also focused on the solution’s end customer experience, adoption progress, and realization of business outcomes.

Top Challenges with XaaS Channel Optimization

TSIA is finding that the companies that are aggressively shifting their business from a traditional perpetual technology business to a technology-as-a-service subscription business may not have done an adequate job preparing their channel partners for this new normal. Many companies who have a high rate of channel sales in the traditional model are unsure of how to use channel partners in the new XaaS model.

In a recent channel survey of vendor companies, we found that 50% of companies are driving +80% of their overall sales through “the channel”. However, in the same survey, only 7% of those same companies drive +80% of their XaaS revenue through the channel. Of the breakdown of the XaaS revenue for that cohort, 50% of these vendor companies drive 20% or less of their XaaS sales through the channel.

How Technology Vendors Are Utilizing XaaS Channel Partners

Of the vendors surveyed, as well as others that TSIA has spoken with, many are still in the process of defining their offers for XaaS, especially those companies that are migrating from a traditional, perpetual model over to an XaaS model. Therefore, there are still internal discussions around the offers, such as how to serve them up, whether or not there should be separate offers for the channel, how to price the offers, how to determine what discounting should be offered for partners participation in the sales process, how the partners can participate, what types of partners are needed with these new offers, etc.

1. Defining the Value Proposition

This graph below sheds some light on these conversations. The number one focus area for technology vendors and their channel partners in this survey was around the value proposition of the offerings themselves. This includes not only what the offers are, but also how to assure that the partners can articulate and sell the value proposition in an accurate and compelling way to gain the customer interest, drive and close sales.

2. Recruiting New XaaS Partners

The second most important area of focus for technology vendors is around the recruitment of new XaaS partners. It’s clear that the partners that are needed for today’s XaaS offerings may not be the same partners that led the traditional perpetual market, so many vendors are thinking about how to incent behavior of new partner types, such as managed services providers, to help them drive offering sales and consumption.

3. Partner Enablement

The third priority on this list is around enablement, building channel skills and capability. After speaking with vendors about this enablement need, it’s more around building capability enablement around areas such as Professional Services in XaaS and Customer Success functions and less around technical and sales (i.e., product) enablement like in years past.

In order to determine how to enable the partners, the vendors need to determine how partners will participate in LAER for their XaaS offerings.

• Land: Land is not about just the sale as was true in the former model. Land is about starting small, scaling, and growing the footprint as users are added and features/functions are added. Commission and discounting plans need to be revisited and based on the partners’ roles, partner types (sell through or sell with or sell to) and discounting structures and/or referral fees need to be evaluated in light of the cash flow and cost model of the new offerings and new selling motions.
• Adopt: Adoption is critical, and channel partners are well suited to drive adoption due to their proximity to the users. However, if the partners do not have telemetry (visibility) into the adoption progress of the customer down to the offering and user level, they can be of limited help to the technology vendor to drive this progress effectively.
• Expand: Driving expansion, cross-sell and upsell by partners is critical in gaining solid customer usage and traction of the vendor’s as-a-service offering. Giving the partners the tools that they need in order to know the next best offerings to propose and the next logical user groups to approach will expedite this critical area of gaining a customer for life.
• Renew: Ideally, the renewal motion should be seamless and a “non-event” if customers are productively consuming the vendor’s XaaS offering and if partners are assisting with the documentation and validation of customer business outcomes gained via the solution. With visibility to renewal dates of vendor offerings, the partners can aggregate multiple vendors’ offerings into consolidated renewal events, thus making the effort easier on everyone, especially for customers.

Finding the right balance of skills at the partner companies to engage in all 4 phases of LAER is crucial, as the functions such as customer success managers and renewal specialists are oftentimes those that are new to partner companies and leverage different compensation models from traditional roles at the partner company.