Just coming back from SaaSConnect, the annual meet-up of the Cloud Software Association (CSA), a terrific conference for SaaS and Cloud business development professionals. If your partner exec isn’t involved with the CSA, they should be. The organization is run by a dedicated group of volunteers, ranging from business development at Google and Microsoft to newer SaaS partner platform founders like SaaSMax and AppBind.
I was impressed with the sophistication and creativity of partner models SaaS vendors are executing on. Underlying all of the conference discussions was a satisfying focus on monetization and tangible revenue and product goals. After 20 years of suspicion that partnering is not a viable revenue growth strategy for SaaS companies, the tide has turned.By various estimates, including both SaaS Capital’s recent survey and OPEXEngine’s own benchmarking of channel revenues, 50-70% of B-2-B SaaS companies today derive revenue from channel relationships.
Partnering Strategies Goals
Two main objectives drive most SaaS partner strategies:
- new customer acquisition, and
- enhancement of product value for customers
Lots of partner structures satisfy both objectives. Integrations and product partnerships improve customer satisfaction but also leverage and increase access to new customers and markets. Another objective, sometimes a byproduct of the first two objectives, is partnering with a large strategic player in order to be noticed and acquired. The number of SaaS vendors that have gone from partnering with major companies to being acquired by those companies has increased significantly in the past few years especially in 2018’s banner year for M&A: $573B tech and telecomm acquisitions (451research).Best practice, like in for most investments and for defining optimal resource allocations, is to be clear about the objectives and measure results. And, like any SaaS go-to-market strategy, it is best practice to iterate on partnership structures until you find something that’s working for both parties and then keep iterating as partnering relationships inevitably change with growth and over time. This can make it difficult for finance organizations modeling channel contributions and investments. Resource and outcome assumptions should be reviewed with the partner team regularly.
Key SaaS Partner Models Discussed at SaaS Connect
Newer versions of traditional models
- Channel partnering to expand internationally in the Cloud world
- Resellers bundling together SaaS products to provide a larger solution, saving customers from evaluating/acquiring/managing myriad potential SaaS applications, especially in crowded markets like CRM, back-office, communications, security
- VARs standardizing custom implementations and/or integrations of SaaS applications
- Embedded, white label and OEM arrangements – especially Cloud-based analytic and BI layers to enhance SaaS applications
- Referral sales referral fees between sales organizations that pass leads on to complementary solution partner companies
- Digital recommendation and review sites also act as referrers and take a percentage of click-thrus and leads (some conferences and digital events take referral fees for passing on leads as well).
Newer Cloud partner models
- SaaS product ecosystems to establish market leadership, build out solutions and fully support customer use cases: if there is friction in the use of your product because customers need X to use your product, include vendors in your ecosystem that provide X
- Appstores – virtual resellers and referrers
- APIs – making it easy to integrate best of breed apps and exchange information from one system to another so customer total cost of ownership doesn’t include expensive custom integrations
- Datasets – SaaS companies exchanging datasets to increase customer value and/or monetize customer data
SaaS business applications vendors selling into the enterprise tend to partner with systems integrators for implementations, consulting and customization of their apps. SaaS IT and technical apps selling into the enterprise are selling through reseller and distributor channels supporting the enterprise. Procurement processes in the enterprise have become so complicated and onerous that oftentimes the only way a large enterprise can procure a subscription from a smaller SaaS vendor is thru a distributor or reseller with an existing contract with the enterprise.
SMB apps are tending to partner in SaaS ecosystems, building out API strategies, and working with VARs where applicable.
Proofpoints
There are plenty of examples validating all of these strategies. SalesForce’s AppExchange was the granddaddy of SaaS ecosystem strategies helping to drive massive revenue growth and market leadership. Hubspot’s inbound marketing ecosystem helped Hubspot define, evangelize and take leadership in a new market. Examples of partnering leading to acquisition include Intuit’s acquisition of TSheets for $340M or Cisco’s acquisitions in 2018 and Q1 2019 of DuoSecurity, Singularity and Cloudlock to build out its security offerings, among literally hundreds of other examples.As CAC for most SaaS vendors is increasing due to crowded markets plus noisy (and expensive) marketing channels, partnering is increasingly important both to support customer acquisition growth rates, and to manage CAC. More and more SaaS vendors are finding that it is worth investing resources carefully into partnerships to increase leads, new customer acquisition and revenues.
