A Number 2 and SuperSize the Video

UC vendors take their products and services to market either directly, via an indirect channel, or both. Nuances include the roles of distributors and financing partners, but the basic models are well established. Time to revisit that.

Vendors constantly micro-adjust pricing, packages, and promotions to keep solutions competitive while still incentivizing dealers and pleasing shareholders. Further complicating matter are goals to keep programs consistent, yet every market (geographic, sector, vertical) has unique pressures.

Channels are not easy. They are a pain – vendors have enough challenges with R&D, marketing, manufacturing, support, competitors, etc. without having to concern themselves with ensuring a healthy and happy network of independent businesses that impact their image. Vendors would love to do it all themselves, but they can’t. In UC a 100 percent direct sales and support strategy is cost prohibitive and completely unrealistic.

One would think that channel partners are naturally aligned with their key vendors (both want to see increased sales) and that does exist. Unfortunately, it is more common VARs and vendors are working toward different objectives demonstrated by ongoing conflicts regarding pricing, lead generation, allegiance (exclusivity), training programs/costs, demo equipment, certifications, and sales recruitment. Additionally, the nature of such independent relationships prevents the two sides from sharing intimate financial information.

The current market conditions combined with the rapid rate of technological change is putting considerable pressure on both the vendor and its channel partners. I covered some of these thoughts in The Amazing Shrinking Channel. VARs have always added value by filling-in gaps that the vendor doesn’t, effectively addressing market inefficiencies. However, market conditions are changing rapidly. The indirect channel isn’t going away, but it is changing (and shrinking).

Consider what happened to travel agents. The airlines could not efficiently assist the mass public with travel planning, nor distribute tickets so they paid travel agents to do so under a commission structure. The web enabled self-help in the mid 90s, and by the late 90’s e-tickets eliminated the need to distribute paperwork. Technology changes reduced market inefficiencies which dramatically impacted the travel agent economy. Travel agents still exist (though not nearly as many), but their value and business models are very different – often charging clients for their expertise. We are seeing similar disruptions in other sectors as well, especially publishing.

But the story doesn’t have to end badly for channel partners. Consider car dealers, hurt overall from economic conditions; their model remains intact. Today, a considerable amount of car shopping (research) is conducted online, so the dealer is pushed further back into the purchasing process. Dealers perform vehicle preparation, licensing, delivery, and of course warranty and other services. They also offer a showroom and test drives. Cars still have to be sold, but the consumer now does the heavy lifting regarding education.

There are other sectors where the channel continues to strive. Consider the following brands: Hampton Hotels, Subway, 7-Eleven, Dunkin’ Donuts, Jiffy Lube, Kumon Math & Reading Centers, Aaron’s Furniture, Papa Murphy’s, Ace Hardware, Snap-On Tools, and Great Clips – to name a few. These are channel businesses across many sectors that are doing well. They have something else in common: they are all franchises.

Above I described direct and indirect go-to-market channels, but perhaps we should add the franchised dealer to the menu. Franchises are often associated with fast food such as McDonald’s, but are far more common than that. Most car dealers are franchises as are a good chunk of Starbucks locations. Franchises are commonly used in the food and restaurant sector as well as cleaning services, financial services, hotels, printing and postal services, senior care services, pet related services, and health and fitness.

Franchises offer a path for entrepreneurs to get a jump on branding. The franchisee, like a VAR, is independently owned, but far more integrated into an organization’s go-to-market strategy. The Franchisee follows prescribed practices representing its operations and business model and benefits from national branding and marketing support. The Franchisor gets direct insight into market conditions and a pseudo-direct channel built on other people’s money. Customers get a more consistent experience regarding services, pricing, and solutions across geographies.

The current VAR model partially works due to mutual interest in product sales (including productized services). But products are becoming a smaller part of the pie. Franchise relationships are more commonly associated with total revenue which keeps the two sides more aligned.

Is it time for unified communications and collaboration partners to consider a franchise model? There are too many variables to know for sure, and converting independent VARs to franchises will be an interesting process. But in periods of great change, it’s reasonable to question basic assumptions. Franchises offer a proven go-to-market strategy that could offer vendors and dealers new benefits. I think it deserves a conversation.

Dave Michels is an Independent Analyst at TalkingPointz.com.