Channel partnerships can unlock new segments and efficiency for Data & Information businesses. But without a clear strategy, they create conflict and cannibalisation. Below, we discuss how you can design a channel approach fit for the AI era.
In addition to serving customers directly, many Data & Information businesses partner with third parties to sell and deliver their content. Done well, channel partnerships can be an efficient and effective means of addressing new customer segments and/or bringing entirely new offerings to market. Too often though, we see incoherent or worse, non-existent channel strategies leading to channel conflict, revenue cannibalisation, and customer arbitrage risks.
The recent emergence of AI has only served to heighten the need for clarity, with a new breed of tech companies hungry for high quality data to feed their models. Whilst well-chosen partnerships promise significant upside, it’s critical that businesses are mindful of the potential cannibalisation risks to their core business.
At a high level, there are two main reasons to partner with an organisation: 1) Drive efficiency, and 2) capture white space. They are not mutually exclusive, with many partnerships falling into both categories.
Partnerships to drive efficiency
Efficiency partnerships enable Data & Information businesses to either sell to and service customers more efficiently or build and maintain products more efficiently. We see this often in markets that would be inefficient for the sales organisation to serve directly (e.g. partnering with local organisations to sell into lower priority regions/countries) or to avoid delivery mechanism complexity/costs (e.g. partnering with a cloud marketplace).
To evaluate an efficiency partnership, we need to compare the expected margins (realized price – costs) from serving directly vs. through the partnership, alongside the risks associated with any partnership (legal risk, reputational risk, risk of weakening/losing the customer relationship, or cannibalisation risk).
Partnerships to capture white space
Whitespace partnerships enable Data & Information businesses to either reach new customer segments or parts of existing segments that you couldn’t previously reach effectively or deliver solutions/products to serve new use cases that you otherwise could not do or could not do well.
To evaluate a whitespace partnership, we need a deep understanding of its attractiveness and expected ROI, including answering questions such as:
- Is this whitespace one that you do not serve and will not serve in the future?
- What needs does the segment/solution have for your content and functionality?
- Would you enhance or enable a potential partner?
- What is the competitive landscape in this market and how do competitors serve the above needs?
- What is the total addressable market (TAM) and growth for this segment/solution?
- What is the future serviceable available market (SAM) based on TAM, growth, and how well you expect to meet the needs of the whitespace?
- How much investment is required from you to serve this whitespace through a partnership?
Designing your channel strategy
There are five key dimensions to consider when designing your channel strategy:
- Partner concentration: Should you pursue a concentrated model (limited number of focused partnerships) or a broad stroke model (many partners within a given market)?
- Route to market: Should you choose a referral, co-sell, resell / redistribution, or an OEM partnership?
- Partner commitment to you: Should you require exclusive commitments from your partners?
- Your commitment to partners: Should you be willing to give exclusive commitments to your partners?
- Commercial model: What should the commercial model with the partner be?
Partner concentration
The number of partners you utilize should depend on the investment required, market consolidation, and market maturity.
A concentrated approach (i.e. fewer partners) is generally preferred when:
- High investment cost per partner outweighs the increased coverage and reduced concentration risk from adding more partnerships
- Concentration of companies serving the segment, meaning only a small number of large partners cover the accessible market
A broad stroke approach (i.e. more partners) is generally preferred when:
- Low investment cost per partner makes adding more partners for increased coverage and reduced concentration risk worthwhile
- High dispersion of companies servicing the segment meaning a large number of partners are required to cover the accessible market
- The market is nascent so we do not know which partners will remain in the long-run and so need to diversify
Route to market
Route-to-market defines who owns the customer relationship, who leads the sales motion, and who contracts and invoices. There are four primary approaches.
Referral, where the partner introduces opportunities, but you lead the sales process and invoice the end customer directly, is generally preferred when:
- The segment is strategically important, and you want full ownership of the customer relationship
- The expected lifetime value of customers justifies direct sales and servicing costs
Co-sell, where you and the partner jointly sell to the end customer but contracting and invoicing for your content remains with you, is generally preferred when:
- The partner’s solution materially enhances your value proposition and joint selling increases win rates
- The segment is important enough to keep direct ownership and cross-sell potential
Resell / redistribution, where the partner contracts with and invoices the end customer and purchases your content at a wholesale price, is generally preferred when:
- The segment is fragmented, lower spend, or geographically dispersed to the extent that direct coverage would be inefficient
- Direct ownership of the customer relationship is not strategically required
Embedded / OEM, where your data is integrated into the partner’s product and delivered as part of their broader solution, is generally preferred when:
- Your content enhances a workflow you do not own, and the partner has strong distribution into that workflow
- The primary objective is scale and use-case expansion rather than direct brand visibility or customer ownership
Partner commitment
The level of partner commitment will depend on your investment required, the available substitutes and partner segment coverage. Partners giving exclusive commitment (ideally the default position, as it’s the most secure relationship), it is particularly preferred when:
- You need to make a substantial investment and so need to secure the relationship
- There are no currently available easy/good substitutes so you can push for exclusivity to protect your future position
Partners not giving exclusive commitment is most likely to make sense when:
- There are easy/good substitutes for your offering
- The partner provides so much value to the partnership that you cannot push for exclusivity
Your commitment to partner
Your level of commitment will depend on the level of partner investment required, partner segment coverage and market maturity. You may need to give an exclusive commitment, particularly when:
- The partner is required to make a substantial investment and so needs to ensure it is not encroached upon by other partnerships
- The partner’s segment coverage is substantial enough that the value they bring warrants an exclusive commitment
You should not give an exclusive commitment when:
- The market is fragmented, so giving exclusivity to one partner prevents good segment coverage
- The market is nascent, so any exclusive commitment made today may not make sense as the market evolves
Summary
Best practice for channel strategy involves having a clear channel strategy (i.e. which segments to target via which routes to market) to which all partnership deals adhere, together with central governance of all partnerships.
Look out for our next piece on choosing the right commercial model for partnerships.
Our projects in this space typically unlock 10-30% incremental ARR through deep customer understanding, close alignment of packaging and pricing to value, and hands-on implementation support.
If you would like to discuss your packaging, pricing, and commercial strategy further, don’t hesitate to contact our Data & Information sector experts to arrange a call.
