The Channel Software Stack – A Comprehensive (And Critical) Look At The Future Of The Industry
*** ALERT: NEW 2021 STACK NOW PUBLISHED HERE! ***
There has been an explosion of software vendors in the past 10 years. In fact, it has been the fastest-growing segment of the technology industry and a big driver of digital transformation across all 27 industries. (Check out Andrew Bartels Global Market Outlook report here). The low barriers of entry (e.g., technical and cost) the cloud provides, combined with new line-of-business (LOB) buyers’ acceptance of subscription-based software-as-a-service applications, has changed the consumption of technology for the foreseeable future.
Platform winners have now emerged across each LOB (think Marketo, NetSuite, Salesforce, Workday, etc.). This has created the next battleground — competing within these ecosystems for horizontal and vertical technology opportunity. Firms are increasingly achieving business outcomes by stitching together several ISV solutions on top of the business application platform. This is satisfying the necessary subindustry, geography, sector, segment, and LOB customization to drive success.
I estimate there are more than 100,000 software companies (ISVs) today around the world — up from 10,000 only 10 years ago. I wouldn’t be surprised, with the level of hyperspecialization new buyers are demanding, to see that number grow to 1 million by 2027.
A channel technology stack is a group of technologies that vendors leverage to conduct and improve their partner programs, compliance, revenue, and loyalty. Often, the focus of channel technologies is to make difficult processes easier, measure the impact of multiple activities, and drive more efficient spending, coverage, and partner communication. The channel industry stack consists of 83 companies across eight operational categories. These companies range from Fortune 500 juggernauts such as IBM, Oracle, and Salesforce to small point-based solutions. Some interesting facts include:
- Firms’ age. These firms are not spring chickens. The average age of these 83 companies is 18 years. Only 10 were founded in the past five years, and only two of those have reached any kind of scale.
- Industry employees. The industry employs slightly more than 10,000 people who focus directly on channels.
- Geographic location. Eighty-one percent of the companies are headquartered in the US. The UK and Canada come in a distant second and third as headquarters. More than a quarter of the US-based companies are in California. New York, Illinois, and Texas come next and together match the number of firms from California.
- Growth. According to LinkedIn, employees in these companies have increased by 3.7% during the past year and an impressive 20.6% during the past two years. (This growth is not broad: Two-thirds of all companies shrunk or stayed flat in size during the past year.)
- M&A. There is consolidation happening, with several cross-category acquisitions happening in the past few months. However, this is still a largely point-solution-based market, with the average company only participating in 2.2 of the eight categories of channel software.
- Financing. Private equity and venture capitalists are getting more interested in this space with more than 120 rounds of financing and $600 million being injected across about one-third of these firms.
With 90 key operational attributes of a strong channel partner program, no one piece of software can (today) manage all moving parts effectively. I see this changing during the next few years because product road maps are getting more aggressive, money is flowing in from private equity, and mergers-and-acquisitions activity is catching fire.
The channel technology landscape is also rapidly evolving, with dozens of different software technologies growing in an ever-increasing number of categories. With so many choices, channel professionals must have a clear understanding of which technologies are most fundamental to their business and program goals and know how technology can help. Here are the eight categories of channel software (in alphabetical order):
- Channel data management. This collects, cleanses, and aggregates transactional point-of-sale and inventory data from partners and distributors into a trusted single data asset that enables business and actionable intelligence. It includes new categories of predictive analytics, artificial intelligence, and machine learning. Examples include Computer Market Research, Entomo, Model N, and Zyme.
- Channel finance, pricing, and inventory. This category manages indirect sales related to revenue and costs, determines the correct value of transactions, automates key financial reporting processes, and prevents errors in payment, commission, and rebates. It addresses pricing, inventory planning, discounts, compliance, tracking inventory levels, and price protection. Examples include CallidusCloud, Channel Advisor, ChannelKonnect, Computer Market Research, Entomo, Model N, Netsuite, Oracle, PROS, Vistex, and Zyme.
- Channel incentives and program management. This manages the design, allocation, tracking, and distribution of financial incentives to the channel partner ecosystem, including market development funds, special payment incentives for fast sales, co-ops, bonuses, rebates, price protection, channel sales compensation, and loyalty programs. Example include 360insights, Amplifinity, birchworldwide, Channel Mechanics, Hawk Incentives, ICLP, Loyaltyworks, Model N, MTC Performance, Perks, Vistex, and Zyme.
- Channel management and reporting. This leverages advanced data science, analytics, and predictive tools to support channel management decisions. It includes workflow, compliance, conflict management, performance reporting, joint business planning, ROI, forecasting, and partner intelligence. Examples include 360insights, Aprimo, CallidusCloud, ChannelEyes, Entomo, Impartner, Mindmatrix, Model N, Netsuite, Oracle, Performance Horizon, Salesforce, Successful Channels, Zift, Zinfi, and Zyme.
- Indirect sales opportunity management. This equips channel partners and their sales reps with the right resources to manage sales opportunities at each stage of the sales process, including deal registration, pipeline management, deal desks, configure-price-quote, order processing, and contract management. Examples include Amplifinity, Channel Mechanics, Channeltivity, Impartner, LogicBay, Mindmatrix, Magentrix, Model N, Netsuite, Oracle, Salesforce, StructuredWeb, Vartopia, Vistex, and Zinfi.
- Partner enablement and training. This supports partner development through the administration, tracking, and delivery of educational training courses and enablement resources, including learning management systems, accreditation and certification management, content management systems, partner portals, communities, and sales enablement. Examples include Allbound, Brainshark, ChannelXperts, CSG Channels, CM Focus, GorillaToolz, Mobileforce, Performance Horizon, Purechannelapps, SAVO, and Successful Channels.
- Partner relationship management. This supports the activities required to manage the entire life cycle of channel partners, including partner targeting, recruitment, onboarding, communication, development, and maintenance of profile information. It provides critical integrations to back-end systems such as CRM, ERP, and marketing tools. Examples include Channeltivity, Computer Market Research, Impartner, LogicBay, Magentrix, Mindmatrix, Netsuite, Oracle, Salesforce, Webinfinity, Zift, and Zinfi.
- Through-channel marketing automation. This enables partners to engage their customers with a consistent vendor brand experience to create awareness and generate demand. It includes through-channel marketing automation, campaign management, social media, syndicated content, microsite development, partner locators, and lead management and routing. Examples include Ansira, Aprimo, BrandMaker, Brandmuscle, Bridgeline Digital, Channel360, Elastic Grid, Elateral, Gage, MarcomCentral, Sproutloud, TIE Kinetix, Zift, and Zinfi.
Running a successful channel program is a complicated endeavor. Trying to do it with antiquated tools and gut isn’t enough anymore. The channel is in need of advanced (and integrated) purpose-built tools based on the latest technologies such as cloud, mobility, social, predictive analytics, and big data.
Forrester is currently writing a Tech Tide report looking at the entire channel software industry. This will include the direction of channel-focused software vendors as they build broader, more robust platforms for all aspects of channel partner and program management. With early signs of industry consolidation and an increasing influence of private equity in the space, what will be the right mix of functionality and integrations that will drive the best business outcomes for customers, channel partners, distributors, and the software vendors themselves in the future?
The team at Forrester will be surveying more than 4,000 of our channel-professional customers as well as customers of these 83 companies to understand what technologies they are investing, maintaining, waiting on, or divesting in. We will look at the channel software buying journey to understand the relative business value of these eight categories as well as maturity in the market.
If you or one of your channel colleagues would like to participate in the survey, the link can be found here. You will receive the full report after it is completed, which will be sometime before the end of December 2017.
<<< CLICK HERE TO TAKE FORRESTER CHANNEL SOFTWARE SURVEY >>>