Are You Maximizing The Value Of Your Software Licensing Channels?

TeamLeverage your sales and distribution channels to maximize software licensing subscription revenue – including some ways you can streamline your software distribution channel

In our our recent software renewals blog series we concluded with a discussion on channel partners and how they fit into the overall distribution mix. This blog continues with a more detailed discussion of how sales channels can help ensure success. Note that we’re not talking OEM (original equipment manufacturer) channels here. OEMs are different and more complex from a software license management perspective – perhaps subject to another blog. So for hardware vendors that use sales channels – here is three things you can do to when working with your channels to maximize software licensing subscriptions:

1. Move to a 100% drop-ship channel relationship

This means your channels no longer stock inventory – they help you sell but you have to ship directly to the end customer. This is what 90% of all software producers and at least 50% of hardware vendors do. This is probably the most difficult concept for traditional hardware vendors to grasp. The common fear is “my channel will not share their customers with me.” Some ways to reassure the channel include:

  • For the last 20 years I’ve been in this business (including working with one of the largest software resellers in the world), there has been a prediction that the channel will be displaced by the producers – it hasn’t happened yet. Microsoft does 9x channel sales and every deal is a ‘drop ship”. It’s just an unfounded fear.
  • You will give them access to the entitlement management system so that they can view what their customers are doing with the software. They will be able to help with upgrades and renewals.
  • You will include the channel in the renewal process – directing customers back to them.

If there are regions in the world where shipping hardware is too difficult due to import restrictions (e.g., China, Brazil), then use channel partners in those regions that will stock hardware but not software. A reseller will then order hardware & software from a local distributor. The distributor will ship the hardware and place a drop-ship order for the software with the producer. This is quite common – Ingram and Tech Data have “licensing desks” dedicated to places to drop-ship orders with the Microsoft’s of the world.

There are different reasons why producers have used to go-direct with their customers while retaining their channel partners:

  • Providing that they are not “channel stuffing.” If every order has an end customer, then it can’t be channel stuffing.
  • Providing complete denied party/embargo country validation checks
  • Needing to know the end customer contacts in order to provide technical support

2. Incent your channel based on performance (a common practice done by software vendors)

Many software vendors have a concept of “market development funds” (MDF) which they pay to channel partners as they sell more software. They reduce the channel discount percentages but use MDF to compensate for that reduction. MDFs are typically based on quarterly sales numbers. They are often paid at the end of quarters based on results or they are built-in rebates on the purchase price.

3. Once you’ve done drop-ship orders, then you can establish a direct relationship with the customer. Do so by:

  1. Creating them as an organization and as users in your entitlement management solution
  2. Providing software electronically instead of physically
  3. Providing license generation in the software products going against your entitlement management system
  4. Make sure you associate the channel partners to the entitlements so they can help with activations etc.

So what are some specific ways you can streamline the software distribution channel?

As discussed above, sales channels play a major role in facilitating the software products reach out to different parts of the world in timely and cost-effective manner. On the subject of distribution, I have seen both software vendors and device manufacturers leveraging channel partners significantly to sell and service their customers.

Note that there are several categories of channel partners involved in distributing, selling and supporting applications – distributor, reseller, value-added reseller (VAR), system integrator, “managed service provider” (MSP) and more.  In some cases (typically in a drop-ship model), end-customers are known to the producer at the time of order booking and in other cases, end-user may not be known to the producers until software is activated or in other words until end-user starts using the software. There is a third type where the end user is never known to the producer as channel does the activation on behalf of end-user (or producer allows anonymous activation). But this last scenario is extremely rare for software distribution.

I often get requests from our customer community on how they can leverage our back-office entitlement management application to effectively manage software use rights involving different types of channel partners.

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Let’s first talk about the drop-ship scenario, illustrated above, where the end-user company buys the product from a reseller and gets the entitlements directly from the producer. When the end user buys a product from the reseller, the reseller places the order with the distributor who sends the order to the producer with following details – customer name, ship to address and distributor’s address so that the producer can create the entitlement based on the ship-to information and credit the distributor with the sale. While creating the software use rights in the entitlement management application, the producer designates the end-user company as the primary owner and the distributor as the channel partner with an ability for the distributor to add the reseller to the entitlement for appropriate visibility of the customer entitlements. As a result of this action, the end-user receives an e-mail notification with the web site location to download the software and activation code to generate the license. This use case is widely prevalent in the industry today.

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Now, let’s discuss a different and less common use case involving a “stocking partner.” In this scenario, the distributor buys products from the producer in bulk and carries the stock to sell to end-users via its reseller network. The reseller sells the software to the end-user company and contacts the distributor for activation IDs.  The distributor transfers the required number of activation IDs (that it had procured from the producer in bulk earlier) to the reseller and records the sales credit for the reseller. The reseller then sends an e-mail to the end-user containing activation IDs and a web link to access the self-service portal. The end-user redeems the activation IDs and logs on to the portal to download the software. At this point, the producer comes to know the exact details of actual customer that is going to use the software. This flow is not very transparent to the producers and can be prone to unforeseen errors. So the vast majority of application producers are relying on the “drop-ship” model instead of the “stocking partner” model.

How cumbersome, error-prone and costly it would be to accomplish all these complex processes with multi-tiered distribution channel using standard ERP (enterprise resource planning) system or homegrown applications.  It is really challenging to track the entitlements throughout the entire distribution supply chain and ensuring that the end-user gets access to the correct product in a timely manner without losing sight of the channel partners who made the sale possible.

How do you pull this off? Leverage a purpose-built application for software entitlement and license management that supports these and many advanced processes which can help make your alliances,  channel staff, the partner ecosystem and your end-customers happy and satisfied.

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