Jay McBain is a leading analyst in Forrester in ecosystems, partnerships, alliances and channels. He's one of the most prominent and insightful voices in this respect globally.
Key trends in the decade of ecosystems
You mentioned some time ago that the last decade was the decade of marketing, and before that was the decade of sales. Now we’re in the decade of an ecosystem and partnerships, and we’re in the early innings, second year. We discussed a couple of trends last year, and I would love to ask you, what are you most excited about starting in 2022?
In the decade of the ecosystem, especially early in the decade, we're watching the people with great interest. We're watching the processes and the automation to get ready for it. We're watching the programs as they evolve. And obviously, we're watching the technology that sits underneath it, that went from 17 companies to 34 companies and there's like 60 or 70 companies now.
I'll start with people. In the last week, companies like Google Cloud replaced their channel chief now with an ecosystem chief. A much bigger role than just the channel transactional and some of the other partner types they're looking at really by partner role at this time. A company like Rackspace changed out a couple of their channel chiefs and put in an ecosystem chief. IBM just hired an ecosystem chief from the outside. You've got Microsoft who did that midway through last year. Almost every day now we're seeing an announcement on the people's side. And then if you just scan LinkedIn, there are almost 9000 people now that have ecosystem in their title. They're the Chief Ecosystem Officer, they're the Vice President of Partner Ecosystems. And that's really interesting and that's been on a big climb upwards. And if you just search the word ecosystems inside what people do on LinkedIn, it shows up almost half a million times. In terms of people having some level of responsibility for not only building again the channel more transactional partnerships, but building out the technology alliances, the business alliances, the strategic alliances, the influence partners, the retention style partners and 80% of all of that isn't transacting or partner sourced. It's now moved into this partner-assisted conversation.
if you just search the word ecosystems inside what people do on LinkedIn, it shows up almost half a million times. In terms of people having some level of responsibility for not only building again the channel, more transactional partnerships, but building out the technology alliances, the business alliances, the strategic alliances, the influence partners, the retention style partners. And 80% of all of that isn't transacting or partner sourced. It's now moved into this partner-assisted conversation.
Interesting that you mentioned Microsoft and Google, which are overachievers I would say, in the last reports. But what I love about you is that you think from first principles, you think from the customer lens and try to stay away from overtaxing on marketing terms. The last time we spoke with you, you mentioned that no one owns customers anymore, how do you build your partnerships in a way that influences customers through the entire journey and so on. What are the trends that you're seeing accelerating in 2022?
From siloed channel function to matrix ecosystem organization
One of the trends is organizationally. I talked about people changing roles, and taking on a bigger remit in terms of how they look at partnerships. But the other understanding, for 40 years, the channel organization in most companies that we look at is in its own silo. There's a head of channel, there's a head of channel marketing, channel sales, channel operations, channel finance. It sits out on its own. Channel marketing people don't really talk to direct marketing people. The channel salespeople don't talk enough to the direct salespeople, it's really its own thing. And in ecosystems, we're starting to see and I relate this almost to data science, companies that created data science type of things and created a leader of data science. The idea wasn't to create a whole group of data scientists that can be deployed in different places. They literally deployed them in different places. Data scientists entered marketing, they entered sales, they entered customer success, operations, finance, HR. There was a group of matrixed data scientists that dotted lines back to data science leader or chief technology officer or chief digital officer. But the fact is you put the people in the place and embed them where their role is.
Matrixed ecosystem organization
And ecosystems are going the same route. We need to influence customers, both in the direct marketing we do and through partnerships. It makes sense that the ecosystem marketing folks that are focused on influence sit in marketing. The salespeople, that sales-assist type of partners, whether a customer buys through a marketplace indirectly or directly. It really doesn't matter to most companies in a subscription model, because that's the first 30 days with the customer. Now, embedding ecosystem people in with customer success groups making sure partners are there driving adoption, integration, stickiness, upsell, cross-sell, enrichment, and keeping that customer for life is an embedded function inside customer success.
And so this ecosystem chief doesn't have thousands of direct reports. They have a highly matrixed organization that is going after a single program, a single global set of goals and KPIs. But they understand that this needs to be an embedded model inside the product and the product teams inside the business, the strategy teams, and obviously along that customer journey.
And so this ecosystem chief doesn't have thousands of direct reports. They have a highly matrixed organization that is going after a single program, a single global set of goals and KPIs. But they understand that this needs to be an embedded model (!) inside the product and the product teams inside the business, the strategy teams, and obviously along that customer journey. That's one of the interesting things, and we're just seeing this in the last couple of months.
I had a conversation with a couple of users of our product who were talking about that. It seems that the overall trend is this is happening because it's much more cost-effective to acquire customers and retain customers through this partnership's ecosystem motions. But at the same time, it's actually more difficult in the short term. It's more difficult to build it and prove it and scale it.
Who is the new Head of Ecosystem?
A lot of people whose role is Head of partnerships or Head of Ecosystem are actually struggling to elevate their prominence within organizations, to actually prove that their role is one of the most valuable. Two questions about that:
1. Who's the head of ecosystem should report to, or head of partnerships should report to? 2. How would you elevate your voice within their company?
In the first one, Accenture did that piece of research a couple of years ago that said ‘76% of CEOs think their current business model will be unrecognizable in five years’ and ecosystems were the number one reason why. That tells me that the ecosystem chief for that 76% of CEOs reports to the CEO. It's also cross-functional, as I mentioned, it touches every vice president or every C-level person that reports to the CEO. It makes sense that that person sits in the boardroom as well. As each of these CEOs, and they think of their business model, whether it's a subscription, consumption, whether it's usage-based, or value-based, whether it's product-led growth, which is on a terror in the SaaS world, whether it's going through marketplaces. All these changes are happening at once, given the new buyer. I'd want to make sure that I have my partnership strategy at the table.
Again, everything I just mentioned in terms of business model is not your traditional indirect sales two-tier model. The channel was always synonymous with revenue, profit, and customer set. New subscription businesses look more like Netflix in the way they're rated by investors. So its subscribers - new subscribers this quarter, new logos, and then a churn rate. That replaces revenue, profit, and customer set. Those three things I got to make sure that I have a partnership strategy. My ecosystem has the capabilities to go get new logos, has the ability to drive customers for life, and I want to make sure that driving this new model and the success of this new model, 90% of it's going to be partner assisted. If that's the case, I want that person at the boardroom table to make all that work.
New subscription businesses look more like Netflix in the way they're rated by investors. So its subscribers - new subscribers this quarter, new logos, and then a churn rate. That replaces revenue, profit, and customer set. Those three things I got to make sure that I have a partnership strategy. My ecosystem has the capabilities to go get new logos, has the ability to drive customers for life, and I want to make sure that driving this new model and the success of this new model, 90% of it's going to be partner assisted. If that's the case, I want that person at the boardroom table to make all that work.
Minimum Viable Channel Program
In one of your talks, you mentioned Microsoft, which is 96% partner assisted and Salesforce as well. I love your concept, we were talking on our podcast previously about minimum viable partnerships, but you're taking it to the next level and you have a concept about a Minimal Viable Partner Program. Could you briefly share what i
s that? Why is it important? What are the organizations that need to set it up and how it should look like?
The MVCP (Minimum Viable Channel Program) you think of where we were a year or two years ago when we spoke. Now we have 76% of CEOs, that means 76% of the 175 thousand software companies today. That means 76% of the emerging tech companies today - IoT, AI, automation, blockchain, the new metaverse, whichever emerging tech you want to talk about. 76% of every legacy company across 27 industries.
This is a big deal, and many companies of relatively large sizes are creating their first program. And the idea is that you could go into a hundred different parts of the program from that recruitment to onboarding, education, training certifications and competencies, incentives, motivation and loyalty, co-selling, co-marketing, all the enablement around technology and marketing.
There are a hundred elements to a fully-fledged program, but coming out of the gate, you're not going to go build a Microsoft class, Oracle class, SAP class, program. HP or Dell class program. Lenovo, that's been around for decades. You're going to have to go and touch on the most important things.
When I said, the onboarding is critical, you don't have to go build a whole library and curriculum and university, but you have to hit a minimum viable level to get your partners activated.
When I talk about incentives, it doesn't mean that we have to tease out incentive programs to the seventh decimal point and all 197 countries. But we do have to be very thoughtful about the competitive landscape and where we need to be to get a seat at the table. It's the table stakes.
You know that co-marketing and co-sales, we probably are not going to enable a full through channel marketing automation platform with all joint campaigns and market development funds and everything else. But at a high level, we do have to help our partners at a local level, distributed or localized marketing to go and win on Google, to go and win on social, to go and win in email marketing, to go win on some physical marketing, maybe billboards or radio ads.
There are all kinds of considerations there, but at a minimum level, we have to make sure we check the boxes on sales and marketing enablement or we're not going to be successful.
And that's really the minimum viable. In a hundred different things you should be doing in your program long term. There are maybe 25 or 30 of them that are the minimum viable things that you need to do to be successful in partnerships.
Ecosystem multipliers and will Salesforce be another trillion-dollar company?
Now that we discussed one side of the range, let's go to another.
You made a prediction that Salesforce will become a trillion-dollar company. Also, Microsoft and other big companies are talking about multipliers, about partners influencing revenue across the ecosystem. Can you speak a bit more about these best-in-class examples coming from big tech? How they influence revenue through partnerships and building platforms? And why do you think Salesforce will be another trillion-dollar company?
Larger SaaS companies and obviously the hyperscalers and others, the fastest-growing companies today in the industry are changing the way they build content and messaging out to the channel.
A company like Salesforce or a company like HubSpot have effectively shut down their resell program. It's not a place where they see the value and they want the money to flow through their own marketplaces. They're not really actively looking for resellers, and they're not really turning on that switch to current partners unless the customer absolutely requires it.
In that world, they've turned differently, and Salesforce was actually the first company to ever do this. They published their TCO [total cost of ownership], the dollar amount. Back then it was like $4 and something for every dollar of Salesforce to get it to work. Today, in the most recent report, it's up to $6.19 for every dollar of Salesforce to get it to work. That means it needs to be installed, implemented, integrated, secured, compliant, continuity, recipe data, and automation. Think of all the long-term services wrapped around it, but as a customer, by the way, 64% of that $6 is services.
Today, in the most recent report, it's up to $6.19 for every dollar of Salesforce to get it to work. That means it needs to be installed, implemented, integrated, secured, compliant, continuity, recipe data, and automation. Think of all the long-term services wrapped around it, but as a customer, by the way, 64% of that $6 is services.
There are six other ISVs on average that are sold on the app exchange. And then now, there's some hardware coming in as well. Hybrid cloud, internet of things, other types of things. Keep in mind that that whole solution, which is the dollar for Salesforce, the $6.19 The customer could spend $7.19 to get it to work all in one place. But for years, for decades inside this industry, we hid that number. In client-server, the TCO was so bad it created the managed services industry to help reduce those costs for customers and make them more predictable and linear. But in the case of cloud, it was pretty shocking to say that ‘hey, if you're going to spend one hundred thousand dollars with us, we hope you have half a million dollars in the bank to get it to work’. And now every company is fast following.
HubSpot it's $5.80, a lot of that's digital services, creative services, digital agency type of services.
Company like Google Cloud, which just did at $5.70. Microsoft is out in the market talking about unlocking trillions of dollars of ecosystem value. It takes the heat off your program.
If a customer wants to buy through a marketplace, if they want to buy direct, if they want to buy indirect, it doesn't matter. The point is, it's not the 20% of the deal that a partner can go win and maybe 3 or 5 points on the back end. It's the 200 or 300% of the deal that they can go win at 75% margin.
it's not the 20% of the deal that a partner can go win and maybe 3 or 5 points on the back end. It's the 200 or 300% of the deal that they can go win at 75% margin. And that's where the partners that are growing the fastest are building skills, building practices...
And that's where the partners that are growing the fastest are building skills, building practices, and using the program inside these companies to go build out those muscles to say ‘Hey, for that $100,000 deal, I'm going to charge you $200,000, but I'm going to do this list of things to make it work’. And that's where this industry's going. There's always going to be a re-sell element. Today, it's trillions of dollars and we expect that not to drop but stay pretty steady. But those partners, we're really looking at the ones that are eating up that messaging and looking at that program to build out that long-term success around these really fast-growing companies.
How partnerships evolve in SMB and midmarket?
Fantastic. Thank you so much. This is big tech. What about mid-size. You love the term ‘a mid-size clinic’, but talking about mid-size growth stage companies. Are they sort of aspired to become these, as you say, suns around which everyone revolves, or do they do something differently compared to big tech?
I grew up running SMBs for companies like IBM, for companies like Lenovo, as well as small companies that I worked at as small businesses, including founding my own. I really spend a lot of my time at that average size partner. Now there are 75,000 managed service providers (MSP), there are 500,000 VARs, their average size is about eight people. I'm really interested in that size of business, because that's where most of this industry goes through SMB and through mid-market. In that world, these are not people that are with eight people setting up new business practices and gearing up for a side business or whatever else. I'm really interested in the business model there and how a vendor works with these partners at scale to make them successful. In a lot of cases, it's just introducing one opportunity. A company with eight people is probably not going to go charge you $200,000 for every $100,000 you're spending on a product. But if they could do the security, managed service provider, 73% of them want to become managed security solution providers. If I could provide the compliance and the security and the governance, maybe I could ask for 50 cents on every dollar that you're buying, let's say, in a hyperscalers world. And I can be the one that comes in on the seven layers of security at the endpoint through the network, the internet, the file, the data, the applications looking at this multicloud hybrid cloud. zero trust model. I can aspire to that, and it's not too far out of my wheelhouse to be able to do. I'm not asking that eight-person company to become Accenture or Deloitte, but there are definitely other values they can add to that customer that are more sticky, more profitable. And again, don't rely on the actual transaction, which even Microsoft this week with the introduction of NCE [New Commerce Experience] is causing some tension in the marketplace with changing around how the buying of the product works. And partners have to move on from that as a singular focus.
How partner experience (PX) is changing?
Which is a nice transition to my previous to last question. Last year, we talked about partner experience, its importance, and we discussed that companies are too distracted with needing to just go back to the business. I’d appreciate your updates, where do you think partner experience or the importance of partner experience? What is its current state?
There's a nexus of partner experience. There are a bunch of things that intersect to drive partner experience. And some of the biggest growth areas, obviously around the technology space, making it fully automated self-service.
The average of the 35,000 vendors that we work with that run channel programs in one way or another are channel-friendly. The idea is that their channel that they built is about one-tenth the size of the ecosystem they need. For every small company that sells, has 100 partners, they probably need a thousand. If they have a thousand, they probably need 10,000. That's we talk to big companies that have 100,000 partners and we walk through the million partners that they're probably going to need later in the decade.
their channel that they built is about one-tenth the size of the ecosystem they need. For every small company that sells, has 100 partners, they probably need a thousand. If they have a thousand, they probably need 10,000.
If there's a 10x multiplier, you're not going to get 10x more people. You're not going to darken the skies with planes and do the coverage model with channel account managers and things you've done in the past. You've got to look at yourself like a banking app. And when's the last time you saw a teller? Because you can deposit checks, you can do almost everything you did in front of a teller.
Now, in an app that the partner portal and all of the elements of the partner program now become like that banking app. I shouldn't wait for humans. I shouldn't have any humans as gates into what I need to get done as a partner, whether I need to be enabled, whether I need to be onboarded, whether I need to be incented, all those elements, the minimum viable right up to the full-fledged program ought to be done automatically and I should be able to 24/7 go in and self-service and not wait for people.
When I do interact with people, it's around deals. It's around opportunities. It's around co-innovation, network effects, it's around things like value creation. Those are the highly creative specialized roles that humans do so well. Chasing data and connecting dots and making program approvals, and other things ought to be fully automated, and that's partner experience. As a partner, I can run my business, I can partner effectively with a vendor, and all of that can be done. And I never have to visit a teller.
Now, when I want to talk about growing my business where that multiplier is, what skills, what business practices, where I should be digging in, what's different in my market? What are the things we could do around marketing and selling together? What are the things we- that's the conversation I want to have with a human. And I don't want that human being caught up with a bunch of that, chasing data and doing QBR and then things like that of the past.
Why nobody in this decade of the ecosystem can do it alone
It's brilliant, this is pretty much what we do in Partner Insight. Very last question, I know that you are speaking to CEOs of many companies and you are in meetings in a boardroom or Zoom. What are the top of mind things that you are typically telling them these days?
We're intersecting, probably 10 different trends. I talked about all the business models. I talk about the growth of marketplaces, all these new tens of thousands of people or hundreds of thousands of people that are looking at ecosystems as what they do. This idea, we can't go at it alone. And to disconnect channels from being synonymous with the way money changes hands. And start looking at channel partnerships or channel ecosystems as getting the customer to the dance. Getting them on the dance floor, which is a subscription is the first 30 days, and then keeping them dancing all night long. Those are all partnership conversations embedded in each of those parts of my company - the technology alliances, the strategic alliances, the business alliances. And again, I don't care if you sell pharmaceuticals. If you sell cars. If you're a manufacturer, if you're trying to sell software, I don't care what industry you're in. Nobody in this decade of the ecosystem can do it alone.
Jay, it's been a brilliant conversation, as always, and thank you so much for keeping leading in this industry. And I remember speaking with you some time ago, we discussed different trends and now these trends actually came to life, and it's pretty phenomenal. I look forward to following you and advise everyone who listens to follow you as well. Until the next time.