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75% of world trade flows indirectly - Jay McBain @Forrester (part 1/3)


Few people explain an explosion of tech #partnerships and #ecosystem better than Jay McBain, who leads Forrester's research and advisory for global channels, alliances, and partnerships. Part 1 of 3.


Jay, welcome to London! You are one of the world's authorities on partnerships and channels, how do you understand partnerships? How do you understand channel?


There's a lot more partnerships than people think. 75% of all world trade goes indirectly. So you look at the $80 trillion GDP of the world, and 60 trillion of it goes indirectly. Think about your personal life, the last car you bought was probably from a dealer, that's a channel. The last TV you bought, it’s from a retailer. The last jar of peanut butter you bought, it was from a grocer. You actually have to think, in both your personal life and your professional life, about the last time you actually bought something direct. It’s actually tough to do. The world revolves this way.

Partnerships are everything in every industry, because everything goes through some indirect supply chain. And, you know, we tend to talk about technology partnerships a lot, but it covers every part of our life. People understand the concept of bronze, silver partners, etc but what about everything else. We've had a very stable channel in most industries for decades. If we talk about the technology industry, for 37 years there's been a very stable reselling channel, they call themselves VARs, resellers, managed service providers. Vendors would set up gold, silver and bronze tiers and try to accelerate partners through the tiers. Over time you created this huge list of long tail partners that didn't really fit in the tiers and then, every year, the VAR asks, “Do we get rid of them? What do we do with these people, they're just not transacting, they're just bad partners?” What we're learning now, is, they're maybe not bad partners, you just didn't have them in the right kind of program. And so we've moved on from this linear transactional model, where every one of your resellers focuses on the transaction.


The customer has changed, the customer journey has changed, the actual vendor selection and transaction have changed. The majority of partners today coming into the ecosystem are non-transacting partners, so it's not as focused purely on the transaction. And when you're a non-transacting partner, there is no gold, silver or bronze to care about. Now you have to be interested in other things about your partner. What kind of buyers do they work with? What kind of sub industries do they focus on? Where geographically are they located? What sectors, segment and size of customer do they really benefit from? Remember too that there's 40 layers in the tech stack today, so there's no partner that does everything.

If you look at those five vectors, this becomes a new ecosystem play. And I called this a couple years ago “shadow channels”, and people got mad because they didn't like the word "shadow". But it wasn’t because it's dark and in the back alley - it was because ten years ago shadow IT kind of started. This was one line of business where executives started making cloud decisions without the IT department knowing. Back then it made up a few percent of tech buying. Every CIO magazine said we need to stamp this out. Well, that small amount of buying has now become 65% of all tech buy. Two-thirds of every tech dollar spent today, is in these new line of business. So if you run marketing or sales or operations or finance or HR, you're one of these new buyers, and that 65% will probably be 80% in a few years.

And if you’re one of these new buyers, there’s every chance you buy IT very, very differently from your IT department. The traditional reselling channel are now struggling getting into the room to access these new dollars. The shadow channel firms are new types of companies that service this new buyer and offer them a number of services and other things that really drive home the solution. Consequently, in the last couple of years we've seen a flood of these shadow channels, but they're not in the shadows anymore, they're coming out.

This has huge implications for the industry. A company like Salesforce. the biggest CRM company, announced that they need 250,000 new partners in the next four years to double the size of their company. On the same day, they said that they've shut down the resale program. 100% of these 250,000 partners are going to be non-transacting partners, they're going to be in the ecosystem. Microsoft, the biggest channel in the world, they have 400,000 reselling partners today. But they're recruiting 7,500 new ones a month, (I’ve no idea how to on-board that many new partners) and 80%of those new partners are non-transacting. They will be joining Microsoft’s new ecosystem.


So what do these partners do if they don't transact? Do they help promote a company or help serve their customers?

There's a number of things. If you break up the new customer buying journey, they spend 68% of their time at the beginning, without wanting to talk to someone. The last time you bought a car, you go online, you do all the research, you look at pictures and videos, you talk to friends, you go to social networks, you do all these things and then you go configure the car and price it. You're an expert by the time you've done your 68% of the journey.

When you go to the dealer, everything breaks. And you sit there for hours, while they "get you a deal". This is also what's happening in software, what's happening in hardware, what's happening now to the buying journey. I've spent my 68%, I've maybe leveraged five different partners along that way, digitally. I've read their eBooks, I've read their whitepapers, I may have spoken to them in a peer network. I've gone into community groups, I've been on the LinkedIn group. There's hundreds of ways to interact, but on average, I'm going to work with five partners who influenced me through that part of the journey. What's interesting, is that 61% of this group of buyers actually make the decision without ever talking to somebody. So right now you've got major corporations, which I talk to every day, who are focused on that first 68%, getting obsessed over it. Because, if they're not in that room, if they're not influencing during that time, they may lose the deal without even knowing there was a deal. This is the change.

You have partners very early in the journey, that are influencers. But you get to vendor selection, and the transaction itself is also changing. 73% of these new buyers would actually prefer to buy direct. This is the new world, this is why so many no transacting partners are there, because We at Forrester are predicting 17% of all world B2B decisions and money will flow through marketplaces, e-commerce and web direct in four years. That's a trillion dollar shift of money. It’s not just technology, but it's paperclips and forklifts and every B2B transaction. It's now less about the transaction, and that means every company, in every industry, is becoming a tech company because you influence through technology and data.


That's a very compelling argument.

Every service company in every industry is becoming a tech services company in the shadow channel. And remember the lines of business buyers? You might run marketing and now spend more on tech than the CIO. And marketing execs spend 51% of their time on tech. Everyone is flooding into the technology industry, millions and millions and millions of people. That linear transaction channel that we've had for 37 years, is now an ecosystem. It is millions of stars and moons, it's very celestial, in terms of trying to figure out this entire ecosystem. And that's the biggest change that has happened just recently.


You mentioned marketplaces, and you've previously mentioned that partnership is evolving into an ecosystem. What are the characteristics of this ecosystem? How do you see companies manage this ecosystem, build this ecosystem?

There's a couple of thoughts there. One is, we're going to have some major, major ecosystems. Really the core of the ecosystem that's the centre, the Sun, is the marketplace. Major companies want to become those Marketplace. I mentioned Salesforce earlier, Salesforce is investing in their AppExchange. This is their marketplace, but it's not just a place where you can buy software. The average Salesforce customer is going to add six other pieces of software on top of the Salesforce code itself. Salesforce want to make that available in the marketplace. They also want to make money in tax, you know, on those other pieces of software. But they've also invested recently in adding all types of their partners including consulting partners and the DevOps people. There are probably 12 different types of partners in that AppExchange, and they're looking to add hardware too. It's going to be a place you can go, as a head of sales or a head of marketing or head of customer success, and all your needs will be provided for. You're not only going to buy the core Salesforce software but all the ancillary software and services you require. There's $4 and 14 cents of incremental opportunity for every dollar that you spend directly on Salesforce. Salesforce wants to enable that spend, funnel it through that one place, and make it easier for the customer. But it’s not just easier. It creates a bespoke, customer specific solution that fits their needs.


Right, and this perfectly explains their valuation as well.