Integrators have to make a profit. There has been plenty of talk about transforming our industry into a managed services model. What does that really mean for NSCA members? Will our clients merely be buying the right to use products instead of buying the hardware outright? Will we be dealing with rental or leasing situations?
In this proposed services model, we have to find solutions that will still leave some “meat on the bone” for the integrator. There has to be a long-term revenue share in the deal, which will require partnerships with channel-friendly vendors.
Traditionally, the integrator’s value has been centered on buying and reselling products. But maybe our systems would be perceived as more valuable if we charged for access to our intellectual property and attached a value to each function the technology provides. Would this be an answer to competitive pricing pressures and reduced margins?
In most licensee arrangements, companies pay for usage of the technology, but also for access to intellectual property. A percentage of the license revenue is often split between the integrator and the manufacturer once the contract is signed. Integrator licenses and end-user licensees are typically assigned by geographic territories; long-standing policies are put in place to prevent the channel conflicts that happen in product distribution.
As integrators, you will become a licensee to your vendor, as your customers will be to you. In many cases, the product ownership never transfers. Or, as in some cloud-based solutions, there may be one sales agreement for onsite hardware and a license for the IP and use of it.
Manufacturers and software developers that would accept almost anyone as a reseller are now likely to become selective about which integrators they partner with. Only serious partners will be allowed into this network due to transaction complexity.
To add to the potential confusion: Licensees make their own decisions regarding their businesses (hiring, firing, compensation, etc.). There are minimum standards, training and support requirements, and quotas to meet, but there is no corporate-mandated business model. However, the manufacturer still controls licensing of the product and how the transaction is done … right? Many manufacturers now work through stocking distributors. Does that impact this form of transaction?
Recognizing the value of education, many manufacturers provide licensees with easy access to training, seminars, webinars, videos, etc. Just because someone owns a business doesn’t mean he/she can understand his/her own profit/loss statement, recruit and select the best job candidates, evaluate software, create a marketing plan, attract new customers or sell additional services to existing customers. That expertise is often gained by forming a true partnership model with the vendor. In this license-driven path, alignment with the right “channel-friendly” partners will be crucial.
License-driven manufacturers may not have the responsibility and legal risks associated with how their licensees run their businesses, but they have very effective marketing (pull through), they invest in product development, and they provide business operation and sales training for licensees. Therefore, careful selection of the vendor partners will be even more important than it is today.