Although there’s no shortage of media coverage of data as a valuable asset and data partnerships as an important part of nearly every business transaction, there’s precious little explanation of exactly how data fits into business beyond its role as raw material.  While it’s probably easier to follow the “data as oil” line of thinking, there’s little insight in that approach, and it often muddles the reality of how data transactions work.  In reality, without a solid understanding of what the structure of a data partnership looks like, it’s easy to wind up as the junior partner in a very unbalanced relationship without the ability to leverage your position.

Channel Partnerships

For that reason, it’s important to understand what kind of relationship you want to find with a data partner.  One very common arrangement is the channel data partnership.  These have been around in the financial services and the marketing industry for decades. Every Bloomberg terminal or Thomson Reuters platform is a descendant of a long line of data systems designed to gather market and financial data and deliver it through a channel platform and reseller arrangement. The concept of selling data in large quantities or for specific purposes continues to evolve rapidly. And because any transmission of significant amounts of data triggers security and oversight concerns, these types of partnerships are challenging from a compliance perspective as well.

The benefit, though, is that channel data partnerships enable data distribution across distributed platforms, distributed sales teams, or both. While every data broker or reseller has unique contracts and partnership agreements, we’ve created an overview of their most common and important elements. These partnerships include both data partnerships and revenue generation, and so we describe both aspects. This will help you protect your data assets and your company’s reputation, two things you absolutely need to consider before you start any relationship.

 

Affiliate Channel Partnerships

Channel data partnerships fall typically into two primary categories: affiliate programs and reseller programs.  We’ll talk about reseller programs later this week.

In the simplest of terms, an affiliate program is one in which the channel data partner introduces potential customers to your data and information and is paid a percentage of the fee you ultimately charge those customers. The affiliate should be qualified to explain the basics of your data and the value it may have for a particular prospect. Once the introduction is made, you are typically responsible for closing the sale and managing the customer relationship. The affiliate seller typically doesn’t add significant value when your sales process is complex, or the use of your data requires significant expertise. Also, because they represent multiple suppliers, affiliate sellers only know the basics about each dataset they represent.

Data platforms, markets and brokers use affiliate programs to identify new datasets, quickly test their market demand, and rapidly exploit the opportunity. Affiliate teams focus on finding the next great dataset and introducing it to their clients first, in hopes to grab the agreed-upon commission. Commissions to an affiliate range from 5% to 50%, depending on exclusivity, appeal, and the proven track record of the affiliate’s team of sellers in market.  Bear in mind, though, that trust with your affiliate partner is crucial, and depends largely on your ability to rely on your affiliate to represent you well.

As the data supplier in the affiliate channel partnership, you choose the price and manner in which your data is sold. Affiliate deals include guides on prices that the affiliate seller is permitted to share with prospects, but in contrast to reseller agreements, you have the final call on pricing. The best affiliate partners are helpful to provide market demand feedback based upon your “ballpark” pricing. Don’t rely too heavily on this feedback, however, because affiliate sellers can sometimes seek to lower prices to speed up deals and improve their own top line revenue.

One benefit of an affiliate introducing your data product is that you are still in control of the customer relationship post-sale. In other words, your team gets to work directly with each new customer to promote the customer’s use of the data successfully. While this requires resources on your part, it enables you to suggest additional data, services, and guidance to those customers. The “land and expand” model, in which you sell in one geography or one derivative dataset through an affiliate, naturally opens the door to expanded revenue potential. Negotiate carefully regarding the scope of products, services, and datasets for which an affiliate is paid a commission. A fair approach is to specify which solutions were directly attributable to the effort of the affiliate seller, but to exclude commissions on “up-sells” into additional services.  And make sure that you negotiate a declining commission schedule for a set period (say, two years) to ensure that you’re not continuing to pay for a good deed done ten years ago.

A Few Complications to Consider

Overrepresentation

We have worked with data-marts and data brokers that represent thousands of data providers in an affiliate model. This over-representation creates a host of problems. First, affiliate sellers can never possibly know each product or dataset well enough to add consistent value as they introduce them. No matter how hard they work to understand the benefits of your data, they represent too many partners to understand the comprehensive features of each. Sellers tend to focus on the “flavor of the month” or freshest dataset because they have only so much bandwidth.

You may not be able to overcome this issue, because some of the bigger data platforms and brokers are necessary partners, depending on your dataset and the industry you are targeting. Instead, focus on finding out the pricing and terms with which affiliates are engaging with similarly situated datasets to yours. Often, they don’t mind sharing their financial and commission terms for other data providers, so you can work to partner on slightly better terms than your competition to stand out from the crowd. You need to incentivize the affiliate sales team over your competition.

Misrepresentation

Any time you allow another company or business to represent your data, its quality, or its value, you run the risk of misrepresentation or exaggeration.

To avoid unnecessary risk, contractually specify training and ongoing assessment of your affiliate’s resellers. A simple certification guide and exam can be an excellent way to ensure that sellers don’t overpromise or misguide customers. Because you ultimately are involved in the pricing and final sale of the data in the affiliate relationship, you should also institute a clear, ongoing protocol for revisiting and re-explaining the value proposition of the data you have, and how it can or cannot be utilized. While it can be uncomfortable to turn away an otherwise completed sale, it is far better than having a new customer with unrealistic expectations.

Overpromising

Affiliate seller programs often represent their number of sellers, reach across an industry, and overall reach as they introduce your data. Unfortunately, you need to moderate those numbers based on the number of other datasets they are selling, or that they have ever sold. Because every customer maintains only so much bandwidth for dealing or exploring new datasets, an overactive affiliate program can quickly burn up all available customer cycles and end up not wiping out the value of your dataset.

The best way to avoid this problem is to negotiate an early termination clause and then identify selling problems early. No affiliate platform should be surprised when you ask for this type of “out” in your agreement. Naturally, to be fair to the affiliate, if they have been successful in selling even one relationship with your team, you should be prepared to offer a wind-down that continues to pay their commission. Our preferred wind-down period is one year, but two years is not unheard of.

Ultimately, every channel partnership is unique and based upon the specific facts of the proposed arrangement — in other words, your results may vary.  But for the most part, affiliate partnerships are a strong way to build a brand as a data company and meet new partners.  Developing customer awareness of the quality of your datasets is one of the difficult to do, but also one of the most important ways for your company to use data to grow.  Finding the right affiliates is a major step in doing both, and an essential component of developing a sophisticated approach to utilizing data.  An affiliate partnership can help build your brand and grow your business, which is why it’s almost always better to work with a partner than to go it alone.