On Monday, we talked about how to structure channel data partnerships, particularly in the context of affiliates. Affiliate partnerships are a great way to ensure that your data reaches the widest possible audience, relying on the affiliate’s access to potential customers. They are, in effect, a force multiplier for your data, broadcasting it to a wider range of people than you could do on your own. In short, they’re like a matchmaker, setting you up with someone new.
But sometimes matchmaking isn’t what you’re looking for. Perhaps you just want the ability to get your data out to as wide an audience as you can without establishing a relationship with each customer. Or maybe your goal is to keep your overhead costs low, and so developing a large customer relations team (with the inevitable massive CRM system spend) isn’t ideal for you. Or maybe you saw Hitch and just hate the idea of matchmaking generally — whatever it is, then perhaps the best choice for you is a reseller channel data partnership.
Reselling Partnerships Broadcast Data
Every time you watch an online media platform that shows third party content (like Netflix, or Hulu, or even your cable television box, if you still have that sort of thing) you’re experiencing a reseller channel data partnership. In each of these cases, the content that comes as part of the base subscription has been purchased through a reseller contract where the provider or producer of the data (or media in this case) has been paid in full and the platform, like Netflix, can now choose how or what to charge for access to that data and content.
Amazon Prime Video, on the other hand is a hybrid model, where some content has been purchased through a reseller agreement (these videos have a “Prime” ribbon on the top left corner of their cover art image) and where other content must be purchased for an additional cost. The content included with your Amazon Prime subscription is an example of a reseller channel data partnership while the content that requires an additional purchase is an example of the affiliate data partnerships we talked about earlier this week.
Data providers get many advantages from working with resellers, most notably, scale and distribution. If your company needs distribution and scale, perhaps in a particular new market or geography, don’t miss the opportunity to have an established provider of similar data solutions represent your content and deliver it. They can open an entire market quickly.
In a reseller relationship, you typically don’t maintain a relationship with the end customer who is utilizing your data. The reseller has the direct contract with the customer and is responsible for the entire sale as well as the post-sale activity with the customer. This is both a blessing and a curse depending upon your vision for your data business. By relinquishing the control over the customer relationship, you are granting significant leverage to your resellers because they may eventually use that control in negotiating price or terms with you. On the other hand, if you are a smaller operation or one that is content to operate in a different market from the ones where you employ a reseller, you don’t need to employ nearly as large a team to service customers because that burden has been shifted to your reseller partner.
Pricing is an important characteristic of reseller channel data partnerships. Often, reseller terms are vastly more complex than affiliate deals, where one or two commission rates suffice. Resellers expect sliding wholesale discounts that are directly tied to the volume of purchases, so you need to develop different pricing tiers. The key here is to focus upon the commitment level of the reseller. In other words, you should never just adjust pricing as a reseller sells more licenses of your data. Instead, you should negotiate upfront that the reseller will commit to a specific tier in order to gain more favorable pricing. In this way, your data company can forecast and expect revenue from the reseller upfront rather than calculate their wholesale rate after the applicable time period has closed. By focusing on commitment level pricing strategies, you are properly aligning your reseller partner’s focus around sales, training, marketing, and servicing to your own goals. Reseller arrangements that don’t include significant monetary commitments are nothing more than affiliate agreements in sheep’s clothing.
Reseller arrangements therefore provide rapid scale, committed revenue, and operational savings because you don’t have to necessarily support each end customer.
A Few Potential Drawbacks
Sounds great, right? So much less complicated than affiliate relationships, and plenty of benefits! Well, yes, reseller partnerships are a great strategy for growth but, of course, there are risks and some unsuspected drawbacks. Because the resellers control the customer relationship, they also control the ongoing value proposition. This lack of direct client relationship can have significant business ramifications as you grow and expand your data offering.
Channel Conflict
One of the best reasons to engage with a reseller is to scale your sales operations quickly. Unfortunately, because you are empowering the reseller’s own sales team, you are also creating a competitive force to your own direct sellers. For this reason, many smaller data companies’ sales teams focus only on identifying new reseller or affiliate partnerships, and effectively stay out of direct competition with their reseller partners.
If you do choose to have a direct sales team calling on the same or similar customers to those that your resellers will call upon, you need proactive solutions to keep everyone focused on selling. You can segment the market and potential customer base into different targets. This allows your internal sales team to focus on a patch of prospects that differ from the resellers. We have seen internal sales teams behave incredibly badly toward resellers. To avoid this, involve your sales leadership in reseller contracts and get their approval and support early on.
As a data company grows, it eventually will move into direct sales and will compete with its reseller partners. If this is your intent, it is better to plan ahead for how you will eventually wind down the partnerships while not harming the end customer relationship. We have seen countless examples of poorly managed breakups between resellers and their data suppliers that naturally bleed over to the end customer having a bad experience.
Revenue Concentration
Reseller channel data partnerships can quickly come to represent substantial portions of your overall revenue. Because the commitments for thousands of users are guaranteed upfront or over some specified ramp-up period, this revenue can be critical for growth and stability. Unfortunately, it can also present the “too many eggs in one basket” problem, in which a few resellers represent more than 10% of a data provider’s overall revenue.
A reseller that understands the leverage they have over your data revenue can be dangerous because the reseller gains significant pricing advantage. Just as with any concentration of revenue problem, there will be features, terms, pricing, and replacement issues with these resellers, rapidly turning them from friend to foe. If a reseller currently represents a significant share of your revenue, you also need to prepare for a price war with other data providers that want to replace you at the reseller. In the end, each party, including the reseller partner, will do what is best for their own business. This means negotiating a lower price with you or cancelling the contract with you altogether, electing instead to partner with your competitor.
Manage this risk through better data products and reseller diversification. By constantly improving and expanding your data offering, you can maintain pricing authority over your competition. Engaging with many resellers and partners will help diversify the customer base and limit the power that any individual reseller has over your company. In both cases, speed of improvement is the key. Product and data innovation must be just as fast as your teams’ ability to sign new resellers and get them to market.
One final issue to consider with revenue concentration: when a data product or solution becomes aligned with one or only a few resellers in a given market, other resellers may choose to specifically avoid your dataset, so they can claim to have a “unique” offering from their competitors. If your dataset has competitors or lacks differentiation, a large reseller relationship can create an unspoken bias against your dataset. And, of course, always consider who your partner is: if you’re not confident that they’ll be a good ambassador for your own brand, you take on a lot of risk when you pair up.
Just like affiliate partnerships, you have to weigh the good and the bad when you work with a reseller. But generally speaking, these relationships are ideal for smaller businesses that want to stay lean, promote content, and avoid complicated efforts at reaching consumers. Prolific content producers, too, can make great use of reseller relationships, and often do. We can’t tell you which kind of partnership makes the most sense for your business without knowing your business, but we can say that every business that creates or uses data can benefit from a data partnership. That means that there’s no reason to delay your efforts at finding the partner that can help your business grow.
