Packaged IP can be a fantastic way of creating customer stickiness and generating recurring revenue, and channel distribution platforms can be a great way to deliver it.
With the explosion of cloud services in recent times, businesses are facing competition and disruption like never before. Companies need to distinguish themselves from their competition, and one of the emerging ways of doing so seems to be via packaged IP (intellectual property).
According to Melissa Mulholland, Cloud Profitability Lead at Microsoft, "building IP allows you to provide more complete offerings, and generate the 'stickiness' of true customer lifetime value, that makes you irreplaceable to your clients."
The IP described here is any process or product which has been customized and configured by your company, and which provides value to your customers and clients. As Jen Sieger, Inside Sales Strategy Leader at Microsoft says, "Packaged IP can be anything from a workflow app that runs on SharePoint Online to a fully packaged, standalone software solution."
According to Sieger, the 'stickiness' to which Mulholland refers entails entrenching your solutions and increasing switching costs for your customers. Naturally if you are offering a unique product or service which is meeting customer needs, this plays directly into the stickiness concept.
'Stickiness' entails entrenching your solutions and increasing switching costs for your customers.
Sieger also suggests three further reasons to develop IP: cost reduction, recurring revenue and increased gross margins.
The cost reduction component is due to the fact that it costs far less to develop a product or service on a once-off basis and sell-it on to multiple parties henceforth, than to do a custom build every single time. Sieger also identifies lack of definition of a solution for a customer and/or changes while the solution is in development as additional costs for ongoing customized development projects.
IP also generates recurring revenue, and Sieger quotes gross profit margins upwards of 65% on average as compared to 35% on average for project services.
Sieger defines five tips towards productizing IP and going to market:
Define the solution - customers often ask for the same thing or something very similar.
Determine what will differentiate your solution.
Maintain rights to your IP - critical in terms of translating the concept into financial success.
Establish a recurring revenue model.
Consider your channel strategy - how will you sell your solution through your channel partners?
This last point merits consideration, as it's only via the sales of a company's productized IP that it can achieve the recurring revenue and financial return which it seeks. A channel distribution platform, with its accuracy and speed, makes an efficient go-to-market mechanism for a company's packaged IP solutions.
A channel distribution platform, with its accuracy and speed, makes an efficient go-to-market mechanism for a company's packaged IP solutions.
One of the key aspects of taking full advantage of packaged IP solutions entails expanding into other verticals and uncovering opportunities in other markets. With a channel platform's ability to not only aggregate transactional data but make sense of it and provide valuable insights in terms of suggested cross- and up-sell opportunities, more channel businesses should be investigating making use of such a mechanism.
An important benefit of a distribution platform is that it centralizes operations and provides a unified and real-time position from which to view the channel landscape. This serves rather well those businesses which are looking to their partner network for solutions which can be bundled to complement their own packaged IP solutions.
Of course the onus remains on businesses to continue to innovate and refine their IP to suit market and client demands. However, they possess in a distribution platform a powerful tool for cross-sell analysis, partner collaboration and getting packaged IP to market efficiently.