The success of the Apple App Store has spawned a whole new way of doing business for many vendors. Vendors are now looking at their solutions and trying to see how they can build a platform on which partners will build solutions that can then be sold with the platform owner taking up to 30% of the revenue.
Not all the attempts to do this will succeed. Both Apple and of late, Microsoft, have realised that in order to make this approach work they need to control the operating system much more closely. As a result while iOS and now Windows RT have viable App Stores, Mac OSX and Windows 8 desktop do not.
Changing the App Store model
What does this have to do with IBM? IBM no longer plays in the end user operating system market, isn’t in the consumer device market and wisely recognises that both would be a wrong move for it to take. It only has to look at HP to see how bad a move into a highly competitive market, in which you have no market position, can turn into an expensive debacle.
What IBM plans to do is something altogether different. Over the last 24 months, it has been working hard with its channel to reshape it into a more cost effective and productive environment. The introduction of the IBM Smart Cloud portfolio, a greater presence in the security world and even virtual desktops provided the opportunity to make significant changes to its partner programmes.
New classes of partners have already been created with highly skilled specialties. These were intended to compliment IBM’s own consulting business and enable IBM to get into markets where it has limited expertise or where the customers didn’t see themselves as natural IBM customers. The latter is important because since IBM’s departure from the PC business, it has left the bottom and even middle part of the SME market to its partners rather than directly interact with it.
A three tiered partner model
At Analyst Insight in Madrid, it was evident that IBM is planning another reworking of its partner programmes. While this could mean greater opportunity for some, the fact that IBM is continuing to tinker with these programmes must make partners uncertain about how they monetise their new status. Too many programmes often leads to confusion and with the changes IBM has been making, there is a real risk of this.
On the upside, however, there is a real market opportunity here for those partners who have some intellectual property (IP) and domain knowledge and who want to be able to leverage that with IBMs help. IBM appears to be targeting two groups for this new programme approach – those with cloud experience and those with business intelligence and analytics knowledge.
There are three tiers in this programme. In the first, the partner will simply resell IBM products in the same way that they do today. IBM will be focusing on those who can help drive them into the SME, with the emphasis on what it defines as the mid-sized enterprise. This is typically a company with less than 1000 employees, a complex IT environment and a significant skills shortfall.
This is an extremely competitive area where IBM would normally be seen as too expensive and where it has little direct involvement. This sounds easy but it will be anything but. This is now a space where customers are much more likely to look at Salesforce and Microsoft than IBM. Part of the reason has been IBM’s own focus on high value enterprise customers since divesting itself of its PC division.
Helping its partners to be more successful in this space is a real challenge for IBM. Customers do not want tools that require extensive consultancy and professional services. Nor are they interested in solutions where there is a need to retrain staff. Both of these are further reasons why IBM will struggle to get customers to stop using Microsoft and Salesforce.
But it is not all bleak for IBM or its tier one partners. IBM has had an aggressive program to create versions of its own products that can be delivered through Software as a Service (SaaS). Allowing its partners to offer access to high end enterprise tools via a pay as you go (PAYG) approach may prove to be extremely attractive to customers who want to use these tools but can’t justify the standard licence fee.
The second tier would be where the partner has some IP in the space. IBM is looking to help them develop that IP but it is stopping short of the App Store approach of providing a comprehensive test and approval programme. Instead, it will focus on ensuring that the software works properly but then leave the partner to make the sell and assume the risk.
This is going to be an extremely interesting area for IBM. On one hand it will be seen as endorsing these solutions, but on the other it is stopping short of a “certified by” form of approval. Two areas where IBM has already begun to talk about these partners, albeit vaguely, is in analytics and Platform as a Service (PaaS). Over the next few months IBM will be looking for tier two partners willing to build out PaaS stacks or create vertical market analytic solutions that can be offered to its customer base. There are no announced partners in either area yet but in early 2013, IBM has said it will be announcing which partners it is working with.
The third tier could provide a significant opportunity for some IBM partners. In this tier IBM would OEM the partner IP. As part of that process, IBM would do all the productisation and promotion of the IP and pay the partner a royalty. For some partners this may be quite lucrative and it is reasonable to assume that if the IP turns out to be very successful, it may lead to an acquisition of the partner.
The challenge in all of this for IBM will be how it structures the three tiers, makes the right business call on who fits into which tier and what level of royalty it will pay for anything it OEMs. Partners keen to get in on the second and third tiers can expect a substantial amount of IBM input, professional services and a higher profile. However, partners will also need to ensure that they are not overstretched and have a valid business plan in place should this be successful for them.
Instances of IT vendors doing OEM deals with their partners are not common, but not unheard of either. Microsoft, Salesforce, HP, Dell, Oracle and many other vendors have and still do use this to build out their own offerings. What differentiates IBM here is that it is laying out a strategy as to how it will go about doing this. By comparison, its competitors only talk about OEM deals once they have been completed.
A major investment
IBM is also making $4bn in financing available to its channel partners to help enable them to move to the cloud, along with strategic business advice to help them find their appropriate place within one (or more) of these tiers. Even if IBM is moderately successful, this will cause many of its competitors to review their own channels and see how well this could work for them.
The biggest gainers, however, are likely to be customers. Anyone buying from a partner in tier 2 should expect to see quality improvements and potentially a more aggressive product roadmap.
The devil will be in the details
This is an interesting move from IBM but there is a lot more work to be done on the details of how it will all work. So far, the outline of this partner programme as listed above stops short of an App Store approach. However, I would expect IBM to look at the tier 2 partners and see if an App Store will work. The ultimate measure of success for IBM partners and customers will be to see within the next 12 months, how many OEM deals IBM has signed.