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IP assets: Channel companies seek differentiation

Channel partners are building their own IP assets to help differentiate themselves. That strategy involves a learning curve and requires a resource commitment, however.

Partner firms have gotten the memo about the need to differentiate their businesses to stand out from the pack, offer customers the value-add that they're looking for, and for their own long-term business viability. One way a partner business can do that is by adding intellectual property to the mix.

While building IP is not the only way channel companies can transform their practices -- and it isn't for everyone -- going the IP route is an option some partner firms may want to consider to create a unique value proposition.

In the not so distant past, being an independent software vendor was a real art form requiring a deep dedication and resources. That's all changed. The reason more partner companies are adding IP assets to the mix is because it's become more doable and demand is growing.

Darren Bibby, program vice president, channels and alliances research at IDCDarren Bibby

"The reason we're seeing more people build their own IP is that it's just easier," said Darren Bibby, program vice president, channels and alliances research at IDC. "IP is easier to build, there's more opportunity and it's much easier to get it out the door," he added.

All this, thanks to the cloud. "With the cloud Web services you don't see things breaking in the same way that traditional client-server apps had the potential to break every time there was an underlying operating system, middleware or database upgrade," Bibby explained.

In a platform as a service model, for example, a cloud provider delivers hardware and software tools commonly used for application development, giving developers an out-of-the-gate advantage of having 30% to 50% of the work done thanks to code reuse or chunks of code organized using modules. At the same time, developers can host their applications on such cloud platforms as Microsoft Azure, Amazon Web Services or Rackspace.

App marketplaces also make it easier to market product and for customers to find it and get it via digital download. "There's no barrier to physical distribution and that's massive," he noted.

Both Bibby and CompTIA analysts agree that creating IP is a significant channel trend and one that identifies a partner as offering a higher-level value-add. In CompTIA's IT Industry Outlook 2016: Technology and Channel Trends section, the report authors state that public cloud is enabling some solution providers to create their own IP -- chiefly software as a service (SaaS) applications, but also less product-centric items such as proprietary methodologies and processes.

Steve Mordue, CEO, Forceworks LLCSteve Mordue

The report also noted that a recent CompTIA study found that 6 in 10 channel companies expect considerable growth in their own custom application development practices.

Steve Mordue, CEO of Forceworks LLC, based in Tampa, Fla., is a great example of a partner who built a product for internal use -- RapidStart CRM -- and with some prodding from Microsoft now offers its Dynamics CRM Online Methodology to other Microsoft partners. RapidStart LLC officially launched at Microsoft's Worldwide Partner Conference in July 2015.

How to build IP

There are several routes to offering IP -- software application development, mobile app development, and using application programming interfaces (APIs) to write apps or services -- each of which comes with its own set of considerations for channel companies.

Seth Robinson, senior director for technology analysis, CompTIASeth Robinson

Perhaps the toughest path to IP development for partners is going the route of packaged software application development or SaaS. Without existing in-house software development expertise most partners will be challenged to build up this resource.

Seth Robinson, senior director for technology analysis at CompTIA doesn't think the majority of traditional solution providers will go this route, especially those without any software development foundation.

That might not be the case for new partners, known as born-in-the-cloud companies or start-up firms which offer services around cloud components. "There's likely to be a development piece as part of the start-up strategy," he added.

Mobile app development is a big area of opportunity according to industry analysts. Bibby expects to see an explosion in mobile app development especially in the enterprise. "There are a huge amount of mobile applications that don't have a precedent -- this isn't about taking something that existed in the on premise world and putting it on a mobile app. This is about doing things that were never done before," he said.

Again, app development has gotten easier, it's easier for buyers to find apps and to sell them, and, apps that gain traction offer good gross margins, according to Bibby.

Robinson still cautions that for mobile app development there's a learning curve for those with previous development skills in the on-premises environment. However, the capital investment in infrastructure is greatly reduced because of cloud.

"We're not seeing a great number of partners using those tools now but we expect to see more in the future," he said.

The API economy, as it's often called, has gained a lot of attention. For the past few years, vendors have been sending a clear message to partners about building IP. That's because vendors are scrambling to create more value around their products or platforms.

Mark Wyllie, CEO, Flagship Solutions Group Inc.Mark Wyllie

Adding IP or API integration is on the radar this year at the Flagship Solutions Group. One key reason is because it will differentiate the company from competitors, said Mark Wyllie, CEO at Flagship.

The approach at Flagship is to have predetermined API integration along the lines of the vendor's Smarter Stadium Intelligent Operations Center, an offering the company implemented for the Miami Dolphins several years ago.

"When that solution came out it didn't utilize APIs -- now it does," Wyllie said.

Today, working with IBM and an NCR point of sales system -- also used by the Dolphins -- Flagship can provide a similar offering to another customer, Mercedes-Benz Stadium, having provided the API integration before.

"My vision is to develop areas of expertise that other people don't have and we've been able to specialize in," he said.

Wyllie offered up another reason for the interest in IP. "As we look at what our exit strategy would be at some point, say 2020, we want to be in a position that we're marketable and having your own IP drives up that multiple significantly," he said. The CEO added that when he started the company eight years ago his intent wasn't to build and bail.

And, finally, partners who develop tools for their own use around methodology and processes, like Mordue with RapidStart CRM, or managed service providers that develop a tool for clients -- not quite separately purchased items but those offered as a service -- there's a good revenue opportunity as well.

IP assets: Getting started

It takes focus and effort for a traditional partner business to build out an IP practice. There's the need to commit resources and do the work, which can be disruptive to the day-to-day operation of the business.

IP is easier to build, there's more opportunity and it's much easier to get it out the door.
Darren Bibbyprogram vice president, channels and alliances research at IDC

According to Bibby, some partners figure out what they can afford to build out the IP practice and segment it from the day-to-day business so resources are siphoned off from the new endeavor.

Depending on the partner firm, some opt to build an impermeable wall to safeguard the new initiative from distractions, while others build a more permeable wall to enable some back and forth between consultants within the company.

Every situation is unique depending on the intent for the IP assets being developed.

Channel companies should always consider possible risks. For example, you may build something and find minimal interest; or another company may be building what you're building; or you may price it or market it wrong.

And, finally, partners need to consider the DNA of their companies and whether IP development work is right for them.

The approach that Wyllie has taken is to partner with another company that has 20 developers. "We're going to share the IP but we're going to come at it from two different directions so we won't be competing for the same business," he said, adding that Flagship will sell the IP as a service while the partner company will sell it as software.

Wyllie has known the other company's CEO, also a former IBMer, for a couple of decades.

In the course of doing some research on how to go about the development side of this initiative, Wyllie realized to buy or build up the required development skills organically would take a lot of time and money and there was no timeframe on payoff.

"The challenge today in software development is that it's very specialized … it's not like one guy can sit down and write the whole app and the security and the connections and the redundancy, etc.," he said.

Finding a partner with a software development orientation brings expertise Flagship needs.

CompTIA's Robinson expects to see a lot of partnering similar to what Flagship is doing for many of the reasons Wyllie laid out. "Development is very complex and you're not going to have a single partner cover all of the angles," he said.

Partners will seek out other providers that have the skills they need.

Next Steps

Learn about the IP considerations of SaaS

Find out how IP will impact the role of IT

Read how channel companies protect their IP assets

This was last published in March 2016

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