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Channel partners who create their own intellectual property can realize a number of benefits. To succeed, though, they must strike a delicate balance between IT service delivery and a product development strategy.
Cloud computing, in particular, has piqued partners' interest in building repeatable offerings. Cloud consultants and other service providers work closely with clients to identify their challenges, technology requirements and business needs. Channel partners strive to productize this experience across multiple customers -- and public cloud providers simplify the task. AWS, Google and Microsoft, among others, engineer the basic infrastructure on which partners can develop offerings. Partners can then sell these products through public cloud marketplaces.
The development of intellectual property (IP) isn't a new channel trend. Value-added resellers sold bundled hardware-software systems during the heyday of minicomputers in the 1970s. Technology consultants established propriety methodologies for IT service delivery. Other channel partners over the years pursued computer-aided software engineering tools or semi-custom applications in a bid to offer IP.
These moves enable partners to differentiate themselves in the market and attract potential investors. But pitfalls exist. Service delivery and product development are vastly different businesses, so partners must accommodate this dual focus. Funding and staffing a product group also presents challenges.
Knowledge fuels a product development strategy
Market knowledge provides an opening for channel partners to develop and sell products alongside their services.
"Consulting firms, in general, are very well positioned to pick up signals from enterprises that can actually drive product strategy," said Drew Firment, senior vice president at A Cloud Guru, an Austin, Texas, company that provides cloud training. "Friction points are an opportunity to monetize and generate revenue while delivering value to customers."
That opportunity might be particularly important for cloud consultancies struggling to keep up with customer demand. The public cloud IaaS market grew nearly 41% in 2020, with the pandemic contributing to that surge, according to Gartner.
Consultants need productization to grow their businesses when there aren't enough billable hours to deploy on client projects, Firment noted. "There's a massive amount of [customer] investment … and not enough of these resources to go around," he said. "Hours don't scale; product does."
The pandemic's acceleration of digital business has driven this point home with partners.
"Digital technologies are now at the core of operating and business models," said Sri Manchala, chairman and CEO at Trianz, a global digital transformation strategy company based in Santa Clara, Calif. "Increasing digitalization is pushing IT services providers to focus on continuous digital productization and innovation," he said.
Trianz created a range of IP during the pandemic, from a digital workplace offering to a multi-cloud management platform. Manchala said the company's R&D engineering and product development teams "discern the signal from the noise to accelerate the mainstream adoption of frontier technologies and products for our clients."
Dejan SlokarGlobal lead alliance partner for ServiceNow, Deloitte Consulting
Consultants aim to translate their insights into products they can bundle with services. Emerging product-service combos often focus on specific cloud providers.
IP development on top of cloud platforms is intensifying, said Dejan Slokar, principal and global lead alliance partner for ServiceNow at Deloitte Consulting. He calls Deloitte's approach "asset-enabled service delivery" -- a model that blends the company's industry and business background with platforms from key alliance partners, such as ServiceNow.
"We're closing the gap between what could be a generic platform capability and the needs of specific industries and clients," he said.
Similarly, ConvergeOne, an MSP and cloud services provider based in Bloomington, Minn., spots the disconnects between customer needs and software vendor offerings, said Mark Langanki, the company's CTO. ConvergeOne targets those gaps with its cloud-based intellectual property.
"With our own IP, we can go directly to our customers to discuss their pain points [and] provide solutions," added Frank Tersigni, vice president, intellectual property go to market at ConvergeOne. The company can further develop those offerings as its clients' needs change.
From accelerators to apps
Partners create a range of IP, including accelerators -- sometimes called frameworks -- that help them rapidly deploy a cloud platform for customers. Accelerators automate manual cloud adoption tasks. Those include migrating workloads from on-premises systems to public clouds or cleaning up data to be shared among cloud or on-premises applications.
"The accelerator lets them automate parts of the process, reduces the labor components and takes more of a bespoke implementation and increases automation and, thereby, the profitability of the project," said Chip Schorr, senior managing director at One Equity Partners, a middle market private equity firm based in New York. The company's investment portfolio includes Computer Design & Integration, an IT solutions provider, and Orion Innovation, a digital transformation services firm.
Accelerators can also benefit partners working on contracts that come with milestone payments, Schorr added. "Accelerators allow you to achieve those [milestones] earlier," he said. "Your revenue profile improves."
The investor perspective
The presence of IP can make a service provider more appealing to private equity and strategic buyers, One Equity Partner's Schorr noted. "They have something other than knowledge of an ecosystem and a lot of really smart consultants," he said.
Accelerators and apps demonstrate a partner's technical sophistication and closeness to customers. They also provide a measure of how valuable partners are within their ecosystems, according to Schorr. In addition, unique applications that appeal to a specific customer group result in higher win rates.
"That translates into better [consultant] utilization and a better margin structure," Schorr said. "That is appealing to people like ourselves."
Differentiation is another plus. An accelerator lets a consultant offer customers a faster cloud deployment than its rivals. Meanwhile, an accelerator built for a specific industry underscores the service provider's experience within vertical markets.
Deloitte offers a Modern Workforce Management (MWM) accelerator that aims to speed up ServiceNow deployments for industrial customers, such as automotive manufacturers and oil and gas companies. The accelerator focuses on supply chain and plant workforce management workflows.
Slokar said accelerators like Deloitte's MWM can kickstart a project to significantly reduce time -- from months down to weeks.
Frameworks, meanwhile, shorten project delivery schedules. Consultants can build upon a core software offering to meet customer needs, rather than develop everything from scratch.
Excellarate, a technology services and solutions provider based in Wayne, Pa., has built a series of frameworks to accelerate application development. For example, the company created portfolio management, trading and rebalancing frameworks for financial advisors in the wealth management market. The offerings combine Excellarate's financial industry expertise with Salesforce CRM, noted Jim Sloan, CIO and executive vice president of financial services at Excellarate.
"We can customize the frameworks according to [advisors'] own rebalancing and trade rules," he said.
While some Excellarate frameworks address vertical market requirements, others are industry-agnostic. Those include IntelliQ, a QA automation framework, and File Ambassador, an electronic data interchange and file management framework, Sloan said.
Faster time to value is a key advantage of such IP strategies, said Lisa Burton, partner at Tercera, an investment and advisory company specializing in cloud professional services companies. Propriety technology also reinforces a service provider's industry experience, she added.
In addition to accelerators, partners create software modules that complement a cloud platform deployment. Customers might ask for a specialized dashboard or reporting tool, for example, to use with a particular platform, Schorr said.
Another class of IP goes beyond a specific cloud implementation project. In this case, the service provider develops a standalone application that addresses a specific vertical market or customer problem, Schorr said. Consultants typically deliver such applications as SaaS.
Deloitte addresses a cross-industry issue with its DeloitteResolve application. The SaaS offering uses ServiceNow technology to help organizations monitor staff exposure to COVID-19 and build a risk profile. Customers can install DeloitteResolve on a ServiceNow instance or tap Deloitte for hosting and managed services. The software is available in ServiceNow's marketplace.
In addition, Trianz's Pulse application provides a digital workplace platform that can be customized with drag and drop widgets and integrated with a range of enterprise or home-grown applications. Meanwhile, the company's Concierto multi-cloud management platform integrates third-party IT service management systems to provide a holistic view of infrastructure and applications, Manchala said.
Best practices and pitfalls
Channel partners can expect plenty of challenges as they roll out a product development strategy and segue into software. They must first identify a good product candidate. Services providers should look for common problems and "create a solution that can … help many customers," said Nishant Patel, CTO at Contentstack, a headless CMS vendor based in San Francisco.
Patel co-founded Contentstack alongside CEO Neha Sampat. The pair previously launched Raw Engineering, a digital transformation consultancy. Raw Engineering developed and eventually spun out products including Built.io, an iPaas offering, and Contentstack.
Companies new to product development should focus on meeting customers' requirements, rather than go-to-market strategies and scalability, Patel advised. Begin with a proof of concept (POC) for one customer, iterate based on customer feedback and then take the offering to additional customers.
"Just keep building it, keep trying to find the right product-market fit," Patel said.
Small consultancies may lack a full-fledged product team, but they should tap someone within the organization to own product development, Tercera's Burton noted. As the product team grows, it must stay in lock step with the service delivery team and customer requirements. This ensures the product aligns with real-life needs and, ultimately, is sellable.
A product development strategy requires investment, and those dollars will initially come from service margins. This may rattle consulting companies that focus on employee utilization rates and profitability.
"Building a product is about investment," Sampat said. Over time, that investment will include engineering a product to scale beyond the minimum viable product stage and creating a go-to-market strategy, Patel added.
Managers must be comfortable running a product organization and a services business under the same umbrella, Sampat said. While product and service groups should communicate, they must respect boundaries.
As partners land new IT service deals, for example, managers will be tempted to pull employees off product teams and POCs to staff them. But companies building products must rapidly iterate, and they can't afford long breaks between releases.
"You have to be OK with walking away from services engagements that you can't staff," Sampat said.
The product side, however, must take care not to overwhelm the services business. "You want your hunters, salespeople and project leaders to focus first and foremost on winning the core business IT services," Schorr said. "Don't turn everyone into a software salesperson. You need to balance it."
Finally, companies developing their own IP should prepare for an overhaul that extends well beyond the product development team.
The most challenging, yet interesting, part of ConvergeOne's intellectual property journey was the level of change it demanded, Langanki said. "We had to ensure that everyone at ConvergeOne understood the shifts required to own IP in the market." That scope included sales, support, implementation and enablement and finance teams, he noted.
"This was a mindset change as much as it was an operational transformation," Langanki said. "Building software is the easy part."