Increase Customer Value with Strategic Technical Alliances
February 5, 2020at5:00 AM
The integration of application and services has been a long-standing challenge for software vendors. Cloud computing has created a market in which customers expect and require their software and cloud solutions to integrate with complementary products, industry-standard cloud services like Salesforce and NetSuite, and cloud platforms like AWS and Microsoft Azure.
This shift represents both an imperative and a great opportunity for properly prepared software companies to build deep integration alliances using open application programming interfaces, or APIs. These alliances generate incremental revenue, provide competitive advantage and enable access to new sales channels. For example, open API integrations account for half of Salesforce’s revenue, and 90% of Expedia’s.
“Strategic API-based alliances … enable new digital products and business models and create new business channels.” ~ Gartner 2019
Technology companies are not participating in this market shift and experience symptoms like:
Lost business because their products don’t adequately integrate with other products the customer is using or plans to use in the future
Data that is siloed or locked into their solution, leading to low user productivity and even lower customer satisfaction
“Today, a tech company without application program interfaces (APIs) …. is like the internet without the World Wide Web” ~ Harvard Business Review
Others see the need and have pursued integration alliances, but experience significant challenges, including:
Investing in technical integrations and alliances that never meet expectations (we’ll discuss reasons for this later in this article)
Pursuing integration alliances but then finding that their API, or that of others, is inadequate because it lacks important technical features like webhooks
What is a strategic technical alliance?
A “strategic” technical alliance is a relationship between two tech companies built on an integration between their two products/platforms. Typically, the smaller of the two companies will have invested most of the resources needed to develop the integration.
What makes the alliance “strategic” is the:
depth of the integration
type of the relationship, and
number of shared customers.
The horizontal x-axis on the Strategic Technical Alliances Quadrant below represents the depth of the business relationship whereas the vertical y-axis represents the depth of integration.
For example, compare the two relationships A and B illustrated in the quadrant:
Relationship A:(Mid-sized tech company and AWS)
Basic one-way “import” (non-API) integration
Lead referral business relationship
No co-marketing, branding
A few shared customers
Relationship B:(Mid-sized tech company and Cisco)
Deep REST API based platform integration
Reseller business arrangement, developing OEM/White label
Co-marketing and branding
Many shared customers
The smaller company in relationship B has invested significant effort to build a deep integration and business relationship with Cisco and has positioned the company for success.
How does a technical alliance differ from a typical partnership?
The key differentiation is a technical integration that delivers value to the customer. Any two companies can form a partnership, but if their products don’t share any data, it’s not a technical alliance.
There’s nothing inherently wrong with these types of partnerships if this is the goal. In the current market of open APIs and data sharing, these relationships often don’t create the level of intended success.
Why should investors care about technical alliances?
Well executed strategic technical alliances can be game-changing relationships for small to medium sized tech companies. If properly developed, the success spectrum ranges from predictable revenue streams to creation to acquisition.
Successful technical alliances take time, often defined in years not months. Today every new tech company should at least be architecting the product/platform with a full-featured REST API (a specific type of API commonly in use) that can be used by initial customers and by the company as they scale to build the integrated relationship demonstrated here.
Why do technical alliances often fail?
Lack of clearly defined goals Would you be happy joining a partner program and having their logo on your site for SEO? How about a goal of generating 20 new logos from the partnership in the next 24 months? Do you want to be acquired? All of these are possible, I believe you need to start with intent, and alignment to have the best chance at success.
No internal alignment If the Board wants a relationship that generates logos in the short to mid-term and has no desire to sell or do an IPO for 5 years, that’s fine. But if the CEO is pushing the relationship because she wants the company to be acquired in one year, that’s misalignment and will likely lead to failure and frustration by everyone involved.
Little or no technical investment Successful strategic technical alliances require integration to succeed, which means the smaller company is going to need to build those integrations. Ideally these integrations would also be part of the product roadmap, but we’ll talk about that later. Bottom line, you have to “give to get.” If you’re not willing to invest to build integrations that deliver customer value, you will not achieve your goals.
The wrong target partner If the CEO believes that you should build a relationship with AWS, but 50% of your customers need PSO integrations with Workday, what might be a better fit?
Lack of experience Successful alliances require expertise that spans sales, marketing, development, product pricing, channel and more. Hiring a junior person with no experience with at least two or three parts of the business will hinder your potential for success right out the gate.
What expertise is required to make these technical alliances successful?
Successful alliances require expertise that spans sales, marketing, development, product pricing, channel and more. Hiring a junior person with no experience with at least two or three parts of the business will hinder your potential for success right out the gate.
For example, the analysis below represents the type of effort required to analyze integration category opportunities, the current situation and to develop potential opportunities for integration.
When is the best time for tech companies to invest in technical alliances?
Ideally the technical architect will have had a vision for integration from product genesis. At a minimum they will have had the foresight to ensure that a deep robust REST API is in place. It is unlikely that the technical person will have had the “vision” of a strategic technical alliance or understand what is needed to develop this type of relationship.
At a minimum every investor should ensure that a sound technical alliance strategy, and the team to support it is in place when an investment round occurs.
About The Author
Dawson Stoops is the Principal of Chisik Group, a team of professionals focused on helping tech companies develop successful strategic integration alliances. He is a technology business executive with thirty years of experience in the software industry, and co-founded, operated and sold two software companies. He has developed and executed successful technical alliance strategies with tech giants such as IBM, Microsoft, Dell, BMC and AWS. The Chisik Group offers a range of services to help tech companies and investors to develop and execute successful strategic technical alliances. These services range from development of an initial Strategic Integration Scorecard to execution of a Strategic Partner plan.
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