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An ASP can benefit from indirect marketing just as much as the next guy. But with its unique network-delivery-focused business model, identifying the right type of channel partner is a special challenge. Some are beginning to turn to value-added resellers (VARs) to lend sales reach, market penetration and strategic positioning to their solutions.

Traditionally, a VAR has been a hardware reseller. Today the term is used to describe an independent distribution company with core competencies of its own (e.g., systems integration) beyond sales and marketing. The new-generation VAR takes an ASP offering and integrates it as a complementary element in a total solution. Tiffani Bova, director of sales and channel programs for managed web-hosting company and ASP Affinity Internet Inc., has seen the evolution of the VAR community and her company’s distribution channel first hand. A year ago, 95 percent of Affinity’s distributors were web developers or integrators for which “it was a natural progression to offer value-add on top of their web design,” she explains.

Now, the market is changed. For example, new tools allow non-technical people to develop websites on their own, so developers have become more involved in integrating back-end databases or custom applications to deliver more capabilities to a website. Companies with this specialty now comprise 85 percent of the Affinity channel. The other 15 percent, says Bova, are “VARs that have grown up.”

“The market has shifted and the traditional VARs of four or five years ago that could just live on moving hardware have had to offer services; their customer base is demanding it,” she says.

The company supports 1,800 channel partners representing about 45,000 businesses in more than 100 countries. It attributes 35 percent of its customer acquisition and 70 percent of its revenue to the indirect channel.

It was a roll-up company–its last acquisition was 14 months ago–and still supports legacy direct business. Going forward, however, Affinity’s sales are entirely channels-driven.

In addition to web hosting, Affinity specializes in web-enabling applications that companies build upon to deliver a solution, such as databases and operating systems. It also offers a select number of business applications such as e-mail, customer-relationship management and a help desk.

Affinity’s model relies completely on the VAR channel to deliver services such as database-integration work, custom application development and website design.

“We have customers frequently come and ask us to do that kind of work and we refer them to VARs to do that according to territory,” Bova explains.

Integration Expertise

VARs, with their integration abilities, help ASPs overcome a cruel irony inherent in providing hosted applications.

“Our ASP services are geared toward people that have limits on how much capital they have to invest in IT,” says Peter Tripoli, vice president of integrated solutions for Danet Inc., which hosts third-party billing and customer-care software. Even though ASP services help bypass capital expenditures in licensing applications, he notes that companies often need a broader set of applications than what any one ASP can provide.

“So now they’re in a situation where they have to have a hybrid solution with multiple ASPs, or one or more for big apps, and a small IT shop in-house to round it out,” says Tripoli. “So that’s a barrier because, if you’re going to hire an IT staff to do a little job, it’s incrementally not that much more to get a larger IT staff and do it in-house.”

A VAR, however, often integrates a number of solutions into a full-service, turnkey hardware, software and management package that obviates a patchwork approach.

This ability to create a turnkey offer has led other ASPs, such as TellSoft Technologies, to court VARs.

TellSoft began life by creating voice content for websites. Now, the company offers four solution suites: iTalkLive, live Internet broadcasting; iTalkWeb, instant web publishing; iTalkSlides, live Internet presentations; and iTalkMail, voice e-mail messaging.

After looking at the economics of the marketplace, and what it costs customers to build out, own and operate infrastructure, the company in January 2000 decided the delivery of its proprietary solutions in an ASP model would be more effective than software licensing.

“We could try to reach everyone at an individual level or we could provide a service that VARs could integrate with the value proposition they already had,” explains Bill Tomeo, TellSoft’s president and CEO.

The company has narrowed its focus to VAR partners that work in the public relations, conferencing and financial services sectors. It also works only with channel partners that have their own core competencies and back-office capabilities. A third filter is a matrix of qualifications that range from number of customers to marketing resources.

“Our partners are typically integrating our solution in with an overall conferencing solution or an overall financial service offering they then sell to an end client,” says Tomeo.

An example of an ideal partner, he adds, would be a VAR that offers bridge-based voice conferencing services and hardware.

“iTalk becomes an important set of Internet services to complement the traditional conferencing,” Tomeo says. “So conferencing itself is the [VAR’s] competency there, but conferencing moving into IP is of strategic importance to all conferencing companies, so we become an important part of the overall delivery system.”

Early on, TellSoft signed up a number of web-hosting companies, which turned out to be a misguided decision. “In theory, their relationship with the end customer would get us the market reach we were looking for, but in practicality, we became one of a number of solutions and we weren’t a high priority to them,” says Tomeo.

Agents are another non-starter. “The problem is that the agent often doesn’t have the infrastructure to deliver the wider proposition–the value is in a broader set of tools,” Tomeo explains. “Agents are good at bird-dogging, but then [a vendor has to] spend time getting that deal closed, supporting the customer and having the back-office infrastructure, so from a transaction point of view alone, it’s a heck of a lot easier to support VARs.”

Strategic Partnership

VARs also can be strategic partners. For example, Danet’s Tripoli works with a company that takes standard applications and converts them for use on wireless personal digital assistants (PDAs), such as Palm Pilots.

“We represent the billing option for that,” says Tripoli. “That transmutation is charged on a per-use basis, so every time there’s a data stream that flows to the [PDA], this VAR partner of ours collects a couple of pennies for the transaction and we get some fraction of that for that same transaction.”

While the ASP and the VAR clearly benefit from the resulting combination of their capabilities, the addition of applications services also can drive the VAR’s core business. Tripoli cites the example of a Sun Microsystems Inc. reseller that has launched a subsidiary to deliver content, video and web content, using corporate intranets, mall kiosks, the web, etc. “Their whole reason for doing it is to push their hardware resale business,” he says. “It’s, in effect, a form of advertising for them, but it’s advertising with some depth.”