Financing has become a key factor in software sales. Howard Dudley looks at how key players in the channel get by and the mysteries of white labelling.
I’ve been around for a few years, and nowadays it takes something a bit different to grab my attention. A few weeks ago I did notice some research put out by Ovum regarding software purchases by enterprises.
The report states: “Our initial research indicates that financing influences 70 per cent or more of enterprise-sized software transactions, in terms of deal size or timing.”
Now that registers a big wow on my ‘a bit different’ scale. The important word for me was ‘influences’. Not ‘is considered in’, or ‘is brought in at the 11th hour’, but influences.
But what does this mean to the channel? Simply that if you are looking to sell to enterprise-sized prospects, you will be in a far better position to win the deal if you have an appropriate and feasible finance package as part of the total solution.
However, it is a truism that the larger the company you are selling to or the more complex the solution is, the fewer faces people want around the table. They only want to deal with the lead provider, who then project manages all the third parties that are being brought together. The same is true for the finance element.
The vast majority of channel providers that have a preferred finance provider (and that is only about 20 per cent) do so through a point-of-sale approach, introducing the customer to the financier and then leaving them to deal direct.
The major IT service providers get around this in one of two ways. They either have their own in-house, captive finance arm which they fund from their balance sheet – an example is IBM; or they will white-label the offering of an existing financier. BT and Hewlett-Packard are good examples of companies that use the white-label approach.
While the former is beyond the means of all but the very largest global corporates, the good news for the channel is that almost any size of company can have the latter in one guise or another. Also, white labelling is not as complex as it may at first sound.
There are a number of discrete layers to the approach, one or more of which will suit almost any company in the channel. The first layer is to have branded documents – in effect it is the financier’s documents but with the reseller’s logo and branding.
The next level would be where the finance partner sets up a company in the reseller’s name, for example, Joe Bloggs Finance Ltd. This can either be disclosed, and you admit that it’s a wholly owned subsidiary of the financer and have terms and conditions in the financier’s name; or terms and conditions are in the name of the subsidiary, in this case, Joe Bloggs Finance Ltd.
Another approach is for the reseller and the financier to set up a joint venture where the risks and rewards of providing the finance are fully shared. In all cases the perception is that the reseller is also the finance provider where in effect they are simply the point of contact.
Any finance provider will be able to explain in detail what the benefits and risks are of each approach, dependent upon the types of enterprises being sold to, their financial needs, and ultimately what the reseller is trying to achieve.
White labelling a finance solution through the channel is a tried and trusted technique to simplify an enterprise-sized sale and build a close relationship.
As the channel contemplates increased competition, diminishing margins and more cautious clients, any approach which can truly differentiate a reseller from its peers has to be worth considering.
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