Indirect Business Model Most Advantageous for ICT Products, Services

The indirect business model – the two-tier model that leverages partners and distributors – reaps better returns for vendors. This outcome is based on a comparison with other go-to-market (GTM) strategies. That’s according to a report from the Global Technology Distribution Council (GTDC).

The report – Distribution’s Edge: An Economic Analysis of Routes to Market for ICT Products and Services – scrutinizes three popular GTM models — direct-to-customer, single-tier indirect and partner-led indirect. It dives into vendor needs such as sales, staffing, and the pros and cons of the three GTM models, The partner-led indirect model shows a consistent advantage. The report examines vendor requirements at different stages of company growth.

GTDC’s Frank Vitagliano

“The findings paint an intimate picture of go-to-market strategies in our industry, including some nuances many people likely don’t know or understand,” said Frank Vitagliano, CEO of the GTDC. “But it’s important to recognize that these are all elements discussed daily within IT companies around the globe. As a result, the takeaways from this report resonate just as strongly as the ones we discovered 10 years ago.

Vitagliano refers to two studies the organization did a decade ago; this is a fresh look at that research. The new Distribution’s Edge report looks at what it takes to form and optimize a GTM strategy. That strategy is based on a technology’s price point, target audience, maturity and more.

The partner-led indirect GTM model is the most prevalent among ICT vendors and service providers. The two-tier distribution model outsources product selection, deal financing, partner recruitment, tech support and more to third-party distributors.

“Where GTM models really make their mark on an organization is in the economics they produce. Each of course, has certain advantages and disadvantages,” according to the report authors.

GTM Model Comparison

A comparison referenced in the report compares a direct model and a partner-led model. In the direct model, the vendor has many responsibilities; for example, product awareness, lead generation, solutions quoting, pricing, delivery, integration and returns. In the partner-led model, these actions are outsourced to a distributor.

“Often, these undertakings can amount to 25% or more of a vendor’s selling, general and administrative (SG&A) expense,” according to Vation Ventures.

The GTDC report looks at five business outcomes that each of the three GTM models influence — control, scale, profitability, customer satisfaction and competitiveness.

The report also provides a closer look at four vendors and how different GTM models could impact their businesses. One vendor is a mature $1 billion plus hardware company. Another closer look focuses on a young $250 million software company. There’s also a look at a hybrid technology company with over $200 million in revenue. The fourth closer look focuses on an emerging technology vendor.

The report looks at a variety of vendor types in various stages of growth because the impact of a GTM strategy changes as a company matures.

CommCentric Solutions and Vation Ventures developed the report on the indirect business model.