Tidemark’s The Platform Journey is back! In the first of this three-part series to kick off our third season, show host and Tidemark Fellow Avanish Sahai interviews Allan Adler of Digital Bridge Partners on a current hot topic: monetizing tech partner ecosystems.
Avanish and Allan unpack a wide range of topics to kick off this series, including:
And much more!
Guest: Allan Adler, Managing Partner, Digital Bridge Partners
Allan Adler is a world-class advisor, consultant, and change agent. As Managing Partner at Digital Bridge Partners, he helps individuals, managers, and executives understand and leverage partnership best practices in business and society. He is the creator of the GoToEcosystem Framework and has worked with a wide range of organizations to unlock their full ecosystem potential. Allan is Chair of the Ecosystem Counsel at PartnerHacker and an Executive Member of Partnership Leaders. Previously, Allan founded and ran MSI Consulting Group; a 100-person sales and marketing strategy firm focused on the tech industry and worked as a consultant with The Boston Consulting Group. He received his MBA from Harvard Graduate School of Business, where he was honored as a Baker Scholar. Allan is a CPA and serves on several for-profit and not-for-profit boards.
Host: Avanish Sahai
Avanish Sahai is a Tidemark Fellow and has served as a Board Member of Hubspot since April 2018 and of Birdie.ai since April 2022. Previously, Avanish served as the vice president, ISV and Apps partner ecosystem of Google from 2019 until 2021. From 2016 to 2019, he served as the global vice president, ISV and Technology alliances at ServiceNow. From 2014 to 2015, he was the senior vice president and chief product officer at Demandbase. Prior to Demandbase, Avanish built and led the Appexchange platform ecosystem team at Salesforce, and was an executive at Oracle and McKinsey & Company, as well as various early-to-mid stage startups in Silicon Valley.
About Tidemark
Tidemark is a venture capital firm, foundation, and community built to serve category-leading technology companies as they scale. Tidemark was founded in 2021 by David Yuan, who has been investing, advising, and building technology companies for over 20 years. Learn more at www.tidemarkcap.com.
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Avanish: Welcome, everybody, to another edition of The Platform Journey. Today, we have another fantastic guest.This is actually going to be an interesting series—we’re going to have three sessions with Allan Adler, a managing partner of Digital Bridge Partners. I’ll ask him to introduce himself and what they do, who he is, etc., but I think you folks will be amazed at some of the knowledge and insights that Allan and his team are building up. So, Allan, welcome to The Platform Journey.
Allan: Hey, Avanish. Thanks. Great to be here.
Avanish: Terrific. Let’s just start with a bit of background. Who are you? What do you do? Who do you do it for? Etc.
Allan: Absolutely. Before I start, I just want to say it’s a privilege to do this with you. We’ve been friends for a long time, and I’ve seen all these dignitaries come across this stage, and it’s just great to be among the Avanish crowd. It’s really great to be here.
So, Digital Bridge Partners is a management consulting firm, as you know. We specialize in unlocking ecosystem potential. Everything we do is all about this notion that the ecosystem has tremendous potential to impact companies, to impact customers, to impact partners, to even impact communities. And if we unpack that, we can create tremendous value. That’s our purpose and our mission. I’m the leader of the company. I’ve been doing this partnering stuff for three-plus decades. What we do right now is deliver a series of products, trainings, processes, and change management to small-to-large, essentially B2B software companies, who we perceive to have the highest potential to unlock the ecosystem and create value.
Avanish: Love it. I mentioned we’d be doing three episodes, but I didn’t mention what it was about! So let’s get into it. The topic we’re discussing with Allan is monetizing tech partner ecosystems. We’ve talked broadly about platforms and ecosystems; now for the next three sessions, we’re really going to go deep into tech partners. I know that’s an area many of you listeners have discussed and have asked about. It’s a hot topic. There are many variations to it. Part of what we’re going to unpack with Allan in the next few sessions is, what is it, and how does it work? I also think that Allan and his team bring some great insights into the successful, and perhaps not-so-successful, attempts to build those out. So Allan, let’s start with that. Why are technology partnerships so important and common?
Allan: I think some context is helpful. Old guys like us need to bring context to the table, because one of the things we have to offer is that we’ve seen the dance many, many times. In the last 20 years, cloud computing and software as a service [SaaS] have really changed everything in technology. Back in the day, before Google and Salesforce, we had these legacy systems that essentially gave customers very high switching cost and, quite frankly, a very small number of these embedded suites.
Tech partnerships are so important because, with the massive explosion in SaaS and ridiculously large numbers of new companies—data points from Forrester suggest that we’ve got a 10-plus-times increase in the number of SaaS companies, from say, 10,000 to like, 180,000—the switching costs have gone way down, and the costs to start a software company have gone down. As a result of that, if you are a technology company, you simply have to work with many other technology companies. It’s just a function of how many software applications are being used. Really, tech partnerships can be thought of as that large, programmatic need to work with many partners, other software companies, with whom and through whom you can go to market more effectively. I think that's a good historical context.
Avanish: That’s perfect. So, there are many names, many categories. How is that different from a strategic alliance, or from a more traditional channel partnership? You work across all those, so let’s go deeper into why that is.
Allan: Absolutely. If we go back to those earlier days—before cloud computing and SaaS, before we reinvented everything—we can sort of put partnerships into two broad categories: programmatic and transactional, business development and strategic. The transactional ones were your channel partners: value-added resellers, managed service providers, and sometimes smaller system integrators who tended to be more like, “Give me a lead, I’ll close the deal, close some software, make some services.” The strategic partners offered fancy QBRs, and big meetings where we’re going to talk about long-term trajectories and product road maps. But, quite frankly, if you gave them a program, they’d spit it out like it was yesterday’s smelly fish. They were very, very non-programmatic in nature.
Tech partners are right in the middle. They’ve got a lot of programmatic aspects and some transactional aspects, like the channel, but also many of those co-innovation, business development, product road-mappy features that you saw and talked about in the alliances days. So that’s where I see the tech partnerships as being that special middle between channel and alliances. What’s your thought on that, Avanish? Because you’ve lived in this space for a long time with me.
Avanish: I think that is exactly how most of us think about it. In fact, I think it’s something where we should go even deeper. You’ve got these platform ecosystems, where it’s about providing a platform as a service, providing a broader set of capabilities, and where some of these tech partnerships really are just as light as an integration or leveraging the APIs. But then figuring out, like you said, the programmatic elements—is there a business relationship? And if so, what does that look like? What’s part of the program, vs. what may be one-off? What may be solution completeness? I think there are a lot of variations to it, but, in total, it’s exactly like you were describing. They sit within or have mixes of the different aspects.
The point you made about cloud and SaaS changing everything—I think that’s phenomenal. The places we’ve been at, or where we’ve helped build these systems, we realize that they can’t do it all. The expectation of the customers is that you’ll work with others to provide them a more complete solution. Platform versus tech. How do you…?
Allan: Yeah, that’s a really good one. Before we do that, I want to just add something that I think is pretty fundamental to the audience understanding the potential. One of the things we’re going to talk a lot about is monetizing as a potential, because people would say, why aren’t we monetizing? Well, that’s why we’re here, right? We have an opportunity to monetize. But I think it’s important to introduce this concept of a commercial envelope. All commerce that takes place happens in some kind of commercial envelope. Sometimes it’s a contract. Sometimes it’s a program. But a commercial structure—let’s just call it a commercial structure—is an essential element to delivering value. If you want to deliver more value, you need a bigger commercial structure. Small value, small commercial structure.
Fundamentally, what’s made the technology partners interesting are all the things we talked about. What makes them challenging is the commercial structure around monetization. It’s actually a wonderful segue, I think, into this whole platform-versus-not-platform conversation. When you talk, in your podcasts, you talk about the platform ecosystem, or the ecosystem platform, and you kind of put them together. When you talk about them sometimes they’re the same, or sometimes one sits on another. But if we then add the concept of a platform business model, which is often the case when you talk platform companies, you see that platform business models actually are commercial structures. That’s why it’s called a business model, because if you don’t have a commercial structure, you don’t have a business model. They go hand in hand.
Not all technology platforms, or technology programs, sit on traditional platform business models. An example of one that does might be Salesforce. Salesforce, as you know—you made it happen, along with other great people—has a very strong platform business model where the commercialization aspects of the ISV program, which sits on that platform business model, are fairly well articulated and understood. By virtue of the app marketplace, and of co-selling terminologies like who gets compensated for what, these are relatively mature commercial environments. It’s pretty easy to look at that and say, “Oh, platform business models and technology partners work together.” But there are many other technology partner programs which do not have platform business models, and they’re the ones that struggle the most with this commercial structure. They haven’t, at a strategic level, figured out where exactly that ISV sits, and how we monetize them.
I think it’s important to distinguish between the strategy and the platform business model and the program, versus when you just have, like you said, an API. “It’s an open API. You can integrate with me. I don’t know how to make money on that.” Which is really where the big opportunity lies.
Avanish: Yeah. I think that is the crux of it: is it strategic? Have you decided to monetize it? And if so, what are the challenges and risks? I think few have figured it out, but many are trying. That’s why firms like yours exist.
Let’s get into that. You started alluding to it, but why are they difficult to monetize? You talked about the lack of a business model, but take it a couple levels deeper. Even some folks who have the business model haven’t always figured out how to monetize it. What makes it hard?
Allan: Well, you’re on the board of one of those companies that hasn’t quite figured it out. In terms of monetization.
Avanish: Allan is alluding to HubSpot. That’s actually been a business decision, that it would not monetize. But that could change. But yeah, what makes it hard?
Allan: Well, first and foremost, there is a fundamental difference between going to market directly and going to market through an ecosystem. We have to start with that. If you look at B2B SaaS, and the way VCs have incentivized their CEOs, and Wall Street to a certain extent, it’s very formulaic. You put money into BD, into the top of the funnel, to marketing, and then that marketing produces a marketing-qualified lead, and that produces a sales-qualified lead, and that produces a closed one. There’s an economic formula for, if you put this much in on the top, you get this much back. You see the VCs talking about formulas. Like $18 of return for every $1 invested.
This highly formulaic, sort of programmatic way of going to market, has been the de rigueur of the go-to-market for B2B SaaS. And a little data point is falling apart, for a lot of reasons. One is the whole thing we talked about at the beginning—this panoply of software companies that have emerged. They’re all following the same script, and the poor customer is getting bombarded with all this direct crap. So you’ve started to see conversion rates go down. You’ve started to see cost structures go up. You’ve started to see sales cycles increasing. And now, when you have the impending jaws of recession coming, you’re getting all these lay-offs. Because all of a sudden, that formula that worked for so long is coming up against demand constraints, so we’re firing thousands and thousands and thousands of people.
That’s one point of context: that direct go-to-market model is very, very different than going to market through an ecosystem. The formulaic aspects [of the latter], particularly if you don’t have a platform business model with a proven, stamped out, repeatable motion, is really hard to quantify. It’s very hard to attribute the revenues. It’s very hard to determine whether there’s a causal relationship between a dollar in and a dollar out. You have a lot more variables to consider. If you go to market through an ecosystem, there’ll be thousands of points of contact. Whereas, when you have that direct go-to-market model, you have a myopic, formulaic funnel through which you think you have a particularly accurate vision of the future. You don’t, but at least your financial team, and your rev ops team, and everyone, are going “Yep, that’s it. That works.” Then the channel thing, which is another version of go-to-market through an ecosystem, is really, really loose and squishy.
This is the reason why monetizing tech partnerships has historically been very, very difficult. I’ll add to that the fact that, unlike a channel, where you have a relatively straightforward give and get—I give you my software, you get the services—in the tech partnership, you’ve got two software companies. It’s kind of a weird structure. One wants to sell their software. The other one wants to sell their software. Maybe they compete. How do they work together? How does it fit into that commercial structure? These are all giant impediments and challenges that every CRO faces, and it’s one of the reasons why monetization of tech partnerships has been quite difficult.
Avanish: I think you hit the nail on the head. You mentioned something, Allan, that I think is probably worth unpacking a little bit. In that complexity of the go-to-ecosystem model, one partner is trying to sell one thing. One may be trying to sell something different. They may be competing, or they may be cooperating. How does the customer fit into all this? What are they dealing with? Who’s on first? How do you see that playing out in these relationships?
Allan: Oh, I’m so glad you brought that customer thing in. It’s like, the only part that really matters at the end of the day, with all these software companies trying to compete for the attention of one customer. The customer matters because—and this, I think, is the most important CRO/chief customer officer awareness moment—customers are misaligned with the way most companies go to market. I use the analogy of a customer wanting a car and a software vendor wanting to sell them a steering wheel. [Laughter] Nobody goes to the car to say I’m going to use my steering wheel today, and yet that software company is out there going, have this steering wheel, Avanish. Would you like to have a bigger steering wheel? How about buttons on the steering wheel? And you’re like, why are you talking to me about steering wheels? I’m a car person. I drive a car!
So, because companies tend to think in these parts as opposed to wholes, we’re misaligned with customer expectations. This is one of the reasons why customer success organizations are delivering neither customers nor success. They’re delivering product retention, or product upsell. There’s no customer success in customer success, because we’re trying to get people to buy more steering wheels, as opposed to thinking about the car. The gestalt of the chief revenue officer and the chief customer officer is completely out of sync with the way B2B customers want to be treated, need to be treated, and quite frankly are insisting that they be treated. That’s why you’re seeing all that headwind on the direct go-to-market model, and why it’s failing. That’s a starting point. I don’t know if I answered your question.
Avanish: No, I mean, that is exactly the perception I have as well. I’ve always said you have to start with the customer, right? We’re not doing this for the sake of doing this. We’re not opening up the APIs, or building integrations, or building the platform just because it’s cool. There has to be customer alignment, and that customer alignment needs to happen certainly at the technology level, certainly at the delivery level, but also at the business model level. If there’s confusion of who’s on first, who is my relationship with—who is the primary provider, if you would—it causes complexity. You mentioned this, but just saying, “Hey, I’ve got APIs connected,” that’s good; that answers the technical question. But the customers really want to know, how am I going to drive outcomes and value? Messaging and positioning is not clear, and it does create confusion.
Allan: Exactly. And I think it’s important to have context of what the life of the customer looks like in relationship to your go-to-market. The average customer, if they’re an enterprise customer, is using hundreds of different SaaS applications, is engaged in dozens of different touch points across the sales cycle, and often has as many as a half a dozen different providers of any given solution involved in the process of making a decision. When you have that kind of diaspora of solutions, touch points, and different providers, and you come at this with, “I’m selling my one thing, my steering wheel to the car,” you’re almost at a disadvantage to begin with because you’re not actually facing the customer in the context of their environment.
One of the things we like to advise our clients about is to take that empathetic, voice-of-the-customer perspective and ask, who is the customer being influenced by? Let’s start with that. You can even start around the steering wheel. It’s okay. You don’t have to take it to the entire freeway. The reality is, every customer that you’re working with may have hundreds of solutions, but maybe only a couple of dozen of them are really in your sweet spot. If you’re selling a marketing solution, do you really care about the ERP, or the supply chain? Maybe not, but you probably care about all that marketing stuff around you, both the services partners and the technology partners that surround that customer.
If you don’t know about that, you’re not a very empathetic CRO, CMO, CCO, CEO, CFO—I don’t care what C you are. If you’re not talking to the customer, understanding that surround sound, what we call the sphere of influence around that customer, how are you even credible? How are you even thinking about their needs? Because the other thing we know about customers is, today, they’re in the end-to-end solution game. Digital transformation is not happening because you bought the best of breed. It’s happening because that best of breed is part of an end-to-end solution. If you don’t understand where your place is, you probably aren’t a very effective value provider. And I would argue, if you’re not an effective value provider, you shouldn’t be in business, because you’re wasting everybody’s time.
Avanish: Strong words, but I think that is how customers are thinking about this. The digital transformation is about business processes and making them better, more efficient, more customer-centric, more employee-centric. I would always argue that no one provider has the capability, skills, resources to solve every piece of that business process. Therefore, again to the point you made earlier, those tech partnerships become important to help drive that. But you need to know what is it that you’re solving for and who cares about it.
We’ve talked about the challenges. We’ve talked a bit about the evolution of this, Allan. You’re living this day in and day out. In the follow-on sessions, we’re going to talk a lot more about the monetization model and how to do it. But just to whet the appetite, can you share some examples of companies or organizations that actually have done this well? Who figured out how to make it work?
Allan: Well, I think that if we come back to the premise of monetizing tech partnerships, which is really pretty much our sole mission in 2023, we have to start with some prerequisites. Things that you need to have to get right before you can monetize. I’ll give you an example of a company that did a really good job with this, but I think it’s important for people to first understand, are there some table stakes? Some things that you actually have to have in place in order to be super successful?
The first thing is (back to what you and I always talk about), if you’re really going to be in this business, you’ve got to have a product organization with the right mindset. The product organization has to wake up and go, “Oh my, look what would happen if I worked with all those other tech companies! I could lower my R&D costs. I could increase my return on investment. I could extend, complement, and complete my solutions. I think it would be a really splendid idea to have an open API with published data on how people co-innovate with me.” To a certain extent, that is a prerequisite.
If you don’t have that piece, anybody who’s running partnerships is going to bump up against that headwind because every single time, you’ve got to hire some system integrator to come do some bespoke integration, and then the integration’s got tech debt. So there’s a technology requirement, and I would even argue light platform requirement—I use the word light platform, because sometimes platform is very robust—to allow for integration. Can you give me your published APIs? Because if we don’t have that stuff, then we can’t really build quality ins and outs. The egress and ingress of our data flows and our work processes doesn’t work. That’s kind of a starting point. I mean, you’ve seen this, day in and day out, in your experience as well.
Avanish: Yep. I would use the exact same words, by the way. It is freaking hard.
Allan: It is hard. And it’s often hard from a mindset, culture, and budget perspective before it’s hard from a strategic perspective. I would argue that, to a certain extent, that’s where the CEO has to wake up and go to the CPO and say, “I know that we have a road map, and all these constraints, and all our money is going to our road map, but we need to put it into the API.” You won't be able to make as many features, so there’s a trade-off. You kind of go, “Oh, I’m going to have less of my features,” but you’re going to have ten times more out of your features. That’s a better outcome. From a portfolio perspective as a CEO, I’m going to put a bet on an open API, as opposed to my own little four walls.
Avanish: A hundred percent. And mindset is a word I think we use all the time. It has to come across the organization, right? If only one part of it is pulling, it doesn’t work.
Allan: Yeah. So let’s assume that the mindset is in place, that we have an organization that has at least started the journey. The next step is to figure out what small number of integrations have the highest potential to yield value by talking to sales reps and asking which products complement, extend, and complete our solution. This is a pretty easy exercise because at the end of the day, you just ask the customer, what do you need this to integrate with? They’ll say if it doesn’t integrate with this, I won't buy it. Okay, so you need an integration. Especially because, if you heard it once, it’s probably true 50 times.
Once you’ve built those integrations, and you have validated that they work, and that you’ve got better-together stories—things that say, oh, Allan and Avanish’s solution worked really great, three customers bought it. The reference points and customer case studies. When you’ve got materials to support them, then you have what I will call the foundation for monetized tech partners. If you don’t have those things, with the most important output being X number of integrations with better-together stories, and good case studies with use cases—that’s also very important, there need to be use cases, because if the use case isn’t articulable, your sales rep won't know what to do with it. And your customer success team won't know how to position it. Those are all, to my mind, the absolute foundational requirements. Don’t try to monetize a tech partnership unless you have that corpus of checkboxes. I don’t know if you would add anything to that. But to me, those are the starting points.
Avanish: Those are good. Again, tying it back to the customer—if you don’t have those, the customer is not going to care.
Allan: Exactly.
Avanish: The use cases and how things work together, all those elements become fundamental as the baseline.
Allan: Right. I’m going to get to the answer of an example of a company that gets this right. But another really important foundation is this idea: if I argue that the sphere of influence we talked about, that surrounds the customer, is really important, I just ask a simple question—why will they bring me to the dance? Why will they let me into the tent? This metaphor is that I’m on the outside of the tent, I haven’t been invited to the dance, but I want to get in the tent, I want to go to the dance. Why will that partner bring me in?
The first question is, why would you want them to? Well, because it’s less expensive and more productive. When I get a referral from a partner who actually has a relationship with the customer, magical things happen. Conversion rates are 70% higher. ACVs are one-third bigger. Close times are 50% less. What CRO would say, nah, I don’t want that? The problem is, how do you get a referral? How do you get that partner to say, Avanish, I’m Allan. Come on in. I want to introduce you to the pretty girl at the bar. That’s a much better deal than knocking on the window and waving from the outside.
That’s really kind of like another prerequisite. How do you drive partner referrals at scale? Because if this whole thing’s going to work, we have to get the partner to bring us in. That’s the whole go-to-eco model, right? You go to the ecosystem so that the partner will bring you to the market. The problem with going to market is, it’s like being on the outside of the bar waving at the girl.
Avanish: Trying to get her attention, and there’s a dozen others next to you trying to do the same, right?
Allan: Exactly. Whereas the fellow, or the gal next to the gal, or the guy next to the guy—let’s be inclusive—is already there. He’d say, “Avanish, come on in. Stop waiting.” That, then, is almost like another prerequisite. You’ve got all that stuff right, now you’ve got to drive referrals at scale.
You know, the classic CRO is the old-fashioned CRO. He goes to the partner guy, and he says, “Avanish, bring me leads. Bring me sourced business. I want you to bring me sourced business.” And the partner guy gets all nervous, because partner people are very nice and they don’t like conflict. They go, okay, I’ll go make that happen. And they go to Marketing, and they say Marketing, let’s do this. But the resulting indirect linear approach fails to get to the very heart of what’s needed: scaling referrals.
The companies who really crack the code on this—I’ll give you an example, and we can go into detail in our next talk—are companies that figure out how to drive a reciprocal referral flywheel. In other words, I figure out how to give you leads so that you give me leads. This is a quite interesting phenomenon, to say that it’s already hard enough to get a CRO to understand this concept of ecosystem leads. It’s kind of weird. I’d rather get a marketing lead, right? I understand that, going back to the formula.
You kind of get the idea that if you could get those leads from partners, that would be good. Especially if you’re right, and they have 70% higher conversion, and blah, blah, blah. Well the problem is, now I have to introduce yet another variable. I have to create ecosystem-qualified referrals. I have to actually give a bunch of stuff away to get a bunch of stuff. This concept of give to get is the next big opportunity, if I can teach my CRO and chief customer officer that by giving from my ecosystem I get from their ecosystem. This becomes sort of a principal aspect.
One of the things that everybody in this space is now really excited about is this thing called automated account mapping, brought to you by Crossbeam, Reveal, and other companies. This is the way of finding out what you want to give and what you want to get. One of the things that happens for the very first time, which is really exciting, is that I can now quantify how much revenue there is in that give-to-get exchange. For example, if I say to you, Avanish, I have 50 customers that you want, and you have 75 customers I want, I know how much relative revenue there is in each of our respective ecosystems. And they happen to have the same ICP, which is back to the earlier thing about not messing around with ISVs that are far away from you. Find the people that your customer already knows.
By the way, your partner is doing the same thing with you. Your partner sees you next to their customer. You see them next to your customer. They’re a joint ICP. Boom. You’ve got that zone of influence, right? Once that tech partnership opportunity has been quantified with this automated account mapping technology, now I can engage that reciprocal referral flywheel because I know how much it’s worth. I can actually put a business case on the side of it. I can go to a CRO and say, hey, you need one of those formulas that your CFO wants? Here it is. If we give X number of referrals to that partner, we will get Y referrals back, and that will lead to Z ARR, which will lead to more NRR. Those are the two variables that are important, right? I want new ARR, and I want increase in NRR. By the way, increase in NRR is the only data point that matters in a recession anyway.
Avanish: In the SaaS business, that’s how you manage it.
This was, as expected, an amazingly fun conversation. Time has flown. I’m going to leave folks dangling a little bit, and we’ll kick off the next one with some examples.
Just for everybody listening, we’re going to talk about two different topics in the next two sessions with Allan. We started talking about tech partner monetization today. We gave some context, some challenges, etc. Next time we’ll talk about, What does it actually mean? What are different models? What are some of the mechanisms to make it work? Then in the third session, we’ll go deeper into the How, and make sure that we have some live examples. What are some of the metrics? How do you measure success? Allan talked about a couple right now, but there’s obviously more.
So with that, Allan, thank you. As always, an amazing set of insights and a great pulse on the market for platforms and partnerships.
Allan: Yeah, thank you, Avanish.
Avanish: We’ll see you in a few days again.
Allan: See you later.