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Episode Summary

Today, our guest on The PARTNERNOMICS Show is Jay McBain, Principal Analyst – Channels, Partnerships, & Ecosystems at Forrester. Jay is an accomplished speaker, author and innovator int he IT industry. Named 2021 Channel Influencer of the Year by Channel Partners Magazine, Top 40 Under Forty by the Business Review, Channel A-list by CRN, and many other accolades. Jay is often sought out for keynotes, thought leadership and future industry guidance. He has spent his 28 year career in various executive channel sales, marketing, strategy roles within IBM, Lenovo, Autotask, ChannelEyes, and now Forrester. 

If you’re interested in seeing additional work and insights from Jay you can visit his blogs about the IT Industry, channel management, and some of his own life sprinkled in here.


Topics Covered

  • Ecosystem: According to a recent EY report, the average number of B2B partner relationships has increased from 5 to 7 for organizations. What will this average number eventually grow to, and why?
  • Innovation: Innovation is a huge part of ecosystems as organizations co-innovate to build or expand solutions. What is the best framework for innovation?
    • a. The Innovator’s Method – Nathan Furr (Insight-Problem-Solution-Business Model)
  • Profitability: An EY report claimed ecosystems are contributing on average 13.7% of total annual revenues, 12.9% in cost reduction. Do ecosystems have more promise for the revenue side or the cost reduction side of the profit equation?
  • Negotiation: When negotiating deals, is it better to make the first offer or let your counterpart make the first offer?

Mr. Jay McBain. It’s so good to have you.

Thanks for agreeing to be a contributor on the show, man, looking forward to having your insights and totally rapid with you always enjoy our conversation. So this will, this will definitely be natural, but Jay for those folks one or two people across the country that don’t know who Jamie Bain is or all of the great insights that you provide, partner and professionals.

I’d love to just start this first episode with you. As a contributor out to who’s who’s Jay. 

Well, I I’m a principal analyst for channels, partnerships, alliances, and ecosystems globally for Forester. They pay me to connect the dots with what’s going on today. What’s going on tomorrow.

Maybe what’s going to happen by the end of the decade. Try to put that together in a way. Most people don’t have a day job where they can sit around and navel gaze at how all this comes together. And I happen to be lucky to have one. Jobs, I’ve spent close to 28 years in and around channels of all types.

And today I have the luxury of talking to thousands of companies, how they’re thinking about this future of ecosystem. Awesome. And I’m one of the great recipients, one of many, many tens of thousands of recipients. I think that they get to the opportunity to check out your insights. So definitely love what you do and thank you for what you do.

I’m going to hit you with a question. Are we ready to fire this stuff up? As a matter of fact, let me get the the clock going. So. In the world of ecosystems. Right? So, E Y put out a report fairly recently, just packed full of awesome information. And in there, they said that like the average ecosystem used to be five partners.

And now that’s grown to seven question is what’s that number going to grow to? And why? This is an interesting question. I made a prediction a few years ago, and again, for anyone that’s lived in the channel for decades, They’ll know the terms, trusted advisor, which is a singular term. It’s not plural, they’ll know the term single throat to choke this whole idea of a partner, becoming all things to all people, to a customer.

And we started to see signs of this earlier. And I started to measure it years ago where it’s not a single throat. You don’t own all 28 moments when that customer has a problem. And when they get the vendor’s solution vendor selection, you don’t own all those moments. You don’t own all the moments during the transaction and you definitely in a subscription consumption world, you don’t own every 30 days forever.

So it was part of Forrester research that we came up with these five partners on average that serve these customers and serve the multiple. Every dollar of, let’s say a solution technology solution kicks out 5, 6, 7, $8 of services. And there’s no one company, even the largest of system integrators, like Accenture don’t have the skills, don’t have the relationships, don’t have the backbone to go and serve at all.

So it’s all this idea of a pie chart, where there are partners adding value at every stage at every level. Customers are looking at this as a team, which ecosystems very much are. I kind of made the prediction and of the trusted advisor and of the single throat to choke. Welcome to ecosystems. Yeah, man, I love that.

It’s the numbers now seven apparently for the average. What’s that number going to be, who knows, but it’s something bigger than seven. It’s definitely going to grow to be larger. I think, especially as we become more coordinated, I think it’s going to take longer, but it’s awesome to see all the tech that’s coming into the space that allows us to get more coordinated.

But as you talk about the bifurcation or trifurcation of the channel there’s, there’s a lot of opportunities for companies to come in and play and provide value. We’re actually measuring. So today it’s at seven. I agree with that. And how do we get to nine? How do we get to 11? You know, how does the ecosystem grow while we’re measuring it by the multiplier?

You know, Salesforce, for example, was the first company to ever come up, come out with a multiplier. And it was $4 and 14 cents for every dollar of Salesforce, went out to the ecosystem, software companies, hardware companies, mostly 64% of it was services. Well, that number today is $6 and 19 cents. It’s gone up by 50% and only a few.

And it continues to go up. It’ll be $8. It’ll be $10 because we’re having more to measure inside of that. And do you think that the partners, the seven that are involved today are going to go, just expand their businesses by double or 50%? No. There’s new ecosystem partnerships that are coming in, in emerging tech, in additional software last mile solution.

So there’s the, world’s the limit here in terms of, you know, how many partners make sense? In any given customer engagement, J one of those lanes, do you see this kind of this retention lane, this re this retention piece, being a big and growing area, arguably the largest growing area or opportunity. It’s not, it’s big because every company and every industry is coming out, talking about subscription consumption.

Which creates this change, where the point of sale is the first 30 days with the customer, right? And this is pretty shocking because you spend all of your program dollars, your gross to nets your margins on that point of sale, where now getting the customer to the dance, getting them on the dance floor, which is the point of sale.

And now keeping them dancing every 30 days forever, keeping them dancing all night long. All of those are equal in importance. I can spend all my money on retention, but if I’m not getting any customers to the dance, I’ve got them to. If I’m not getting them on the dance floor, getting that initial subscription sold, all of these things have equal importance to me, but that partner that’s working early on to frame up the architecture, the design, the planning, all that may not be the same partner.

That’s doing those deep integrations, driving adoption and stickiness and Richmond. So that’s why we have seven partners today at the two. Gotcha. All right. Time’s up? Let’s rock with a question too. All right, make it easy, make it easy, make it easy. You know, so we talked about innovation here. It’s a huge part of ecosystems.

As organizations co innovate, they’re doing value creation of building out network effects to build out and expand their solution. What is the best framework for innovation. So people know that I’m a big fan of maps and frameworks and these sorts of things, whenever it comes to tactically executing this, this piece of partnerships, but this is an area that I think that companies could do a heck of a lot better job.

And that is just the innovation process itself. It’s not just simply a whiteboard and some ideas, but how do you do that? The best framework that I’ve come across is the innovators. And frankly, it was the first one that I saw that was really laid out there as Nathan for, and a couple of his other collaborators that wrote this book.

I think it was his fourth or fifth book that came out, but it was basically kind of a take on Eric, Reese’s the lean start. Yeah. So, so Nathan for PhD, from Stanford, and as a matter of fact, the creators of Instagram, where his students sold Instagram in 18 months for a billion dollars, right. To Facebook, but they followed his innovator’s method and it’s a four stage four step method that I think kind of demystified.

Innovation and all this, you know, you definitely know this world better than me, but that is CEOs saying that they have to get much better at innovation. And this is one area that I definitely encourage people to, to check out. Absolutely. So most people don’t know that the reason you and I have such a connection is.

And as I was taking my MBA at LSU and Joe burrow and chase and others were winning a national championship with the best team ever assembled in college football. That was my Alma mater. And I took a course on that start-up book. I took a course on the innovator’s method, the innovator’s dilemma. I mean, this was right in a very fresh MBA that I took.

And I absolutely agree with you. If you overlay the frameworks, the templates, the playbooks, the methods around how you envision. Customer value creation. How you think about co-innovation through technology alliances, the average customer by seven layers today, and that’s grown the looking at the strategic and business alliances, by the way, all of these are an umbrella over that customer journey.

I said that it’s, you know, the dance, getting them on the dance floor, and then he keeping them dancing in a subscription model. All of that is overlaid by all of these layers of alliances and co-innovation. And innovation just isn’t technology, its services and its delivery. It’s business models. There’s all kinds of things going on.

And we haven’t seen anything yet. Yeah, absolutely. I mean, I could not, could not agree more. Okay. Ready for the next question. I want to fire one at you. Let’s do. Profitability. And it kind of goes into what you were just talking about. So also in that, in that E Y report that I’ve mentioned, right, we’ve got this profit equation, total revenue, total costs.

If we can increase revenue, we know we’re good to go or decreasing costs. We’re good to go. So in the study that they did, they showed, let’s see, what’s the numbers, 13.7%. These ecosystems, you know, claimed a boost or a benefit on the total annual revenues. And then they also claimed 12.9% in a reduction of costs by participating in these different ecosystems.

So in my mind, my economist’s brain gets going. I wonder ecosystems, is there more provenance on the revenue side for profitability or more promise on the cost reduction side for profitability? All right. Let me start with a couple of critiques. One is that I thought they took a very narrow approach to measure.

And the author of the report did come out on social media and say they did that on purpose. But keep in mind, 75% of world trade goes indirectly, who is in the ecosystem of a car company, the car dealership, and they’re thriving 99% of their sales. You know, who’s in the ecosystem of a pharmaceutical company, the pharmacy dragging a hundred percent of their sales.

So just to start off with 75% of GDP is ecosystem driven. But they tried to, and I think they were thoughtful in doing this is let’s exclude the value added transaction. No, yes. It’s a huge deal. Getting your customer on the dental. And we appreciate it. And obviously we’re spending billions of dollars to make that better.

Now let’s talk about the non transacting elements of an ecosystem. We talked about the innovation tech alliances, strategic business alliances. We talked about getting the customer to the dance through those 28 moments of non transacting affiliates, affinity partners, advocates, ambassador, all these things that go on to get your customer coffee.

And get them educated so that they make vendor selection in our favor. Think about those partners that show up post transaction, keeping it a customer for life. So most companies now that have moved into subscription and consumption, aren’t actually anchored anymore on revenue, profit and customer set.

The world is shifting pretty fast. So when we look at Tesla, when we look at Netflix, when we look at these companies and their annual and quarterly results, none of us pick up what the revenue number is because we don’t. None of us pick up the profit number because in most cases there isn’t any, none of us are picking up the customer sat or net promoter score.

We’re only looking at three things in an ecosystem. We’re looking at number one, subscribers, number two, how many new subscribers, this period, and number three, the turn rate. So yes, there’s a massive cost reduction ability. There’s a lower cost to acquire a customer when marketplaces drive their fees from 20% down to 300.

My cost to acquire a customer just went down by 17% last June, my marketing, my sales, how I build out channels, which has been the promise of channels forever is to lower my costs, to acquire a customer, to lower my cost of goods, sold to LA you know, lower the cost of product development and other things.

So the promise is there, but we’re now starting to measure the incremental benefit. That these non transactional partners give us in this broader ecosystem view. Yeah. Question for you kind of a follow-up I mean, there’s a massive amounts of investment dollars that are out there. Right? I think you would report it.

There’s a billion dollars that came out in our space, in the in the, in the partnership tech space, just in 21. Do you think that that affords this additional. I guess I’ll call it a luxury of not really looking just that the. You know, the, the, the profitability from a short-term perspective because there’s dollars in investment, that’s out there.

People investors are willing to bet on the long game and run a company for, I mean, look at Uber and others, right? I mean, they’re, they’re running a long time in the red. Do you think that would shift? If, if there’s you know, the market dynamics would put more pressure on trying to become profitable and investors would pull.

Yeah, there’s one word is valuation. The companies that were really good in the past at driving out, you know, strong revenue, great profit, great stock buy backs in play in the market, general electric. IBM. You know, all the winners of the, of those decades are now in trouble. Yeah. Big time perspective. And now we have these multi-trillion dollar companies that are ecosystem.

But yeah, they’re driving unbelievable revenue growth. They’re driving, you know, many of them are driving, you know, strong profitability and things like that. But that’s those, aren’t the things we’re watching. We’re watching that ability to gain new subscribers, to build the subscriber base and to reduce the churn rate.

That’s it. So in the world, I’m asking these companies a question now, why is Microsoft beating AWS? It’s not based on technology and it never has. No one’s ever won a market because they had better technology. It’s better marketing, it’s better sales. And now it’s a better ecosystem. Microsoft has an army of 500,000 partners and 400 new ones joining every day that are talking about Microsoft in those critical early 28 moments in there, keeping that customer Microsoft for life.

That’s why they’re beating a much bigger and technology superior solution. Today is the ecosystem. Why is there a valuation floating up to 3 trillion? Why is apple floating at 3 trillion? It’s all about ecosystem. So now they’re coming back to these more traditional companies, revenue, profit customer sat type of company, product sales companies, and trying to break them out of that product scale sales and distribution sense and start talking about embedded and white labeled and this broader co-innovation and that’s, you know, to get your valuation from hundreds of bills.

To a trillion to get your valuation from millions to tens of millions. If you’re raising money, you’re your pitch deck is all about ecosystems. Yeah. Yeah. Love that. All right. Time’s up next question. Question number four or five. All right, let’s wrap it up with negotiation. They’re all favorite topics.

There are hundreds of thousands, soon to be millions of partners that might be entering any company’s ecosystem. This decade. Now this isn’t just a simple handshake. We all get going. It comes down to negotiation. Now you’re negotiating deals. These partnerships aren’t easy. Now the contracting, the legal, everything else can be lengthy.

So do you start by making the first offer your program, offer whatever it is to this partner? Or do you let them come in? And frame up what they’re looking actually let the counterpart make the offer. Yeah. I mean, I love this question and just a there’s so much strategy and I think even creativity that goes into the whole world of negotiation.

And as a matter of fact, we just launched a course and negotiation where we talk about a lot of these different things, but this is one that I have pretty strong feelings about, but there’s definitely diverse opinions that are out there. There are some other good resources you know, where people share their thoughts.

My personal belief is I love to make the first offer. Love to kind of understand the landscape that’s out there. I think that’s when you can get yourself positioned to put value on the table, but make the first offer. Why is that? The reason not to do it is if you think that there’s, there’s some chance that your counterpart’s going to make an offer that somehow magically miraculously going to be close to kind of your side of the fence, you know, I kinda your goalposts and the world that we live in and partnering we’re negotiating.

Pretty seasoned, pretty advanced people that know what the heck they’re doing. The odds of them making a mistake of planting the flag next to you are slim to none. So what I like to do just from a strategy perspective is plant the flag, but plant the flag where I want it planet in a place that’s defensive.

That I can absolutely defend. I’m not a big fan of just shooting for the moon and then being ready to give a bunch of concessions. You know, my thought is plant the flag, make it credible. But then by planting that flag, now you’re kind of forcing them to, to pull that certain term your direction and you put them into the defensive position to then justify that.

And if you make a concession there, I believe you have the opportunity to then ask for something in return. Let me get your thoughts. Yeah. I’m going to follow up with a follow up question and challenge you a little bit. So I think a third of this industry is going marketplace by the end of the decade, trillions of dollars, which by the way, take negotiation out the contracts.

The whole point of marketplace is to make things simple. A couple of clicks away to procure and provision to build these ecosystems is increasingly becoming digital. If you think those 400 new Microsoft partners that join every day are talking to a. They’re not clear. And it’s obvious when you’re dealing with a much bigger entity, you know, who’s going to win the negotiation and what you end up signing.

But what if you take humans away, the marketplaces need to create negotiation technology, where to, and maybe it’s automated bots that come to a an understanding somewhere in the middle of this revenue share this co-innovation this value creation and, and who owns what pieces. Will that become digital and marketplaces?

Will it become digital in partner technology? How do we handle that negotiation in a world? That’s increasingly digital. Yeah, man. That’s a great question. And a great point. And I think the fact of the matter is partnerships are on a continuum between being very transactional and I’ve got a reseller program.

Here’s my click through agree. Sign it or don’t, here’s my marketplace. Do you want to come in and play, sign it or don’t and in those cases, absolutely. There’s, there’s huge efficiencies that come in the marketplace. That’s why it’s so booming. So we will definitely see that. But I think there’s also the other end of the spectrum, which is.

Either building new products, expanding new products. You’ve mentioned Clayton Christianson earlier, right? The jobs to be done, making these bigger, easy buttons doing integrations. I think we’re seeing more and more. Co-creation co-innovation those? We’ll will not ever be totally clicked through transactional agreements.

Those will be negotiated through and out. And, and when you involve yourself in those negotiations, they will be human. But without a doubt, this, the marketplace world is absolutely prime for efficiency and efficiency means, you know, not having humans involved. So I think we just created a new category of product called negotiation as a service.

I love it. I think NASA’s already taken, but we’ll, we’ll figure out what the acronym is. We’ll come here’s the deal. There’s going to be a million Cisco. There’s going to be today. There’s 800,000 emerging tech companies, IOT, AI, automation, blockchain, quantum, metaverse all, all things combined. So going in the future, you’re talking about millions on top of millions on top of a millions of partners on top of millions of companies that are building out these ecosystems.

So there’s not going to be millions of humans. Sitting at the intersection of what that co-innovation looks like, what the value creation is quantified as what the revenue share ends up being there is a negotiation as a service, as a layer outside of marketplace and channel tech that can go in and maybe adjudicate.

In some way, what the shares are as opposed to these big tech companies. And by the way, governments might come in the EU and us governments might come in and regulate big tech. As they’re doing to apple, with epic, as they’re doing with apple to New York times, as all these changes are happening, it may be outside of our industry coming in.

In terms of how this takes place. So something to watch. And I think there’s a billionaire waiting who wants to tackle this. And we’re glad that we’re going to appeal that down into some more questions for a, for a future episode. Well, Jay, thank you so much for joining us on the show. It’s awesome to always chat with you and get your insights.

Thank you so much, sir. Well, thank you for having me.