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Ask HN: Someone wants to resell our SaaS. What can go wrong?
36 points by stingraycharles on Nov 13, 2011 | hide | past | web | favorite | 16 comments
Long story short: we provide our software as SaaS, and for our type of business (online ad delivery), due to the complexity of the applications, there's a whole industry of people who make money doing the actual operations of the application (called ad ops).

Now, our application is sold on a usage basis (use more and you pay more), and someone wants to start reselling our application by directly billing his clients instead of referring them to us.

What can go wrong? What can we forget? This seems like a no-brainer, since they can only make us more money, but I can't help but feel there's a snag to it.

I hope you can forgive me a chuckle at the irony of a company in the marketing business worrying about having a channel conflict.

What can go wrong? They can do a better job of marketing & service than you and effectively build their own brand on the back of your efforts, before dumping you for another supplier or an in-house development.

I suggest you develop a reseller product and approach it as a whole new channel. You should consider whether to use push or pull marketing or whether to require co-marketing efforts linked to VAR channel discount points. Perhaps you will have minimum volume requirements and tiered pricing, with white-label option at additional cost. You should consider exclusivity requirements - on both sides, and examine the scenarios in a competitive context. Since this is effectively a revenue-sharing partnership, you should have a standard heads of agreement and standard T&Cs ready to go. Oh, and prime your accounts people for the additional reconciliation burden.

In other words, you need a channel management strategy. All this puts you in a much stronger negotiating position and is much better than allowing yourself to be led into it blind by a savvy customer.

If none of the above is worth the investment, don't do it at all.

From a business perspective one challenge with reselling is that the reseller "owns" the client.

This could be a risk or not. It depends. Do you currently upsell/cros-sell your customers? Do you have any plans to do so? Would you ever be interested in reselling other companies products/services to your customer base?

How important is your brand? Having more customers can increase the perceived value of your brand. Customers can be a source of future growth through referrals, partnerships, etc.

For example, if one of your reseller's clients really likes your product is that brand value going to accrue to him or you? Or does it even matter in your space?

Sorry I can't be more specific, all I'm offering here are questions. If they prompt a thought or two that helps you negotiate a better deal then that's awesome, if not then I hope I didn't waste too much of your time.

Sounds like they're planning on charging a lot more (50-100%) more than you, to be able to afford you and still make a profit.

Have you considered private labeling for them? That way the billing can still go through you. They might have concerns about knowing if they're being paid fairly enough but that's something that should be able to be sorted out.

My recommendation is to date before getting married.

Start small, do a small joint venture where he sells your stuff through you to prove he has the volume. Maybe some sort of affiliate program or revenue share. If things go well you can spend time on the big deal.

Things that could change:

Positives: - They really drive you a lot of business - The time you spend figuring this all out was worth it

Potential negatives: - The deal could go nowhere after all your hard work, talk, costs, agreements. - They could go head to head against you in advertising, raising your advertising costs. - They might already address a lot of your customers - The time you spent on this could have better been spent elsewhere.

To expand a bit further on j45's points, this sounds like it's the OP's first time doing this. If there are enough resources to seriously investigate if this reseller model could be scaled to different ad-ops agencies/brokers, then it makes sense to go with a trial period.

If the deal goes nowhere, then at least you'll have a data point to figure out if you want to pursue this model further (as opposed to a hypothetical, educated guess).

One thing to consider is making sure that the reseller uses the same licensing/payment model on both sides of the contract. This is mainly to avoid a potential issue where the reseller gambles by going with a (much higher) fixed price site/unlimited license model on the end-user* side, while keeping the utility model on your side. This would only work if the reseller believes that they can accurately forecast maximum end-user volume.

I'm aware of situations where the licensing model was not mirrored between reseller and software OEM, resulting in awkward contract discussions between the upstream parties.

This can be somewhat (but not entirely) mitigated with high-watermark volume triggers, and (most important!) an agreed-upon volume metric used in the licensing discussions. You may think that the latter is easy enough to rely on since you're the one serving the ads on-demand, but how do you know you're serving the ads directly to the end-user and not going through a/the reseller's aggregation platform instead?

*Note: "End-user" refers to the customer paying for the ads to be displayed, not browsing audience.

Some nice points by otoburb to think about for sure.

One other thing that popped into my mind is, if they bill and then pay you, they can always replace you and keep the customers, and revenue stream.

If your business is not about flat rate, it might benefit from staying pay as you use. Flat rates should probably mean a jump in price to reflect.

If in your business the customers are the most valuable part, act according to that.

From what I've known, Lead Gen, and/or affiliate agreements don't veer into revenue sharing, or in this case, out right re-selling.

The snag is that you'll still have to make an investment in helping the reseller, training him, supporting the end-customer through him, etc., but you'll take a hit on your margin. Worse still, he'll own the customer and you'll have had to create scale in an area which won't be strategic for your organization - unless you decide resellers are the way to go.

Developing a sales channel is definitely a valid strategy, but unless you extend it beyond one reseller (i.e. go big or go home) then it probably won't pay off for your org.

We run a wholesale sales channel of more than 10,000 resellers in over 110 countries and I can tell you that it definitely works, especially in markets where someone else has a stronger likelihood of owning the customer relationship. In reality, some sort of a hybrid approach to the channel - direct and indirect, is probably the best approach, presuming you can balance the channel conflicts.

The most likely thing to go wrong with a reseller is that they won't actually resell anything, resulting in a huge waste of time. Make sure the boots on the ground really want to sell it, not just the execs.

They also tend to be VERY demanding in terms of support, and what they expect you to do for them. (In many cases, it's pretty much been expected that we do all the work for them, and they get paid)

Consider some of the business and legal issues covered in a panel discussion (summarized at [1]) in which I participated for the IACCM [2], including:

- Territory

- Term

- Training (of reseller's sales and support people)

- Sales targets

- Resale restrictions

- Franchise-law liabilities

[1] http://www.lawnotes.com/reseller-agreement-negotiations-note...

[2] International Association for Contract & Commercial Management, http://www.iaccm.com

Watch out for the reseller contractually locking up territory or clients, and not selling your product. If it's not an easy sale for them, they may move on to other projects, and you'll miss out on a lot of potential business.

Also, watch out for an agreement that gives you a percentage of the sale price, without specifying a minimum that you'll get. I've seen deals where the reseller negotiated a percent-of-gross deal, and then "gave away" the product to their best customers of other products. You get virtually nothing, and the reseller gets the benefit of your product and the goodwill of their customers (and potentially more sales of another product in their arsenal).

When something goes wrong, are the folks they're reselling to going to come to them, or to you? You might end up playing a two-way game of Chinese Whispers.

You will need a SLA contract for this.

Writing as someone who has frequently had to negotiate on behalf of enterprises buying a resold service, I can tell you that I regard SLAs as a mechanism for a vendor to provide lousy service whilst transferring almost all the financial risk and compliance burden to the customer.

I have never yet seen a SLA with penalties worth signing up for. Nor do I ever expect to.

I would rather have reporting transparency on things like uptime & service desk responses, than have penalties on those things i.e. creating incentives for suppliers (especially intermediaries) to report them deceptively.

Definitely date before you can get married.

Think of a proximate opportunity you can work together on where he can prove his value to you (and vice-versa).

A lot of these deals have a tendency to get hung up on theoretical discussions about what could happen a few years down the road. If you want to grow quickly and actually if they are as they as they say then table that discussion and figure out a simple way you can work on ONE customer, project, etc. If successful, expand from there.

Also: if they are focussed too much on how to get paid then that is often an indication that they cannot provide a lot of value.

You can research this a bit more by googling for 'white labelling' and see what kinds of issues you may come across. I think if you have a good contract in place and work out who is going to be doing the customer service, you might be able to figure something out that works for both of you.

This is one of those instances where it isn't a zero-sum game, and you and the reseller can both benefit.

you can limit your own marketshare if you whitelabel too early in your product's lifecycle. You want market recognition for your product and brand, so make sure you don't shoot yourself in the foot too soon.

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