OEM Best Practices: Choosing a Technology Provider

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OEM partnerships  (or Embedded technology partnerships) have been an important part of the software industry since its inception. In this model a company embeds technology from a technology provider in order to improve its existing product or service. In the competitive world of messaging and Web security, more and more companies are turning to acquire technology by forming OEM partnerships in order to embed into their technology a subject expertise, since this allows them to focus on their core business while securing best-of-breed technologies for their clients.

Selecting and evaluating a technology to embed is a strategic decision. While it is important to examine a technology in terms of its performance and how it fits into existing infrastructure, it is equally important to evaluate the company behind the technology and properly assess the business match between technology provider and potential partner in terms of finances, support, engineering and marketing.

Commtouch has been providing security technology in an OEM business model for nearly a decade and today powers the solutions of more than 100 partners around the world. Over the years we have gained tremendous expertise not only in developing award-winning technology, but also in developing a proven business infrastructure that successfully supports our partners along the way.

I wanted to share with you a few insights gathered over the years about how to evaluate a technology provider.

Business Model

Understanding a technology provider’s business model enables the potential partner to determine the provider’s commitment level to meeting its needs.

  • Clear Focus – Companies that focus exclusively on selling their technology via embedded technology partnerships avoid commercial conflicts with their partners. A technology provider that employs a multi-channel go-to-market strategy (direct, channel-based) may eventually compete directly with its partners. This can affect communication between the companies, and may jeopardize business success.
  • Core Strategy – Pursuing an OEM strategy appeals to many companies due to the inherently lower costs of marketing, sales, support and operations. Companies that approach this tactically can change their business model whenever they are presented with additional opportunities. Companies that approach the OEM model as a core strategy typically focus on growing their partner portfolio rather than finding alternative go-to-market strategies to expand the business. The roadmap of such companies is guided mainly by the requirements and focus of their partners.
  • Flexible Commercial Models – Technology providers need to support varying commercial models that map to partners’ diversified needs.

Financial Standing

The way a business is funded and its past financial records are indicators of its ability to execute and operate in the future. Recent worldwide economic developments further underscore the importance of selecting a financially sound technology provider that demonstrates longevity and growth.

  • Financial Stability – A company that is not well-funded poses a real threat to the success of its partners. Moreover, start-up and venture capital-backed companies perform under pressure to bring the highest return on investment, a pressure that can cause shifts from one business model to another. It is common for these companies to be bought by bigger and better funded companies, as seen many times in the security industry. Typically the buyers are uninterested in continuing to support the OEM business model, leaving their partners to seek alternatives.
  • Profitability – An older company that has never reached profitability may not always make sound business decisions, and a well-funded startup company that has not yet achieved profitability has not yet validated its ability to succeed. For a technology provider to be solid and reliable for a long-term partnership, it is not enough to be funded; it must be profitable as well.
  • Transparency – In order to truly assess stability and profitability and to increase confidence, clearly documented financial statements with full disclosure are required.

Market Positioning

  • Proven Experience – The ability to provide high quality technology wrapped in a supportive business infrastructure for long periods of time reduces risk factors and increases confidence levels.
  • Market Recognition – Awards and recognition by industry experts together with existing partner references can provide a clear image of the technology provider’s record of success.

Support

  • Structured for success – The provider’s support personnel and processes must accommodate its partners’ unique requirements, with in-depth knowledge of partner products, built-in feedback processes, streamlined escalation and full integration and operational support.
  • Engineering and technology support – Full, on-demand engineering support ensures a smooth transition, seamless integration and ease of use.

There are more important issues to the subject, such as the technology infrastructure and marketing activities that support the OEM model, but I think this should give you a clear image about what needs to be considered in such a process, beside the actual product/service that is being evaluated.

I wrote the following questions in order to give you a short summary of the most important factors you might want to answer when you evaluate a new technology provider:

Summary Questions

Business Model

  • Is the embedded technology model the company‘s core business?
  • Does the provider have offerings that compete with yours?
  • Does the provider’s commercial terms match your needs?

Financial Standing

  • Is the provider profitable and financially stable?
  • Is it a public company or a startup?

Market Position

  • Is there a track record of success? How does the industry valuate the company?

Technology

  • Does the provider’s technology match your potential future integration needs?
  • How easily can it be integrated into your current offerings?

Marketing

  • How will the provider support your sales and marketing activities?

Support

  • Does the provider have the required infrastructure to provide the highest level of support?

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