Best Practices: SmartSynch’s Partnership

by Tim Smith, PhD, 19 March 2003

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There are many go-to-market strategies for new technologies. Firms can build their own sales and marketing team and go-direct, take a licensing strategy and allow others to commercialize their technology, or explore opportunities between these two extremes in a partner distribution strategy. Each go-to-market strategy presents its own complexities, tradeoffs, and challenges.

In September of 2002, SmartSynch (www.smartsynch.com) and Itron (www.itron.com) announced their partnership agreement for Itron to distribute SmartSynch’s SmartMeter Solution (SM) to the utilities metering market.

What were SmartSynch’s decision criteria for selecting this strategy? Why partner with Itron and not another? And, how far does the partnership extend? In order to reveal the critical elements to achieving this strategic partnership, I spoke with Mark Rodgers, CEO of SmartSynch.

SmartSynch
SmartSynch, launched in the Spring of 2000, utilizes wireless two-way telemetry for reading and managing the dataflow to commercial and industrial (C&I) meters.

For the two years prior to the distribution partnership, SmartSynch had been selling directly to utilities. During this period, SmartSynch grew in their understanding of the psychology and approach of the utilities buying committee. Mr. Rodgers noted that utilities are very pragmatic in their approach to technology companies. Their purchase decision making process for capital acquisitions requires a six to nine month sales cycle. Furthermore, in evaluating a new firm’s offering, they also evaluate the firm according to its track record and financials to determine their expectation of future performance.

Why Partner?
Despite the challenges in selling directly to utilities, SmartSynch had achieved 18 major utility accounts, including Chicago’s own ComEd. Given this success, one might ask, why should SmartSynch partner? Alternatively, why not sell the firm?

Mr. Rodgers understood that further success would be achieved more rapidly if SmartSynch could leverage the sales force of a larger firm. Furthermore, a sales force that could approach utilities with more than a C&I metering solution is more economically efficient than a dedicated sales team. To capture the revenue achievement associated with size and the economic efficiency associated with scope, SmartSynch needed to have access to the sales force of a larger, more diversified firm.

Getting the access to a large sales force could have also been achieved by selling the entire firm. When asked about being acquired, Mr. Rodgers commented on the current depressed market valuation for technology companies. However, this short-term explanation is only half the story. The core technology of SmartSynch is a two-way data transceiver operating over a public wireless infrastructure. This core technology can be leveraged into markets other than utilities. Selling SmartSynch and its technology to a firm dedicated to the utilities market would have hampered the potential of leveraging this technology into alternative verticals. As such, SmartSynch needed to remain independent to pursue multiple revenue streams.

Which Partner?
Once SmartSynch had settled upon a distribution partnership strategy, Mr. Rodgers executed an analysis of various partnership possibilities. The analysis evaluated potential partners according to their strength in capturing the market and the potential synergies for improving the value offering. No fewer than 12 potential partners had been identified. With each of these firms, SmartSynch established relationships and explored the potential.

The distribution strength of a potential partner was evaluated according to their sales force in SmartSynch’s core market: utilities. In evaluating the sales force, different metrics included the number of utility customers, the number of sales representatives, the average tenure of the sales representative, and the sales compensation plan.

The industries of the potential partners varied. Each industry offered specific areas for the development of complimentary offerings and synergistic value creation. The industries included telecommunication firms for leveraging the two-way wireless telemetry, software firms for leveraging the ability to integrate data communications, meter manufacturers for leveraging the value of C&I meters, and Itron for complimenting their own strength in residential wireless metering and leveraging their meter data management and private wireless network.

What Made Itron the Right Partner?
For SmartSynch, Itron is the optimal distribution partner in both their strength of distribution and potential for value-offering synergies.

Itron has over 2000 clients worldwide in the gas, electric, and water industries. Founded in 1977, Itron also has longstanding relationships throughout the utilities market. These facts indicate that Itron is well positioned to reach the utility customer and distribute SmartSynch’s value offering.

SmartSynch’s technology can work with any wireless network, is hardware agnostic, and can easily be integrated with a variety of software applications. Each of these technological factors highly compliments Itron’s offering and improve the potential synergies for increasing the value provided to customers.

Itron has been building private wireless network solutions for their clients. With SmartSynch’s product, Itron now has the ability to offer wireless metering solutions over private and public networks. Generally, private wireless networks utilizing narrowband PCS are the lowest-cost means for managing C&I metering in rural areas. In populated geographies, public networks using GSM, PCS, CDMA, or any other wireless protocol are more cost efficient. Combining Itron’s private wireless network with SmartSynch’s public wireless network technology enables Itron to approach clients with a lowest-cost, whole-solution offering.

With regards to software, Itron’s MV90 software for metering data verification and pre-billing functionality is the long established leader throughout the utilities industry. A tight integration between SmartSynch’s software and Itron’s software lowers customer’s costs. At the same time, the potential for interfacing SmartSynch’s software with other meter data verification software remains viable.

Although there are high value-offering synergies between SmartSynch and Itron, there are also means in which SmartSynch can provide value to customers using non-Itron products. For instance, SmartSynch’s two-way wireless telemetry can work with any C&I meter. Their relationship with Itron didn’t block the potential for deploying this solution on Elster, Landis + Gyr, or any other vendor’s meter.

What Terms to Partnership?
Itron’s agreement to distribute SmartSynch’s solution is the foundation to their relationship. Going forward, SmartSynch remains responsible for establishing their own brand, uncovering demand, supporting sales, and developing further value offerings. And, to provide incentive for Itron’s sales function, sufficient channel profits must be maintained.

SmartSynch’s agreement with Itron places the sales and customer management responsibility with Itron while requiring sales support from SmartSynch. At the frontline, SmartSynch’s sales force that had been selling directly to utilities were redirected towards channel management and sales support activities. Tight integration between SmartSynch’s and Itron’s back office was undertaken for managing the customer messaging effort. Specific customer responses are required for financial models that demonstrate the expense avoidance achieved with SmartSynch’s solution. These financial models are produced by SmartSynch with input data gathered by Itron. Also, in the timely fulfillment of customer’s RFIs and RFQs, Itron shares requirements and SmartSynch produces responses.

To clarify demand, SmartSynch has segmented the utility market. Market segmentation enables Itron’s sales force to efficiently determine which prospects will have the highest demand for their solution. For SmartSynch’s solution, there are three major customer segments. The investor owned utilities are profiled functionally according to the number of C&I customers and number of telephone modem lines. SmartSynch’s solution displaces the need for telephone modems allowing for a straightforward ROI sale to occur with appropriate customers. With smaller utilities, such as municipalities and co-ops, Itron and SmartSynch approach customers with a service bureau offering wherein Itron hosts the solution. This service offering directly addresses the budget constraints faced by smaller firms. A third market segment that has expressed a high demand for SmartSynch’s solution includes the “Security Market”. Federal and municipal building managers that desire to lower the foot traffic of meter readers within their building value SmartSynch’s wireless solution.

Other aspects of their relationship extend to future product development and geographic boundaries. Itron’s and SmartSynch’s product managers have worked together to develop a technical roadmap to ensure each other’s future. As to geography, the current agreement is limited to North America. This limitation is imposed by the need to provide high customer service for implementation and ongoing service.

Economic Partnership Agreement
The keys to making this distribution partnership agreement valuable for SmartSynch, Itron, and their customers are economic in nature. The tradeoffs made in selecting to partner versus the alternatives represent economic efficiency gained by leveraging a sales force with multiple value offerings for the same client while keeping a potential open for leveraging core technology into other industries. The tradeoffs made in choosing a partner represent economic gain created through synergies in sales and products. And, the tradeoffs made in assigning responsibility between Itron and SmartSynch represent economic efficiency issues in assigning responsibilities to the party most prepared to accomplish them. Strong partnerships, like this between SmartSynch and Itron, are rarely opportunistic but rather strategic approaches to increasing the value provided to customers and improving both parties’ ability to capture a portion of that value.

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For further coverage of SmartSynch, see Repositioning Technology: Scott Davis of SmartSynch printed July 11, 2002 in the Wiglaf Journal. (http://www.wiglafjournal.com/Articles/2002/2002-07-11%20Repositioning%20Technology%20-%20SmartSynch.htm)

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Author: Tim Smith, PhD is a principal at Wiglaf, a Market Research and Sales and Marketing Strategy consultancy serving tech-driven businesses operating in business markets. Small and medium sized businesses select Wiglaf for our quantitative and fact driven approach to intelligent revenue growth. www.wiglaf.biz.

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