BIZ BITS: How Technology Providers Can "Partner" and Win Customers
Miller & Martin PLLC Blog | November 12, 2018
In this blog post, Miller & Martin attorney David Spiller discusses how technology providers can collaborate to better serve client needs, while also recognizing and addressing risks associated with "partnering" together.
Technology providers that are good at what they do also know what they can’t do. Their customers often want a turn key, single solution, and so technology providers frequently “partner” with other technology providers to deliver that single solution, especially when each is a startup or growing company. “Partnering” in this sense signals a business relationship, but exactly what the relationship entails can vary widely depending on the goals of the “partners,” their business plans and the relative leverage between the two of them and also with respect to any target customer.
At its core, the “partners” are going fishing together, in hopes their combined bait leads to a bigger catch. I’ve used “partners” in quotes on purpose here. Even though they may refer to each other as “podnuhs” (to quote my late grandfather, an expert angler from rural Louisiana), technology providers don’t really want to be partners in the formal legal sense, only in the less formal business sense. True legal partners combine capital and/or services to carry on, as co-owners, a business for profit, and they share in the liabilities of the business. When technology providers work together to provide a solution to a customer, they aren’t intending to operate and own a business together, rather they are just collaborating together. Hence lawyers draft disclaimers that the two providers aren’t really partners, but just contractors as to each other, even though they may call each other “podnuhs.”
Exactly how the two technology providers are to collaborate depends on the deal at hand, or on prospective deals they hope may come about. Some customers are perfectly willing to acquire products and services separately from each technology provider, and all that might really be happening between the two is sharing of the customer’s information and coordination in their separate work streams. Perhaps some sort of referral fee is paid by one provider to the other or the providers agree to each pay a piece of their gross or net revenue from the deal to the other, as a mutual referral fee of sorts.
Sometimes the customer wants to contract with one provider as the prime contractor and treat the other provider as the subcontractor to the prime contractor. This is a bit more complicated, especially for the prime contractor, as it will be expected to be responsible for all the actions of its subcontractor. Also, the customer may insist that certain of the contract terms it agrees to with the prime contractor be agreed verbatim between the prime contractor and the subcontractor – e.g., terms on information security, intellectual property rights, audit rights, confidentiality, warranties, etc. This means the prime contractor has to negotiate with the customer and then convince the subcontractor that the terms it got with the customer, which will apply to the subcontractor as well, are no worse than what the subcontractor could have gotten if it had itself been negotiating with the customer.
Often the two providers don’t even have a live customer on the hook but have decided to broadly cast their lines out together, pooling their contacts and marketing and business development resources, sometimes even co-branding their offerings. My grandfather and I fished Louisiana’s fresh, brackish and salt waters for a variety of fish – and we always knew what fish we were looking for when we went out. Technology providers collaborating to pursue prospective customers need to do the same thing and identify exactly what type of customer they want to pursue together (and only together) and what type of customer each can pursue alone or with others. They need to have some idea about how the divide the catch if at all – that is, their respective revenues from a successful engagement. This can be particularly complex if one provider, who is providing some products or services to a customer, introduces the other provider for new products or services the two providers will provide together; in some senses, the first provider may be more responsible for sourcing the deal than the latter, even though the deal requires both providers to work for the customer. It can also be complex if there is a long-term relationship with the customer, meaning that any dividing of the providers’ spoils has to occur over and over again, which of course is a good problem to have.
And the most difficult question of all may be what to do about new technologies or improvements, modifications or enhancements to technologies developed by either or both providers while working together to deliver products or services to the customer. We’re beyond dividing up the catch here – now we are talking about who owns, controls and has access to new and improved tools to go fishing again and maybe for bigger stakes. The key here is the providers should be clear about their intentions and then negotiate and contract accordingly. If they intend not to jointly develop technologies then they need to be careful not actually to do so; and if each intends to use the other’s feedback to improve its own technologies then they need to clearly agree to such a framework in writing and act accordingly. If they develop APIs so that their systems can work together, who owns and controls those APIs should be made clear, and what happens to those APIs after the end of the providers’ relationship needs to be considered.
Collaborating together to pursue and provide products and services to customers can help technology providers convince a skeptical customer to engage them, deliver real value to the customer and grow their business in new markets. While they may not be partners in a legal sense, they are in the business sense and should approach negotiations between themselves with thoughtfulness and candor. And like true legal partners, they should think not only about how to begin their journey down the river together but also what to do when they’ve made their catch and afterwards, when they are ready to go their separate ways where their respective goals and plans lead.