Tech Vendor Partnerships: Why So Many, and Why Now?

One of the most important events at any conference for scribes and opiners like me is the press conference that brings together most of those who believe they have significant announcements to make. Thus I braved the speed-dating format at this year’s event (aided by generous helpings of food and light spirits) at the 2011 ACORD LOMA Insurance Systems Forum recently concluded in San Diego.

Normally, one expects to hear about some new tech products or services, or perhaps to see a new entrant into the insurance technology fray.  What I did not expect, and what became crystal clear, is that so many of these vendors are engaging in partnerships, product integrations and other cooperative ventures.

Of the 15 or so vendors with whom I spoke at the show, six were announcing such arrangements (and I received notice of two more after the press event), and it struck me that never before have I seen such love and cooperation expressed by our industry technology providers toward each other.  Had they all traveled to Berkeley, CA for a new age, guru-led consciousness raising class in which they were indoctrinated with the idea that they could save the planet by playing nice together, I wondered?  No way, my more logical instincts insisted.  This is about the bottom line. 

I asked my good friend Chad Hersh, partner in the insurance practice at Novarica, what he thought was behind this trend, and he logically attributed it to the need for smaller software providers (with products that do only one thing) to compete with larger entities that offer complete suites of products that do many things.  It makes sense that a vendor who can offer more functionality will be more attractive to buyers, especially those who want to replace all or part of their policy administration systems.  So certainly this is a nod to the tyranny of the bottom line. 

I also wondered, however, whether the continuing lousy economy had anything to do with this sudden rush to togetherness.  Chad pooh-poohed the idea, but he did admit that the overlap in sales opportunities between the parties, not to mention savings on product development and marketing costs, were certainly a factor.  Then there’s the fact that in our world there are about 60 policy administration system vendors, a market which has suddenly boomed and shows no signs of abating.  How can all of them continue to thrive?

The answer, some say, is that many of them are getting and staying fat on one or two customers who, once hooked, continue to depend on the PAS providers for updates, fixes and guidance.  That also makes sense, and it helps make the case for such vendors to expand their scope of influence (and customer bases) by jointly offering products and services that will foster growth for both companies while cutting costs.  It’s a win-win, and an inexpensive one at that. 

So does this mean that our technology providers have emerged from the sweat lodge and are now gathered around the tribal fires chanting “Kumbaya” for your benefit?  Probably not.  But expect this benevolent activity to continue as long as the economy keeps sucking wind and the profits keep pouring in. 

Ara C. Trembly (www.aratremblytechnology.com) is the founder of Ara Trembly, The Tech Consultant, and a longtime observer of technology in insurance and financial services.

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