White labeling third-party software
What is white label software?
As you may be able to work out from the name, white label literally means when the creator of a particular product or service does not stick their own label on it. Therefore they provide the white label product to a third-party and grant them the rights to rebrand and resell it without the obligation to give credit to the originator. The idea actually comes from the music industry where records were sent to DJs before release and without the final album artwork approved – literally in a white sleeve.
Why would anyone want to do that – you may wonder at first. But actually, if you dive deeper, there’s a strong case for this for both parties.
For the provider of the product, it opens many doors in terms of distribution. Providers can engage their reseller partners, who in turn reap the rewards by offering their consumers a large variety of products not necessarily created by one company. Anonymity is crucial for the white label concept to work, so everyone involved is subject to an NDA, or non-disclosure agreement.
Examples of white label software
Imagine a Company A that produces marketing software. They may choose to sell their product to Company B, which is an agency or media company, to resell. Under a white label agreement, Company B can then rebrand this piece of software with their own logo and sell it to Company C. In fact, the end user need not be a business. Depending on the product, it can be sold as B2B (business to business) or B2C (business to consumer).
Another company D develops white label programmatic advertising software. As it has no separate sales and support department, it may choose to make use of the expertise and resources of Company E, which over the years has nurtured a pool of potential buyers for their programmatic advertising solutions. Company E knows exactly what works in this niche and how to promote their products, they have recognizable branding. The end consumers (or buyers) trust this company to deliver quality software, whether it is a basic CRM system or programmatic advertising platform.
In terms of white label offerings, these come in many different forms. Content, dashboard, digital advertising, marketplace, SEO, SMM software and website creation platform are just a few examples.
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Pros and cons of white labeling third-party software
There are numerous reasons an agency may want to white label digital marketing software, for example a programmatic advertising platform. You may have made a name for yourself in selling SaaS ERP systems. One of your clients, a small startup, is planning an advertising campaign and has asked whether you can help with their management. Instead of saying no, an agency can then enquire about some specific requirements and find the right solution with a software provider that specializes in programmatic advertising platforms. Thus, it’s a win-win for all three parties: the white label software provider gets paid for an order they may never have got in the first place, the reselling agency expands their offerings (without drawing in extra resources i.e. experts in programmatic advertising) and satisfies the needs of the current client, who will now view the company as more than just an ERP service.
The client is also happy as they have had their problem solved seamlessly with a company they trust, having saved time and money it would have taken to find an alternative solution.
For the agency, this is also a great way to enhance their brand. Have you noticed how wholesalers like to offer products under their own brands? Those are not centrally sourced, but are manufactured by different firms. The wholesaler simply sticks their own label on it. With time, the consumer grows accustomed to one brand. In a similar fashion, agencies aspire to be jacks-of-all-trades with a brand that hopefully becomes synonymous with quality in the eyes of their clients.
Besides, white labeling opens doors to entrepreneurs who may be starting off with not a lot of capital. As long as they put together a strong sales team, they can grow exponentially as an agency, without the need to invest in physical assets that are required to set up a programmatic ad platform for instance. They do not have to run the risk that tech startups have, where months of work can go down the drain if the end product does not live up to the expectations. If an agency gets an order for a programmatic ad platform, they can choose the programmatic advertising experts that fit their needs instead of spending resources on setting one up. They can also avoid having to find financing to cover personnel costs.
Risks of white labeling software
Whilst there are numerous advantages to this business model, the risks must be considered too. Unfortunately, it will not be viable to have purely a team of salesmen. If any issues arise with the software, it is the agency who will be responsible for dealing with them. Passing the buck won’t work when it comes to enhancements and new features for white label business software either. It will be up to you to ensure that the needs of the client are met, especially if you opt for the SaaS model with monthly payments.
Therefore it is crucial to establish close contact with the developers so that they are available to implement any changes within a reasonable time, because it will be your reputation that is at stake.
Besides, you will need to know the product inside out to be able to address questions concerning the use of the white label software. As the agency grows, this will take more and more resources as the product software line expands and very niche expertise will be required, like in programmatic advertising.
It is equally important to avoid conflicts of interest. This question needs to be clearly set out in the agreement with the provider. If they notice your success, over time, they may start considering not sharing their profits with an intermediary. Therefore measures should be taken well in advance to prevent this.
Choosing a white label partner
Make sure your goals align – you want a strategic business partner that you can trust not to sell behind your back. You need to feel comfortable working with their team.
Secondly, you must be sure that they are committed to the white label software products they are offering. Once you have used the software and run it by experts, check if the provider will be willing to improve it and what their plans are. Will they hear your suggestions 6 months down the line? You don’t want to find yourself stuck with a product that nobody can fix if things do turn sour.
Therefore you may want to consider working with a company that has an established reputation and a solid track record of being a good white label partner. Such a firm knows their price and offers exemplary service and support. They are also eager to let you test drive the product before you make any decisions, giving you hands-on experience before offering it to your clients.
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