An overview of product distribution channels

So, you have an idea for a product or a start-up. Let’s even say you managed to find a good problem to solve, there’s a market for such a service, and the world is waiting for your product to save it.

If only it was that simple though. You might have a solution that will work, but that’s hardly the beginning. No great idea will be successful if not delivered in the right package. What’s that package you ask?

That’s everything from the visual style of your product to your marketing strategy and many others. One of the things to consider is the distribution channel, or how and where your product will be available.

In this article, you will learn what a distribution channel is and how you can distribute your product in an optimal way.

What is a distribution channel?

Distribution channels are the methods or platforms that allow your product to reach and be accessed by its target audience. Distribution channels can be either direct or indirect, depending on whether the product is sold or delivered directly to the users or through intermediaries such as stores, retailers, or agents.

Distribution channels can also be either physical or digital, depending on whether the product is a tangible object or a software service. For this article, we are focusing on getting your IT product in front of as many eyeballs as possible, so I will present you with the available digital options.

Distribution channels for software product management

Here are the typical distribution channels you should consider for your application alongside a quick definition, brief historical context, and also the pros and cons of each approach:

• Direct downloads from your website
• Software as a Service (SaaS) platforms
• Distribution via app stores (Google Play, Apple App Store)
• Cloud marketplaces
• Hybrid solutions

Direct downloads from your website

Now, if you turned the clock back around 15 years, this was the only available digital distribution channel. Every piece of software had to be obtained either on a physical medium (CD, DVD, USB drive, or… floppy disk!) or downloaded from the web. This is still a popular model to this day though it can feel archaic due to how other models have gained popularity.

The problem is this isn’t an easy way to monetize long-term and grow users’ lifetime value. Although it’s not best for ongoing cash flow, it’s the most stable way to do it. You don’t have distribution partners that dictate what you can and can’t do and no one will force you to use or drop certain technologies:

Pros:

• Full control over the distribution channel
• Independence
• Technical simplicity in terms of the distribution process.

Cons:

• Most susceptible to piracy — the whole product code is fully shared with the users and you never know what will they do with it
• Traditionally it’s a single payment, lifetime access license for products sold this way
• Manual updates — users might need to manually update your product (redownloading it) in order to have the most up-to-date, safest experience
• Safety — Due to the limit above, if a vulnerability in your product is found, you might never be able to eliminate the risk completely

Software as a Service (SaaS) platforms

In this method, no code is hosted directly on the users’ computers and instead it’s provided via an internet browser. This means that the user is always getting the newest, safest, experience and can be monetized easily on an ongoing basis. You are not selling the software really, but as the name implies, the solution that software provides.

This will likely allow you to grow more dynamically and invest in bigger, more impressive features. However, this will also mean dependencies from your cloud providers and the need to maintain high server costs that can potentially exceed profits if not scaled correctly:

Pros:

• Full control over the software
• Ease of monetization
• Quick updates
• Security and ease of controlled trial access that will be hard to abuse

Cons:

• Potentially high maintenance costs
• Dependency on the cloud partner
• Internet connection required to access the service (used to be a much bigger deal than it is nowadays!)

Distribution via app stores (Google Play, Apple App Store)

In this model, you distribute your product as a mobile app via Google or Apple. This brings the additional requirement of having the talent to create such apps, but in return, you get access to a gigantic market of mobile users. However, that also forces the small screen form factor, which will mean a lot of UX challenges, not to mention the fact that you will need to share approximately 30 percent of your profits with the store provider.

Large players tried to go around this and failed. Moreover, this means you have to play by the stores’ rules in order to be published and you don’t know what those rules may be. I can tell you from firsthand experience that a policy change can really ruin your day:

Pros:

• Access to a big market of mobile users
• Safety and privacy transparency

Cons:

• 30 percent cut for the store partners
• Dependency on the stores’ policies
• Mobile phone UX form factor
• Specific tech you have to use

Cloud marketplaces

Similar to mobile stores, a cloud marketplace could mean either large open markets for specific products (like Steam or Epic Games Store for games), or a store dedicated to specific plugins or digital assets one can purchase (say, 3D models that you can sell to Blender users via its store or Canva templates that can be monetized).

In any case, you will still be dependent on the host store policies and have to share a cut of profits:

Pros:

• Targeted audience

Cons:

• Percentage cut of the profits to the marketplace partner
• Dependency on the marketplace’s policies
• Specific tech you have to use

Hybrid solutions

Now, when I was writing this article, something became very obvious to me. I’m presenting all the solutions as if they are mutually exclusive. They are not.

You can really mix and match them to either get the best setup (i.e. downloadable software that needs internet to boot, requires license and forces updates each time you use it) or maximum coverage.

For the coverage example think of Microsoft Office Suite. You need a license to access it, but if you have it you can use a downloadable version, a cloud version, or a mobile app. All of them give you access to more or less the same set of features. You can also bypass the mobile profit share if you make sure that any license purchases always happen outside of the app (i.e. the web or local version).

The importance of distribution channels

Now, as a product manager, you will find that most of the positions you will apply for will be for existing products, where the distribution channels challenge is long sorted. However, if you are opening a new product, this is a decision that will profoundly impact the future growth and decisions you are going to make about said product.

While it might seem scary to choose some solutions over others, I have one simple piece of advice for you in terms of settling on a specific channel: choose one that gives you the biggest market and will make it easier for you to prove product market fit. Your product’s goal is to grow and be profitable (in that order) and everything else is secondary.

Of course, if you choose, say mobile app stores, you might later suffer from the changes in the store. However, if you do that as a healthy organization with good cash flow, you will have the tools to consider other distribution methods or pivot your product so it is compliant with the new policy.

If you start by fearing for the worst-case scenarios, you won’t get far. The risk of failure will always be there in one way or another, so you might as well pick your (future) battles.

Examples of effective distribution channels

The following two examples will help to illustrate how you might navigate deciding on your product’s distribution channel:

• My course distribution channel
• Software moving from downloadable to a SaaS model

My course distribution channel

If you know me, you know I started my product management teacher career journey three years ago with a course on the online course platform Udemy. Udemy does an excellent job at marketing (provided you are able to play its algorithm and make it believe your course is worth promoting), getting you the numbers, and getting you off the ground.

Within two years I had a nice, growing income stream and Udemy promoting me and my courses, which resulted in 50,000 followers on LinkedIn. It came with a few hurdles, but it was all manageable and acceptable. Until it wasn’t.

This year Udemy changed its strategy and pulled back on marketing in favor of its business subscription model. While this maximized Udemy’s revenue, medium content creators like myself faced a major income hit. This was the final call to go independent on a self-hosted web page.

While the transition was scary, ultimately it was successful and allowed me to have full control over how and for how much I market my products. Would it work on day one? I doubt it. However, having an established position and a good, refined product, led me to change to a different distribution channel where I could give and get the most out of my work.

Software moving from downloadable to a SaaS model

Let’s return to the Microsoft Office example, which used to be only downloadable. You would purchase a license for around 200 to 300 dollars and would use the release with all its features probably until you really needed to change your PC. This meant you would be behind on the best and latest features and Microsoft would really have to stretch its development muscles to make each Office release unique and full of new features.

No one would be willing to pay another few hundred dollars just to get a slightly better and less buggy version of the same. However, then came the SaaS model, where you pay a few dollars every month to get access to the Office services. This monetary influx allowed it to have a really complete solution nowadays, where a single Office account can be used across PC, Mac, Linux, and mobile apps.

Your documents are always available in the cloud and no matter where you are, you can carry on with your work and even work offline if needed. Is it increasing how much you will pay for Office over your life? Yes. Does it also give a way better product? I strongly believe so, especially when you consider that Office comes with OneDrive (1TB) and an hour of Skype calls.

Key takeaways

When writing this article I felt torn: on one hand, distribution channels are a very important decision and kick you off. However, it’s just one of many decisions to look at and it’s relatively reversible and adjustable. I strongly believe in my advice to prioritize (right) user reach and work on optimizing it based on the success you will build.

This is how I’ve done it for my product and if I could turn back time, I wouldn’t have it any other way. Do your best to attract users and focus on proving your product works. If you can do this and you know your channel distribution options, I’m sure you can choose and perhaps later pivot to the right ones.

Good luck releasing your great products!

Featured image source: IconScout