What Are Distribution Channels And Why Are They So Powerful?

The number one failure factor of web and mobile startups is lack of traction. The most traditional way to get people to know about your app is by using traditional and guerrilla marketing. However, there's a great shortcut that for some reason many startups don't use. This shortcut is building distribution channels. On this post I'll explain what distribution channels are and why they are so powerful. In my next post I'm going to elaborate on the different types of distribution deals. You can get the next post directly to your inbox by joining the Founders' Guidebook mailing list

So let's start with understanding what distribution channels are, especially when it comes to web and mobile products or services. 

Originally, distribution channels evolved from the more traditional industries, where manufacturers needed a way to deliver their products to their end users in an cost-effective manner. For example, if you're a detergents manufacturer, it doesn't make sense to ask your customers to drive to your factory in order to buy their washing machine soap. Instead, it makes much more sense to use distribution channels like supermarket chains (e.g. Wall Mart). In addition, putting the detergents you want to sell on the supermarket's shelves is also a great way to expose your products to many consumers without any marketing. 

Distribution channels were also used in the early days of the consumer software industry, where software was sold on CD's. In today's digital world, delivering your software to the end user is extremely simple and cost effective. Anyone can download it to their computer or mobile device, or even just use it on the cloud as a Software as a Service (Saas). Therefore, the distribution channel phrase lost its 'distribution' aspect and is mostly about exposing your product or service to more people while almost not spending any dollars on marketing. 

A great example for using distribution channels instead of marketing directly to the end users is MediSafe Project, which created a mobile app that helps patients to remember to take their medications on time (full disclosure: I was their mentor at the 2012 Mini SeedCamp TLV and have been occasionally advising them since). Usually, a company like MediSafe would try to market its app directly to the end users. Instead, MediSafe took a much smarter route, by closing distribution deals with huge pharmaceutical companies that market MediSafe's app directly to their customers. This is a win-win solution for both sides. On the one hand, MediSafe gets exposure to millions of customers without spending big dollars on marketing. And on the other hand, the pharmaceutical companies get direct access to their customers' mobile phone, as well as to extremely useful aggregated information on users' medication consuming habits (no personal information is disclosed). 

Now don't think that distribution channels are only suitable for startups with small marketing budgets. Even Google and Microsoft use distribution channels to push their search engines. Both companies pay others to include their search engine in their product. The most well known distribution deal is probably the one between Microsoft and Yahoo, where Yahoo uses Microsoft's Bing search engine in all its products and services.

To conclude, next time you think about ways to reach end users, spend some time thinking whether building smart distribution channels can be your shortcut.


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