An Original Equipment Manufacturer (OEM) agreement and a Value-Added Reseller (VAR) agreement are both common types of business partnerships in the tech industry, but they operate differently. - As I've mentioned above, an OEM agreement involves a software developer licensing their software to a hardware manufacturer, which then bundles the software with their hardware products. - On the other hand, a Value-Added Reseller (VAR) agreement typically involves a company (the VAR) that adds features or services to an existing product, then resells it (usually to end-users) as an integrated product or a complete "turn-key" solution. You can view our comprehensive guide on VARs here. - Let's consider a scenario involving a company that develops accounting software, which we'll call AccSoft, and another company that specializes in custom solutions for the retail industry, named RetailSolutions. Under a VAR agreement, RetailSolutions would license the AccSoft software, add its own custom features or enhancements (like inventory management specific to the retail industry), and then sell the integrated product to retail businesses. The value-added here is the specific customization and integration that RetailSolutions provides to make the AccSoft software more suitable for a specific industry. - Key differences between OEM and VAR agreements include: Level of customization: In an OEM agreement, the software is generally used as-is. The hardware company doesn't modify the software; it simply bundles it with its own products. However, in a VAR agreement, the reseller often adds substantial value by customizing or integrating the software with other products or services. Target market: OEM agreements often target consumers directly. For example, when you buy a laptop with pre-installed software, you're the end consumer in an OEM agreement. However, VARs often sell to other businesses, providing customized solutions that meet their specific needs. Support and maintenance: In an OEM agreement, the software developer often provides direct support and updates for the software, while in a VAR agreement, the reseller usually handles support and maintenance, as they have customized the product. Business model: An OEM focuses on manufacturing and hardware bundling, while a VAR focuses on offering complete solutions, often involving multiple products and services, to its customers.] - Also, under an OEM agreement, the integrated product is generally sold under the brand of the OEM. The OEM incorporates the licensed software (or hardware) into its product and sells the combined product under its own brand name. For example, consider a computer manufacturer like Dell that pre-installs Microsoft's Windows operating system on its computers. When you buy the computer, you're buying a "Dell" computer, not a "Microsoft" computer, even though it includes Microsoft software. This is because Dell, as the OEM, has licensed the Windows software from Microsoft to include with its computers under the Dell brand. - In contrast, under a VAR agreement, the final product, which includes additional features or services, is typically also sold under the VAR's brand, even though it contains elements from another brand. This branding strategy emphasizes the added value and customization that the VAR provides. For example, suppose a VAR integrates Salesforce's customer relationship management (CRM) software with custom features tailored to a specific industry, like healthcare. The VAR might sell this integrated product under its own brand, emphasizing the custom healthcare features. But they will likely also highlight that their product is "powered by Salesforce" to leverage the credibility and recognition of the Salesforce brand. - It's essential to note that specifics can vary widely based on the individual agreement. Some agreements might permit or require the licensee to use the licensor's branding in certain ways. For instance, a VAR might be allowed or required to display the original software company's logo alongside their own. These details would all be laid out in the terms of the licensing agreement. - In general, the OEM model leans more towards a white-label approach, with the final product bearing the OEM's branding, while the VAR model often involves a co-branding approach, with the final product reflecting both the VAR's value-add and the original product's branding. However, the specifics can vary widely and would be dictated by the terms of the individual agreement.