25 Apr 2013
Even by the invariably frenetic standards of this industry, the past 18 months has seen a veritable whirlwind of change at the top tables of many of the UK's biggest VARs.
Among the UK's 30 biggest channel players, since December 2011 there have been new group, UK or regional leaders at (deep breath) Logicalis, Softcat, RM, Calyx, Integralis, Redstone, Systemax, Azzurri, Stone, Phoenix, Kcom and BT Engage IT – not to mention the implosion of 2e2 and the acquisition of Equanet by rival Kelway.
And today brought news that long-serving Insight EMEA boss Stuart Fenton will be moving on during the next year. He will depart having helped find his successor and undertaken a handover period that best suits whoever steps into his role.
After more than a decade of constant travelling and frequent 80-hour weeks, one might think his departure would be the ideal opportunity to go and spend a fortnight in the sun, or perhaps just get reacquainted with the sofa and the remote control. But Fenton expects that he will start whatever his next post is "within a day or two".
"I've never been particularly good at time off," he added.
I told him that I found it hard to empathise as I've always been very good indeed at time off. It's a real talent of mine. In fact, I'm so good that I sometimes wonder if I could make a living out of it.
The former leader of one of the many companies listed above told me a few months back that he often leaves the house as early as 3am on a Monday morning to make double sure he arrives at the office before any of his employees. And it goes without saying he is always the last out on a Friday.
I suggested to the outgoing Insight man that examples such as these are just two of the (undoubtedly many) reasons that I will never be a CEO. I love this industry almost as much as I love my job reporting on it, but I'd be hard pushed to say whether I loved either more than, for example, watching an entire test match in my slippers, with just a ready supply of cold beer and salty snacks for company. (Clearly the fun never stops, chez Trendall.)
I try not to take work home with me and I can almost feel a part of my brain shut down as my PC does the same at the end of each working day. (But don't listen to any of my colleagues who tell you that I rarely restart before lunch the following day.)
But the world simply wouldn't run if everyone were like me. Businesses of all sizes are created and driven by those who can't switch off. Who get itchy feet after more than a couple of days off. Who sell their company for millions, and start a new one a few months later with the money.
These are the people who can create jobs and encourage investment, and our economy is driven by their work ethic, restlessness and entrepreneurialism.
The channel is full of such people. Among them, I'm sure, are all the new leaders of the resellers I mentioned at the start, as well as whoever joins the Insight management team in the coming months.
So I'd like to take this opportunity to raise a glass to all of you. Not least because, by the time you've finished with the emails, calls and meetings for the day, I'll probably long since have headed for the pub.
Sam Trendall is special projects editor at CRN
02 Apr 2013
There's a mantra that I live by; I might be wrong, but I'm not confused. If only more vendors adopted this approach and had the bottle to make definitive decisions about their channel strategies. Direct, indirect, single tier, two-tier... Make a decision. Just don't faff around with all this hybrid nonsense.
Vendors should either commit to the channel or not. But repeatedly we keep hearing the dreaded term ‘hybrid channel model'. This isn't commitment, this is channel diplomacy which translates as ‘we're not quite sure if the channel will work for us, but we're sticking our toe in the water to see how it goes'.
The hybrid model initially sees the vendor going direct to end users, whilst also appointing their own VARs, but this dilutes the impact of direct sales as the vendor's sales team also have to deal with channel issues. The vendor then puts a VAD in place, but instead of reverting to a simplified, efficient and effective two-tier model, they confuse the issue further by continuing to deal directly at ‘distie level' with their own appointed VARs, offering them ‘distie-level' discounts, thereby disadvantaging those VARs recruited by their VAD.
This is nothing short of channel strategy madness when all three are happening at the same time and is hardly what you would call a strong incentive for the distributor's VARs.
When it's this self-defeating, the only thing a hybrid strategy achieves is an unfocused, suspicious, resentful, demotivated, unskilled and technically incompetent channel presence. Sales guys deliver a confused and contradictory message to the market by going direct, pressurising margins much earlier in the lifecycle. VARs who should be representing the vendor show less commitment, and the directly appointed VARs - who buy at the same discount levels as distributors - have the perception they can undercut any distributor appointed VARs. How the hell can such a conflicting approach be considered a healthy channel strategy?
Ok, that's the rant out of the way. So let's consider why the hybrid channel model continues to proliferate.
There is undoubtedly a worry about loss of control and influence. Some vendors believe that by exclusively adopting a two-tier model, they will be somewhat removed from the deals, customers and dialogue. There may be a degree of truth in this, but in reality they hold the best cards and actually have MORE customer contact, better relationships and, dare I suggest, more control.
There is also an issue with trust. By committing to the channel, vendors need to realise and accept that the cost of sale is higher and early adopter VARs and VADs need to fund this investment with healthier margins. Additionally, the main fear of vendors, especially for new and unknown vendors entering the marketplace, is that their brand and offer will not be adequately evangelised. They simply don't trust and believe that anyone else can/will do it.
This is where value add distribution really does add value. By combining knowledge transfer and enablement in the form of technical training, demand creation and sales lead generation, the VAD acts as a proxy for the vendor and the VAR, with all opportunities being fed back to the vendor's direct touch team, keeping them busy with new and incremental opportunities. Complete harmony!
Ultimately, the warning here is that channel indecision and confusion caused by a hybrid approach creates both tangible and intangible harm. It may even result in the dreaded ‘glass ceiling' effect in terms of the speed of growth or the size a vendor can get to. As we all know, vendors like Dell initially avoided the channel, with no directly appointed VARs or distributor-appointed VARs, and no direct sales force competing with the reseller, undercutting deals and taking value prematurely out of the vendor's technology. At least Dell's strategy was decisive and wasn't confused - even if they changed it later.
Hybrid models limit any enthusiasm for acquiring knowledge, buying demo kit etc. They also work against any idea of evangelism. Why should the channel invest any effort, resources or even emotion in a vendor when there is a hybrid channel model in place that threatens to betray them? If we return to the issue of trust, the reseller knows they could easily get undercut by both the vendor direct team or the directly appointed VAR who can buy much cheaper than they can. So why bother?
So the message is: go through the channel, or don't go through the channel. Make a decision and make a commitment. Whichever route you choose might be right or might be wrong, but at least it won't be confused.
Barrie Desmond is marketing director of pan-European VAD Exclusive Networks Group
I'm sure I'm not the only one who read analyst Rolf Jester's blog today with an uneasy mix of amusement, agreement and abashment.
As we reported this morning, the Gartner VP lamented what he sees as the all-too-frequent use of some terms that will be awfully familiar to anyone even remotely cognisant of the IT channel. Focused on value-add? Meaningless. Solution provider? Irrelevant. End-to-end offering? Vague. Trusted partner? Empty.
Jester admits that he himself has been sucked into using such channelisms. As have I. But I doubt I'm the only one who inwardly winces when they hear themself blithely bandying around terms such as "solutions portfolio" or "strategic differentiator".
(While we're on the subject, my own personal bête noire is the word "solution". Isn't everything we buy a solution to a perceived problem of one kind or another? No one questions the value-add of a café that sells soups and sandwiches, rather than lunchtime hunger solutions. Garden centres somehow survive selling shrubs and soil. And, yes, they do call a spade a spade, and not a digging and turf-dispersal solution.)
But I digress. Could the IT channel really get used to the idea of cutting out the business speak and buzzwords? And would it really be a better place if it did?
I certainly find it hard to disagree with Jester's assertion that the most common buzzwords are now so ubiquitous as to have become "white noise", invariably causing potential customers to "switch off". The first person to tire of the connotations of the word ‘reseller' and stick the term ‘value-added' before it was, I hope, lauded by their peers and bosses for a very canny piece of marketing. But something tells me their early-mover thought-leading advantage is a bit lost in the mix now.
With everyone adding value, taking a holistic approach and acting as a trusted adviser to their clients, maybe some in the channel could benefit from taking a more simplistic tack. Perhaps something akin to the Ronseal approach.
As both a lifelong inhabitant of rental accommodation and the world's least handy man, I've never owned a fence, and if I did, I don't know if I'd ever have cause to stain or varnish it. (To be honest, I'm not even confident I'd hold the brush the right way up.) But if that day ever comes, there will surely only be one product I reach for. I may not know exactly what it does, but I do know that it does exactly what it says on the tin, and that's good enough for me.
The channel's tin is all too often emblazoned with something woolly and unquantifiable, such as "turnkey solution" or "end-to-end service wrap". Perhaps some customers would be more inclined to put that tin down and pick up one that said something like "working computers", "effective anti-virus" or "helpful support staff".
But something tells me my solution to this problem is unlikely to catch on anytime soon.
Sam Trendall is special projects editor at CRN
26 Mar 2013
Editor's note: As part of our special editorial partnership, CRN is publishing this recent Channelnomics article.
Dell confirmed yesterday the receipt of two rival bids by Blackstone Group and Carl Icahn for control of the company that would, in theory, leave a large part of it publicly trade.
The acknowledgment comes with declaration that the competing offers to the one developed by founder Michael Dell could result in the CEO’s ouster from the management team.
Blackstone and Icahn each offered deals that would pay $14.25 per outstanding share for a majority of the IT company, leaving a large portion of the company publicly traded and, thus, retaining value for shareholders.
The original deal developed by Michael Dell and Silver Lake Partners, with the backing of Microsoft, would pay $24.4bn for the company, removing it from Wall Street trading. The strength and appeal of the rival bids opens new questions of what happens to the current management team.
While Michael Dell is obligated to explore options of working with third-parties in the restructuring of the company, neither the Blackstone nor Icahn deal includes retaining the founder as part of the future management team.
Since 2007, Michael Dell has personally led the transformation of Dell from a PC-oriented, direct-sales vendor to a technology portfolio company on par with the likes of Hewlett-Packard and IBM. The company has invested billions of dollars in acquiring companies that add enterprise capabilities in storage, networking, security, cloud computing and professional services.
While Dell’s embracing the channel has helped offset erosion in PC market share, the channel has been unable to stabilize the company’s position in the market. Dell continues to shed PC market share, struggle to form significant beachheads in new technology segments, and remains under pressure in revenue and profit. The company recently revised its 2013 profit forecast from $3.7bn to $3bn.
The logic behind Michael Dell’s plan to take the company private is unassailable. Under the prying eyes of Wall Street, Dell’s management team is torn between having to answer to investors’ short-term interests and the long-term objectives of the company, which are often conflicted. By removing Wall Street from the equation, Dell is better able to complete its transformation. Major Dell investors have cried foul at the proposed privatisation plan.
Southeastern Asset Management and T. Rowe Price have said the Dell proposal undervalue the company, leaving investors without proper compensation. Expectations are Dell and Silver Lake will re-evaluate and raise their bid to as much as $15 per share, or as much as $27bn.
Even so, Icahn – a well-known activist investor – is said to be open to combining bids with Blackstone to create an even stronger offer that is less reliant on outside financing. The concern now for the channel is Dell becoming destabilised.
Already analysts worry that the challenge for control will drag on for months, eroding partner and customer confidence that will affect sales and revenue.
22 Feb 2013
By Larry Walsh
Analysts are mixed on Google’s prospects for becoming a full-fledged PC manufacturer and wonder why it would launch Pixel, its latest and most expensive Chromebook, at a time when PC sales are falling.
Pixel is a wonder. It’s a larger notebook than any of the previous Chromebook models produced by Google. Like its tablets, it has a touch-screen interface, which is quickly becoming a must-have feature on all computers. And its glass screen has more pixels than the average high-definition television, giving it crystal clear resolution.
On top all that, Pixel has the same Internet-connected, as-a-service model of other Chromebooks, that users pay for a subscription to the operating system and backend resources in exchange for automated management.
Pixel even comes with 1 TB of online storage. Just how well Pixel will fare against entrenched premium rivals such as Apple Macs or the plethora of Microsoft notebooks on the market? Chances are initial sales won’t be stellar, especially since the PC market is in a near free fall. PC sales, particularly notebooks, are off by as much as 8 percent.
Hewlett-Packard’s quarterly earnings report revealed notebook sales are down again, this time 16 percent. Against this backdrop, tablet sales continue to rise. Tablets of all styles and operating systems are selling at a rate of 55 million to 60 million units a quarter; PCs continue to sell at a rate of 80 million units a quarter, most notebook/laptops.
Some analysts predict tablets will overtake PCs sometime this year, shifting the balance of computing platforms squarely in favor of mobile devices. More interesting, though, is how Google plans to sell Pixel. The PC is manufactured in Taiwan by an unnamed supplier, and will be sold direct through Google’s Web site and in Best Buy stores.
If history proves true, Pixels will quickly find their way into the gray market as well. But, like existing Chromebooks, sales through Google’s own channel network or those of its OEM partners – Acer, Hewlett-Packard, Lenovo and Samsung – is few and far between. Perhaps asking when Chromebooks and Pixel will come to the channel is the wrong question. Perhaps the right question is “when will PCs no longer be sold in the channel”?
While solution providers to sell tablets, it is limited to a few models by a few vendors. Even channel-friendly Microsoft hasn’t released its Surface tablet to the channel, despite calls from partners to allow them to take the Windows 8 device to market. And every major PC vendor sells products direct through their own direct sales and online portals.
At the beginning of PCs in the channel, desktops and notebooks carried high margins. Vendors were able to offer promotions, special pricing and rebates because they had a lot of profit flexibility. Over the years, commoditisation sets in. As component and manufacturing costs come down, shaving 10 percent of costs in the next model won’t help improve profitability.
Today, the average PC sold through resellers nets 3 percent margins – hardly enough to make it worthwhile. Solution providers agree, but still balk when vendors sell direct or skimp on support programs. Vendors, on the other
Hardly. Personal computers, like tablets and soon smart TVs, are the interface platform through which applications and content are consumed and manipulated. Much business can be built on top of and through PCs, and solution providers will need to know about PC capabilities.
But none of that means the channel has to sell PCs.
By Sam Trendall
The decision by 2e2 administrators FTI to publicly ask datacentre customers to cough up thousands of pounds or see their mission-critical services turned off has largely been met with exasperation and incredulity by onlookers.
The integrator entered administration just ten days ago, and in the immediate hours and days afterwards there appeared to be much hope that something significant could be salvaged from the wreckage, saving hundreds of jobs at a stroke. But, sadly, that has not proved to be the case.
The demand for customers to shell out almost £1m just to keep services - which they have already paid for in good faith - running for another week may stick in the craw, but it is just the latest bit of unwelcome news in a story that has gone from bad to worse to even worse dizzingly quickly.
It may seem rather obvious to point out that there are no winners, but it could have all been so different. A week ago there seemed genuine hope that staff and customers could have a better future. But now all that remains is a deluge of angry creditors, talented staff in need of a new home and customers in danger of losing their money and their data.
The brand and the business as whole
For those that have written about 2e2 over the years, it is undoubtedly sad to see one of the UK channel's real giants disappear. A deal to sell off the company more-or-less wholesale was always going to be preferable solution for all parties, so it is no surprise that the administrators appeared to aggressively pursue this in the days immediately following the administration. But it is equally unsurprising - at least to this reporter - that FTI was unable to conclude such a deal, given the many alarm bells for potential buyers in 2e2's books.
What is more galling is the inability, as yet, to sell off large contracts or business units. Thus far the only deal struck is O2's buyout of 2e2's half of the two firms' Unify joint venture. The saving of 107 jobs was welcome news, but it must be borne in mind that this represents less than one in 13 of the total headcount. Some sources report that they have been unable to strike deals for large accounts - including the transfer of scores of staff under TUPE regulations - as valuations have been too high. With staff in need of jobs and customers in need of new providers as a matter of urgency, it may seem crazy to hold out for a high price with offers on the table. But bear in mind that the administrators could find themselves in the line of fire should it be concluded that they did not realise the true value of the assets under their control. The transfer of large contracts and complex services will consequently be considerably more drawn out and messy.
Rank-and-file employees will surely disagree with this, but in many ways the 2e2 leadership could be viewed as the biggest losers in this situation. It is not for us to comment on the rights and wrongs of how they ran their business, but it's an inevitability that, unlike the staff who served them, their reputations will have been tarnished.
One cannot feel anything but sympathy for the almost 1,500 people previously employed by 2e2 in this country, the vast majority of which we are sure were diligent and talented workers. Losing your job suddenly and through no fault of your own is a sickening blow with potentially huge ramifications, but top sales and commercial performers and engineers with ever-valuable skills like CCIE will surely find new employment swiftly. For less experienced staff or less skilled roles, the outlook may be much more uncertain. We can only wish them well and hope that they land on their feet sooner rather than later.
Much like being a football referee, being an administrator must be a pretty thankless task, and you are only ever in the spotlight when things are going wrong. But FTI will not be on many in the channel's Christmas card lists after failing to secure a buyer, resulting in hundreds of immediate redundancies, and then asking customers to pay almost £1m just to keep the lights on for another week. It may well be the administrators have made every reasonable effort under nigh-on impossible circumstances. But the ill-feeling caused by the ransom note to datacentre clients was undoubtedly a PR own goal.
Users of services deemed non-critical - including flexible resourcing, business applications, unified communications and field support - are already in need of a new provider, with the plug pulled swiftly and unceremoniously on Wednesday. Datacentre clients face a £1m bill to keep services running for another week, but have been told that it may take up to four months to get their hands on their data. CIOs and procurement heads at end users face a manic week or two trying to find an alternative provider while minimising the loss of time, money and functionality.
It is impossible to know exactly how much of a return creditors can expect, but experience tells us they'll be fortunate to receive anything more than, say, 30p in the pound. Sources report that a number of well-known channel faces are owed six- or even seven-figure sums. For the larger players, losing that kind of sum may be a real nuisance, but the bigger worry is that the collapse of 2e2 would also really endanger the future of any smaller companies owed large amounts.
We don't need to tell you what a wonderful industry ours is, full of brilliant innovation and incredible entrepreneurs. The vast majority of VARs, VADs and service providers are fantastic companies that do a great job for their vendors, customers and partners. Many would have considered 2e2 such a company, and many may still do so. But its demise does bring a degree of bad press for the channel, which is always unwelcome, and, more importantly, may impact the sentiment of private equity and other financial backers and the amount of scrutiny they place on channel firms.
We have written about many channel insolvencies over the years on CRN. It is always a sad day when a company goes under and, regrettably, we are sure 2e2 won't be the last. But we can only hope that its demise remains the biggest and the most painful. There have been no winners.
Sam Trendall is special projects editor at CRN
By Doug Woodburn
Following months of mounting speculation over its fate, today came the announcement that 2e2's 2,000 staff must have been dreading.
Though many in the channel may have seen it coming, it was still a shock to read confirmation that 2e2's UK subsidiaries entered administration today, placing a huge question mark over the future of what is one of the UK's true super VARs.
I say many will have seen it coming because distributors have for several months - if not the best part of a year - voiced concerns about trading with the Newbury-based monster, which hit £395m revenues in 2011.
Earlier this month, it became apparent just how much of a hole 2e2 was in as it announced the appointment of a new COO and CFO, presumably in the hope that either its spiralling debts could be restructured or the firm could be broken up.
A mere two weeks later, the worst-case scenario has been realised, although administrators stressed they will be seeking buyers for 2e2's overseas subsidiaries, which are not part of the insolvency.
Although FTI Consulting, which is looking after the administration, said it is "exploring options" for the UK business, whether this will lead to attempts to sell the whole company - perhaps without its yawning debts - or flog its parts is as yet unclear.
The scale of this insolvency cannot be played down. Putting aside the big casualties seen in the retail market such as Comet, this is by far the biggest insolvency the channel has seen in years and all you can hope is that something is salvaged from the wreckage.
2e2 was still of a modest size when I began covering the UK channel in 2007 and its future seemed bright back then.
Having only been founded in 2002, 2e2 was at that time among a pack of private equity-backed VARs thriving on a highly ambitious buy-and-build model, highly leveraged in some cases.
Azzurri, Calyx and Kelway were all part of the same PE-backed gang and the model seemed to be prospering at a time when the IT market was still growing handsomely and the channel was still in dire need of consolidation. Although publicly listed, Redstone harboured similar ambitions.
In 2007, 2e2 made its biggest acquisition to date, snapping up HP partner Compel for £53m in a move that took its turnover to £200m.
But it was really only a few years later when 2e2 made its big-ticket acquisition of Morse that it was clear the wheels were beginning to fall off the private equity-backed roll-up model, at least for those who couldn't service the debt they were accumulating with high enough growth.
But despite talk that 2e2 had by this stage taken on an unmanagable amount of debt, the firm had no intention of reining in its ambitions. Following the Morse buyout, 2e2 hinted at more acquisitions to come and set itself a turnover goal of £600-£700m within 2-3 years. By this time, Azzurri had long since scaled back its M&A ambitions, while Calyx was heading into administration after its own buy-and-build strategy hit the buffers. And at about the same time, Redstone initiated a fire sale of some of the assets it had bought during its M&A blitz after narrowly avoiding administration itself.
The ante was even higher with 2e2, given its loftier ambitions.
One could argue that the integrator was a victim of the economy. Back in 2008, when the credit crunch took hold, who could have predicted that - five years later - the UK would still be teetering on the brink of a triple-dip recession?
Because during the boom times, the model had every chance of working. With high enough sales and profit growth, I imagine that 2e2 would have had few issues keeping up with its interest payments.
But there is an argument to be made that, in what were uncertain times, the firm bit off more than it could chew.
Is 2e2's demise the final nail in the coffin for the buy-and-build model?
I would say not, although we may not see a project the scale of 2e2's for a while. More likely, we will see private equity continue to put its money behind channel entrepreneurs with more select or modest ambitions, particularly in areas that are still showing growth, such as cloud and SaaS. Current examples include Better Capital-owned M-hance (which used to be Calyx's software business) and Six Degrees.
This news is still very fresh, and more information will come to light in the coming days. In the mean time, all that is left to be said is that our best wishes are with the hundreds if not thousands of employees impacted by this news. We know that CVs have been flying around for a while, so we only hope the firm's talented staff find new homes soon if there is no future for them at 2e2.
06 Dec 2012
News that Calyx is to begin punting hardware again underlines just how tough the journey from the traditional resell model to the promised land of annuity services can be.
Calyx is the archetypal example of a big hardware reseller that has strived over the past few years to abandon its roots and reinvent itself as a managed services specialist that can handle its customers' complete outsourced IT needs.
And the firm - which was bought out of administration two years ago by Better Capital - has been quick to turn the tanker: for its financial year ending this month it expects £23m of its £30m sales to be recurring in nature.
It's not hard to understand why - like moths to a flame - resellers are attracted to the bright lights of managed services projects that yield annuity-based revenues. Not only do subscription-based revenues offer more predictability, they also tend to yield higher margin than the upfront hardware projects of old.
And most importantly, subscription-based services are where the market is moving as customers move more of their spending from a Capex to an Opex model.
But it is a transition not without pain.
Firstly - although they might add up to the same value over five years - it is harder to generate cashflow from subscription-based services than hardware projects, a thorny issue in a market where cash is king.
Secondly, as Calyx has concluded, the relationship between a supplier and end user runs much deeper in a managed services relationship than a simple hardware deal. Calyx was finding it hard to go in cold with new customers on managed services engagements without first having proved its worth on more hardware-oriented projects.
And this is not to mention the staff training and shift in sales incentives that are needed to transition the workforce to selling services.
Selling hardware for Calyx may be a means to an end, but its change in tack does emphasise that shifting lock, stock to a services model is fraught with difficulties.
A blog that explores the views of some of the CRN editorial team as well as guest bloggers from the channel. Do get in touch with email@example.com if you are interested in being a CRN guest blogger for a week.