Spotlight on distribution: Value judgement
In our last Spotlight on Distribution feature, resellers have their say on the outlook for distributors. Sam Trendall reports
With a heady brew of consolidation, cloud computing, declining margins, increasing competition and the heightened importance of value-added services, the distribution space has never been in such a state of flux. It was all these factors and more that prompted CRN to launch our Spotlight on Distribution campaign back in August.
The project has taken in four months of discussion, debate and analysis, during which we have canvassed the opinions of the distribution sector's leading lights, as well as those of the vendors and resellers they serve. We can now look back at what we have learned about the changes we can expect to see in the industry and what the future will look like for the channel's middlemen.
Our campaign has undoubtedly shown that distributors of all sizes and specialities remain in bullish mood. Both the big multi-specialists and the smaller, value-focused firms remain assured of their relevance and are confident that their place in the supply chain is safe for the foreseeable future.
But after four months of listening to an array of distributors vent about the key issues facing the industry, for the final feature in our project we are turning it over to the resellers. For all their bullishness and bravado, distributors ultimately live and die by the patronage of the VAR community.
We began with a rundown of the UK's top 25 distributors, which showed that a variety of players continue to perform strongly.
At the top of the tree, Computer 2000, the UK's largest distributor, has become the country's only £1bn-turnover distribution firm. The rest of the big four US giants - Arrow, Ingram Micro and Avnet - also grew in size last year, largely through acquisition.
But specialist players also showed well, with storage-centric VADs Hammer and Zycko displaying growth. Security firms Wick Hill and Computerlinks also enjoyed a good year.
The first poll in our campaign found that 65 per cent of respondents expect the quartet of US titans to increase their dominance over the next few years. A further 11 per cent believe the might of Avnet, Ingram, Tech Data and Arrow will squeeze out smaller players completely.
Just eight per cent feel the balance of power will remain unchanged, although 11 per cent of those polled forecast that the local specialists will fight back.
Niche players
Paul Brewer, director of technology solutions at integrator Datapoint, predicts that, although the big four will fortify their position at the top, the need for more niche players will remain. But he adds that his firm prefers to work with a partner possessing a pan-European footprint.
"Yes, the big four will dominate, but there will always be a place for local specialists," he says. "Distribution is not the one-dimensional beast it once was; all distributors now need to add greater value.
"We use Westcon to support our communication system integration business for clients across Europe and globally. Westcon provides additional value such as skilled technical staff and services as well as maintenance. Similarly, there is still a place for local specialist distributors to add value and provide greater choice in the market."
The second question looked at whether distributors do enough to justify their place in the supply chain. The results of the poll made it clear that, while progress is being made, the channel still believes the distribution space has to evolve its offerings and remain vigilant to ensure continued relevance.
Some 14 per cent of respondents are of the opinion that resellers and vendors could do without distribution, while about a third claimed distributors need to do more to prove their worth. But 54 per cent still believe that distributors continue to play an essential role in the channel.
Resellers that CRN spoke to said the art of distribution has changed a great deal over the past few years and must continue to do so. Gone are the days when high stock levels, readily available credit and logistical strength were the be-all and end-all. VARs now require distribution partners to provide a high level of wraparound value-add.
Steve Rasmussen, managing director of voice and data specialist Siptel, is far from the only channel commentator to argue that the line between VAR and VAD has become blurred. Narrowing kit margins have seen distributors boost their armoury with a range of additional services, he adds.
"Distribution partners have now tried to change from being purely distributors, to more of a VAR by supplementing competition and reducing margins in hardware," says Rasmussen. "Additionally, they have begun to increase the relevance and availability of additional benefits such as training, and provide support services and marketing."
Simon Rutt, marketing, partner and alliance director at Trustmarque Solutions, agrees that withering hardware margins are forcing distributors to change tack. He warns that those who do not invest in services expertise face extinction within half a decade, particularly given the emergence of cloud and other hosted delivery models.
"As price erosion continues, distributors need to develop services and specialisations to adapt to the changing market - as-a-service [delivery models are] a major catalyst for this," he explains. "These services need to augment the resellers' capabilities; many resellers are developing their own services capabilities and distributors can plug the gaps.
"Distributors could also provide technology- and solution-based expertise as well as the more traditional roles of ‘bank' and ‘warehouse'. Distributors that don't adapt will not exist in five years."
The penultimate issue in our Spotlight on Distribution was choice, and the key deciding factors in partnering. And for all the talk of added value and support services, more traditional skills emerged as more important.
The most influential factor on resellers' choice of distributor is price, cited by 27 per cent of respondents. Relationships with staff was next on the list, with 25 per cent, followed by availability and logistics on 16 per cent.
Five per cent singled out credit and financing as their biggest consideration, while nine per cent singled out other factors.
Getting personal
Gary Duke, sales director at integrator LAN2LAN, claims that personal relationships are often the most important thing.
"Through our experience with distributors, we've found that, in reality, what people buy is people, and ultimately the test of a good distributor is if it can develop and maintain a trusted relationship with its resellers," he says.
Andy Wright, director of technology and security at services provider 2e2, agrees that distributors must get under the skin of resellers' business models. He calls for distribution partners to be deft and hands-on across all facets of VARs' businesses.
"Distributors must firstly understand the complexities of a service provider's unique breadth of portfolio and differentiated capabilities," he says. "2e2 works with quality distribution partners that have the required breadth and scale to be supportive of [our] focus and can add value at every stage of the process."
But Paul Sweeney, managing director of VAR ANS Group, argues that a strong relationship between the vendor and the reseller is the key to success. Distributors should act as a conduit, he adds.
"There has to be a direct relationship with the vendor," he says. "Distributors bring the two together and the customer wants to see the vendor and reseller working side by side. They are not really that interested in the distributor role, as this should be working seamlessly in the background."
The final part of our campaign looked at how the emergence of cloud computing and other new delivery models will affect the distribution sector. Just six per cent of respondents to our poll believe distributors will not need to change their business models.
Forty-three per cent are of the opinion that some change is required, while some 51 per cent expect distributors will need to completely revamp the way they operate, or face obsolescence.
Mark Evans, marketing and communications manager at security services provider Imerja, claims that distributors are already starting to invest in developing cloud capability. This coming year will be when the impact of cloud's emergence really comes to bear on the channel, he believes.
"At the moment we are seeing distributors shaping their own cloud offerings, which they can provide to their channel partners," he says. "They are really straddling that gap of being a distributor and a cloud provider, and providing resellers with access to these types of technologies, which they otherwise may not be in a position to invest in."
Evans, in common with most resellers which CRN spoke to, believes that distributors are not needed to facilitate every reseller or vendor partnership. But, provided they listen and respond to the needs and wants of resellers, the consensus is that distributors will remain a key rung on
the channel ladder for a long time.
"Every vendor is different; if the vendor is very small, it may be easier to go direct," says Evans. "However, I prefer to keep a distributor in the mix as they really add value and speed up things when needed."
Spotlight on distribution: The evolution of distribution
■ www.channelweb.co.uk/1882404