Distribution has often been painted by its critics as the channel’s unnecessary tier.
Few would dispute the value of distribution’s core functions of pricing, availability, credit and logistics on traditional, high-volume products.
But when it comes to engagement with smaller or emerging vendors, some have viewed it as the redundant rung in the supply chain.
If a reseller has the technical and marketing ability in-house, why should they be forced to hand over a margin cut to a third party they view as adding little value? And why would a manufacturer want to add more cost to their supply chain than they need to?
However, such concerns are rapidly evaporating in some quarters.
Etienne Greeff, director of security integrator SecureData, has been one of distribution’s fiercest critics over the years but is among those to profess a change of heart.
The hard times have forced some resellers to slash in-house resource and stop making big bets on emerging technologies. And that is where distribution is picking up the slack, said Greeff.
“There is a spate of new VADs coming to the fore because resellers do not want to take on new vendors and the only way to do it is to lean on distribution,” he said.
“We are effectively moving more responsibility back on to distribution.”
Taking up the slack
Kay Bruen left distributor Westcon to start her own channel consultancy, Clipsham IT, in 2009. She agreed that distribution has a more powerful role to play in the current climate.
Clipsham IT initially offered vendors help with UK market entry but now focuses on recruitment and consultancy. Bruen (pictured) said her decision to walk away from her channel development activities reflected vendors’ heightened need to lean on distributors’ technical manpower.
“I signed a number of contracts with security vendors who wanted my help getting channel partners on board, but I made a decision to stop offering that service. While I was very successful opening doors for them, they were not able to invest in technical resources to help with proof-of-concepts and evaluations, so the momentum soon disappeared.
“That is where distribution comes in. It was not viable without the support distribution provides. This validates the role distributors play.”
Bruen added: “Resellers will now only take on something new if it does not require investment. Distribution has always been important, but on the emerging technology side it is now absolutely vital.”
This backdrop has provided fertile ground for the launch of several new VADs - virtualisation specialist Prianto, security outfit Cirrus and cloud network infrastructure specialist Cloud Distribution being among the most recent. VADition, which hard-launched in 2007, has also thrived, growing rapidly to a turnover of £35m before it sold up to Exclusive Networks in the summer.
Barrie Desmond, group director of marketing at Exclusive Networks, argued that VADs are profiting from a “gravitational pull” from both vendors and resellers.
“We have had to act as a proxy or risk mitigation service for the VAR, but similarly we have had to help the vendor scale its go-to-market plans,” he said. “Pre-IPO vendors used to establish UK teams of five to 10 people and these days it is more like two.”
But Desmond warned it is a two-way street, with resellers required to put at least some skin in the game.
“Distribution has become more choosy,” he said. “We will go to a smaller group of VARs. Some people will pay you lip service but will not buy any demo stock at all. They have to put their money where their mouth is as the quicker we can transfer knowledge, the more independent they can become and the more we can scale the vendor’s operation.”
Andi Robinson, managing director of Securedis, added: “Resellers are having to spread their technical resource thinner and thinner as more technologies come into play. If they do not tie up a trusted relationship with a distributor, they will end up being very shallow across a number of disciplines.”
Yuri Pasea, managing director of Prianto, said his firm already transacts with 68 resellers, has hit break-even and is projecting a turnover of £3m in its first full year of trading. “We call ourselves a knowledge distributor, not a VAD,” he said. “The term VAD has become so tired; it doesn’t mean anything any more.
“Many of the VADs were swallowed by bigger companies that struggle to bring in innovative technology as it would not even register as white noise on their balance sheet.”
Whatever the preferred term, the model is not cheap, Desmond emphasised, with VADition’s investment in engineering resource commonly outweighing its outlay on sales staff.
“Once a vendor has become established, it is all about pricing, availability, credit management and logistics,” Desmond said. “They are only four items on our menu of services but we have at least another 10, and that creates clear water between us and the bigger broadliners. We buy all the demo equipment and loan it to the resellers, we loan them our engineers and do the initial presentations and proof-of-concepts. We are like a triage service for them.”
But not everyone buys this argument.
Nick Garlick, managing director at network security VAR Nebulas (pictured), said his firm has remained staunchly self-sufficient. Nebulas runs a technology incubator programme aimed at nurturing ties with emerging US and Israeli vendors. Its current incubator vendors are cloud-based content security vendor ZScaler and cloud-based application security specialist Veracode.
“We are not leaning on distribution any more than in the past, but we are being very careful about who we bring to market as there is far more risk than three years ago,” said Garlick. “A lot of new vendors do not even talk to distribution and would rather work directly with specialist partners. If we relied on distribution, we would never have visibility of these potentially exciting and innovative companies.”
Garlick said the incubator programme is a low-risk strategy for seeding new vendors as they will graduate into Nebulas’ core portfolio only if the business case is proved. Only a third makes the grade.
Garlick added: “We have always prided ourselves on being highly self-sufficient in delivering capabilities. A key part of our value proposition to customers is that we retain our in-house capabilities.”
However, not all resellers are as autonomous, with the downturn prompting many to chop back marketing and technical headcount.
Bruen said: “If resellers are struggling, one of the first things to go is marketing and anyone billable on the technical side. Most resellers work on a minimum billable percentage of 70 per cent. If the utilisation rate is 50 per cent, it becomes untenable.
“Resellers can downsize their operations and fall back on distribution on an ad hoc basis, so they do not have that cost all the time.”
Bruen also argued that the threat to VADs posed by the cloud is also a red herring.
“They have a role to play in the cloud in terms of selling the infrastructure to provide cloud services. But 90 per cent of high-end technologies will not be sold as cloud services anyway,” she said.
Greeff concluded: “It has gone in a cycle. In the early days it was value-added distribution, then it moved to more of a fulfilment mode.
“Now the VAD is back.”
On the catwalk: Recent VAD start-ups
Founded: May 2009
Key vendor franchises: VMInformer, Viridity, Osirium, Deepnet, NetWrix, Cronlab
Specialism: Founded by three ex-Integralis staff, Cirrus validates technologies with end-user "stakeholders" before taking into open market
Founded: January 2010
2011 projected turnover: £2m
Key vendor franchises: Meraki, Expand Networks, Numara Software
Specialism: Provision of cloud network infrastructure products
Founded: February 2007
2011 projected turnover: £12m
Key vendor franchises: Symantec, MXI, Gigamon, Forescout, Stonesoft, Swivel
Specialism: Provision of partner-friendly managed services including consulting, 24/7 support and training
Founded: June 2011
Staff: 3 (5 by January)
2012 projected turnover: £3m
Key vendor franchises: Virtual Computer, RES Software, Spectorsoft, UniPrint, Veloxum
Specialism: Classes itself as a "knowledge distributor" focusing solely on emerging virtualisation technologies
Founded: August 2010
Key vendor franchises: AlertBoot, DeviceLock, Spectorsoft, Spamina
Specialism: Focuses exclusively on low-brand or no-brand vendors in the security software space
Fiscal 2011 turnover: £34m
Key vendor franchises: Isilon, Palo Alto, Fortinet, Infoblox, Aerohive
Specialism: Making the market for disruptive technologies with an emphasis on the social enterprise
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