The lines between resellers and distributors have always been blurred, but the distinction has become even more confused in the fields of Internet and electronic trading.
Last month, Lotus signed an agreement with California-based Cybersource to be its electronic software distribution (ESD) partner in the US. Cybersource, which was set up in 1994, specialises in customised Net commerce services such as secure transaction processing and electronic distribution.
Lotus already has plenty of well-known distributors, yet it signed up with a relative unknown because it claims conventional distributors are busy box-shifting and are therefore slow to exploit the possibilities of such a new technology.
Electronic commerce is beset by difficulties, such as issues concerning security and bandwidth, but the Cybersource agreement is significant because it shows Lotus and other software vendors are rushing to lay the foundations of a Web channel. That specialist distribution channel could exploit the electronic market before Frontline, Ingram Micro and CHS/ Merisel get their electronic trading schemes accepted in the mainstream dealer channel.
At a meeting last week, Lotus VP of global channel sales Larry McMenamy expressed frustration at distributors that were falling behind in electronic distribution strategy. 'If you were Frontline and your volumes were going down, wouldn't you be beating a path to our door to find out what's going on? But they're not. A whole other distribution channel is developing where Web partners are becoming distributors,' he said.
What is worrying for broadline distributors, whose business is based on logistics and shipping volume, is that the shift towards the Net means new firms can come in without a massive infrastructure to sell effectively without incurring the traditional costs associated with distribution.
Small, startup companies like Cybersource are able to pose a threat to giants such as Ingram Micro and Frontline. The threat mirrors the way Netscape suddenly upset Microsoft's all-encompassing lead in software.
Cybersource and Stream, another Web partner, form the beginnings of a larger channel which Lotus intends to put together in time to take advantage of electronic trading. Service firm Litlenet claims that 10 per cent of the 224 million non-operating system software licences sold worldwide will be electronically distributed by the end of 1997.
With such statistics in mind, Lotus is looking for UK and European partners that can exploit this technology now.
'The US Web partners aren't going to bother to have French versions, so we need to have partners in each geography,' explained McMenamy.
The advantages of an ESD policy, according to Sheryl Barnes, Lotus senior manager of electronic commerce, is that it enables Lotus 'to bring ESD products to market faster and reduce costs in packaging and logistics, while improving shopping convenience'.
Ingram and Frontline claim they will not be dislodged by Web rivals.
Simon Fagan, manager of the software and peripherals division at Frontline, said: 'We're currently investigating software distribution - you would be ignorant if you weren't looking into it. If it works out as the lowest cost of distribution then we'll take that route. But while we may be able to do it technically, dealers still might not feel comfortable with receiving product squirted over a line as opposed to receiving a box with manuals.'
Ingram US also has plans in place to provide electronic distribution.
Sources claim that the company has hired programmers to add software distribution features to its Web site and resellers will soon be able to download and pay for software from the site. Ingram UK is further behind - it launched a Web site only last month, but it plans to have electronic ordering in place for its resellers by Q1 1997.
But if, as McMenamy suggests, traditional distribution partners are under threat, then why not resellers as well?
Lotus admitted that forming an indirect Web channel will not stop it selling its own products direct over the Net. But McMenamy claimed the company would protect resellers, saying that Lotus' prices would be marked up by about 25 per cent. 'We will have a Web site that sells products, but it will say "please check your reseller for prices". If they don't have time to look elsewhere and want to download the software at the higher price then we will provide that service.' And take the extra margin, of course.
Electronic distribution does not mean doom for the indirect software channel, because vendors still need other companies to support their customers. But the relationship between vendors, dealers and distributors will change, the phrase 'Web partners' suggesting a looser structure than the two-tier arrangement of distributor and reseller. Partners that blur the distinction between distributor and reseller, such as Cybersource and Stream, are becoming the middlemen of electronic commerce between vendors and users.
But even Stream claims there will still be a place for distributors, because the focus of its business is on the corporate market, not smaller dealers.
Although McMenamy concedes electronic trading won't take off for a couple of years, his message is clear. Established dealers and distributors - no matter how big - need to provide electronic trading services or they risk being dropped from vendors' long-term business plans.
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