Back to the future

Harry Thuillier is chairman of Fraser Associates, one of the UK's top dealers.

'It has been a great 10 years and I'm delighted that Fraser Associates got involved in computers when it did way back in 1982. While I'm certain that our industry has matured, I'm not sure it's actually as much fun as it used to be. Almost everything is a commodity now and this "me too" approach has wreaked havoc with our margins.

'In the good old days, with 45 per cent to play with, you could afford to give a really good service. But now everything has to be charged for and we have almost no room for manoeuvre. I wonder whether customers are really better off now, or are they just getting what they pay for?

'Even with our severely eroded margins, however, there is still profit to be made. Customers want a lot more now for their money, but they are prepared to pay for it. I believe that we have to earn our margin more than ever before, but it's a great industry and it has been good to me.

I hope the next 10 years are as good as the last 10.'

Alistair Handyside was with distributor Software Ltd when PC Dealer started. He left Ingram Micro earlier this year and is now business development director at Protege Software.

'It seems hard to believe we are celebrating 10 years of PC Dealer. At first glance, you think of all those stories, all those changes, because after all, we all work and thrive by being part of the fastest moving industry of them all, don't we?

'But a flashback to 10 years ago reveals a market suffering from massively declining margins, high-profile distributors in financial difficulties, dominant vendors out of sync with the channel, and naive Americans arriving daily to conquer the single European market. So what has changed?

'In all seriousness, much. The overall size of the market, the globalisation process, the numbers of people employed and the complexity of the technology required to make products functional and easy to use.

'There are also three terms which will contribute enormously to the continued changes in the market: leverage, Internet, and NT.

'Roll on the next 10 years - and may some of the status quo of the past 10 years show some sign of moving forward.'

James Wickes is a founder and the MD of Ideal Hardware, which started trading in December 1986 - just a few weeks after PC Dealer's launch.

'There is, without doubt, one factor that has constantly concerned the channel during the past 10 years. That is the paranoid assumption that a fiendish plot exists among manufacturers and distributors aimed at destroying the livelihoods of thousands of innocent dealers through direct selling.

'Yet throughout this period it is quite clear that the channel has not only survived, but prospered. The past 10 years are littered with companies that have attempted, yet failed, to gain commercial advantage by ignoring the reseller channel and going direct. What they have all failed to recognise is that, even at the lowest level, the channel adds value.

'The latest threat fanning the flames of channel paranoia is the Web and its possible impact on the purchasing habits of corporates. This challenge and no doubt others that have yet to materialise are, I am sure, surmountable.

But only through the continual review of what we propose to our customers.

'In the future one thing is certain. We all have to add value if we want to stay in business. If we don't we are adding costs - and they get cut don't they?'

Howard Strowman has been running his redundant stock business, PST, for the past 10 years.

'Is it really only 10 years ago that the PC industry was in its infancy?

Explosive growth and continual leapfrogging technology have blurred the time-scale and it seems a lifetime ago that I was clearing the last of the Sinclair QLs and Spectrum 16s, which boasted 16K memory and an audio cassette for storage.

'During the past 10 years, we've plunged into the depths of recession - and at least some way out of it - but the pace of technological change has continued largely unabated, fuelling the obsolescence from which PST makes its business.

'I am often asked: "When will it all end? When will the rate of change level off?" Just look at any of the major trade shows for the answer.

Every sector of the industry is served by a huge number of manufacturers fighting a fiercely competitive market share strategy. Being at the forefront of technology is the marketing edge they're all seeking and, to whet the appetite of the technophile end user, there's a plethora of consumer publications crying bigger! better! faster!'

Graham Hopper has worked in various capacities at AST Europe over the past decade. Today he is the UK general manager.

'The analogy we use to describe the PC industry is that of a child - and 10 years ago the PC was very much in its infancy. In a decade, the PC industry has seen many radical and sweeping changes.

'In 1986, PCs were used principally for technical applications and were mainly the preserve of big business. They were produced in one model, with little variation between machines - and they were more expensive.

They tended to be "just boxes" which were sold to "just businesses".

'As children do, the market has matured and grown. We see new markets opening up and market segmentation occurring. PCs are now manufactured according to consumer profiles and are now far from being just boxes.

The industry no longer manufactures PCs but solutions - with tailored software packages, a variety of configurations, guarantees and after-sales service.

'With the expansion of the indirect channel, we see a greater recognition of PC manufacturers as brands. Some vendors are now as recognisable as some FMCG brands. Our infant has certainly grown up.

'For the future, we predict PCs with new processing capabilities and architectures, and continued segmentation of products and markets. The PC itself is due for radical change, with new technology on the horizon, and the prospect of increasing convergence with the world of communications.

The industry has already begun a process of rationalisation and, in our grown-up industry, the next few years will see the men separated from the boys.'

Terry Cooke is now indirect sales manager at Pyramid, but since 1986 has also had spells at Tulip and Acer. He was one of the original team at Epson UK.

'During the past 10 years, customers have swallowed the new religion, such as downsizing and empowering, preached by management gurus. They have looked to IT to make these changes possible.

'For resellers, making a living has got harder but tremendous opportunities have emerged for those who really understand vertical markets and have the skills to sell and support a new generation of powerful hardware and enterprise-level software solutions.

'In the next 10 years it is clear that companies will continue to look to information technology to give them the edge, but users will also get smarter about their use of technology and increasingly question return on investment. The one big imponderable remains the impact of the Internet.

But it is certain that if we look back in 10 years' time I will be describing a series of very different business relationships wrought by this particular technology.'

Graeme Watt, was completing his training as a chartered accountant when PC Dealer was launched. At the start of 1988, he joined one of his audit clients - Frontline Distribution - as finance manager. Today he is MD of the company.

'How do you make 10 years feel like 10 minutes? Deal in the IT industry I reckon. The days of u28 million turnover and 50 employees in 1988 seem miles away as we strive for a vision of a u500 million turnover with 500 employees.

'First Lotus, then Ashton-Tate, then Microsoft; ex-Rapid Recallers spattered all over the industry; Bill Gates, IBM's decline, Amstrad, Windows, Computer 2000, IBM's recovery, and the Internet. Who could have forecast this?

'For Frontline, highlights include Apple and Compaq turning to third-party distribution; our Datech acquisition; and the day the MD's cars were sold by a sales executive after the instruction, "sell anything you can - it's year end".

'Low points include losing 29 staff in April 1996 as we realigned ourselves to face the challenges of the future. An information age that looks bright in the UK where the proportion of GDP spent on information technology products and services is over twice that of Germany and France. A future where 40 per cent of all inward investment in Europe is made in the UK - much of it in our sector.

'A future where, increasingly, size, productivity and cost-leadership are essential for success. A future where too many distributors are still selling the same products and where legislation of pricing that levels the playing field leans us more to perfect market conditions.

'Beware manufacturers which pay lip service to investing in the channel.

Those that do invest will be rewarded by added value as we pump up the volume.'

Ten years ago Chris Kayday was running Commodore UK when it was a player in the PC business. Now he runs a creative marketing consultancy.

'Ten years ago the Commodore 64 had been wrapped in its last pretty package and the Amiga was launched at u1,750 and had little or no software other than a bouncing ball. Marketing meant advertising for most vendors and we all expected the technology to do the selling and for much of the time it did.

'But things have certainly got tougher over the years. The maxim get big, get niche or get out has certainly proved true and I believe consolidation in this industry is only just starting.

'In 10 years' time IT will surely be no big deal. Distribution as we know it will certainly be different, if not dead, but there will still be room for those who can differentiate, service and sell.'

Mark Powell, marketing manager of UB Networks, was doing the same job at Zenith Data Systems when PC Dealer was launched, and in-between worked for a while at Compaq.

'The main change is wrapped around margin. Ten years ago margins were strong. Resellers were getting margins of 40 per cent plus discount and the manufacturer's business model allowed for 40 per cent to 45 per cent retained margin as well. Then Amstrad came on to the scene.

'While everyone accepted that the products were at the low end of the market, it raised pricing awareness throughout the community, putting pressure on margins throughout. Amstrad was the first to offer discounts in the 20 per cent to 25 per cent area - restricting margin but claiming volume.

'As volumes of product sales grew, so did competition for lucrative contracts.

While reseller discounts remained high, the reseller was giving more and more of it away to win business. It was possible to get discounts of 38 per cent or 39 per cent - if you had a couple of million pounds of business.

'The recession maintained the downward spiral of retained margin. With reduced spending, resellers were keen to get any business going at virtually any cost. Something had to give - notably, companies like Osiris, 01 Computers, Ferrari, Computer Marketing and Personal Computers.

'My sales manager at the time, Colin Gallick, summed up the situation, saying: "Never underestimate the dealer's ability to give away margin."

'In the never-ending quest of falling margin, the next step was Compaq rejigging its Ts&Cs. Discounts fell from 41 per cent to 15 per cent on a new range of cheaper machines. The rest of the industry followed suit.

Interestingly, Compaq's business plan was rewritten - now they only wanted to retain 26 per cent.

'So everyone existed on reduced margin. How do you cope? Increase sales volume and reduce costs.

'Volumes have never stopped growing. While the growth numbers have fallen from three figures they still maintain a healthy 20 per cent or more a year. People have been the most noticeable casualty in cost reduction - and where is all the corporate entertainment that used to go on?

'In short, our industry has learned how to exist in a commodity market, which is what we have become. With increased competition, slim margins, reduced time to market and a mature, educated customer base, it is only those with a highly efficient, cost-conscious operation who can succeed.

It is not for the faint hearted.'

David Fraser was in charge at Microsoft UK in 1986. Today he is chairman of Infobank and in between he has been involved in several companies including Visionware, Taxsoft and Quantec.

'The past decade has been marked by Microsoft's dominance of the desktop as it finally shipped Windows 3, the first version stable enough for the corporate user. Microsoft also recognised the need to restructure the purchase of corporate software licenses by introducing volume software licence agreements.

'Apple and its dealers failed to break out of the trendy technophobe niche which left the desktop market open for Microsoft and the IBM clones to clear up. Meanwhile, DEC failed to appreciate that old dogs can think of new tricks but that it takes young dogs to do them well.

'The decade ahead will see the leading IT suppliers selling product over the Internet and through EDI technology, with the next generation of resellers using these media as price channels to market. The growth of the Internet and EDI will end the delivery of software in a box and software licence agreements will be replaced by electronic licences.

'Workflow systems will reduce the amount of inter-company paperwork, thereby reducing the cost of transactions between organisations as the paperless office comes closer to reality. Finally, typing will overtake importance of writing in educational curriculums.'

Graham Wylie, managing director of Sage, has seen his company grow from under u10 million to well over u100 million in the past 10 years.

'One of the most significant changes in the IT industry over the past decade has been the shift in emphasis from product to service, using information technology to provide businesses not just with automated systems but with solutions that provide real business advantage.

'The PC has become the essential business tool for even the smallest of organisations and user expectations have increased as they become more familiar with the technology.

'An off-the-shelf system is no longer enough. Users are demanding individual software solutions that enable them to take business advantage of new developments such as networking and electronic commerce.

'But to build effective business solutions on a Windows platform takes more than most retailers can provide. So you can see the success of the Microsoft Windows environment itself is driving this move towards a service-based market.

'The industry response can be seen in the market polarisation now taking place. Increasingly you now have retailers supplying off-the-shelf packages, while the resellers are using their expertise to develop business-relevant solutions. Sage is more committed than ever to supporting its dealers, which in turn can provide a range of value-added services and support to help organisations develop real business solutions.'

Ed Arnett, MD of Azlan, was formerly with Tetra and before that MD of Skytech.

'The past 10 years have seen dramatic changes in channel philosophy.

What we've seen during this time is a rapid implementation of new technologies where the solution is provided by several vendors - in other words, interoperability.

This has placed real demands on the reseller's bandwidth at one end and questioned the narrowness of vendor support at the other. It's to resolve this that we've seen the two-tier channel approach evolve and grow.

'So what about the next 10 years? In such a rapidly changing industry it's difficult to predict, but I think the general trends will continue.

Resellers will need to source product from an ever-changing vendor base.

The distributor will increasingly bring the supply and the demand sides of the business together, to the benefit of the vendor, the resellers and the user.

'But I also believe things will move further. By knowing what's available where, the distributor will be able to produce innovative solutions using a mix of technologies which vendors are unable to put together. It should mean greater reseller opportunities and new market sectors.'

Peter Scatchard was marketing director at Softsel (now Merisel) in 1986.

Later he worked for Frontline, before becoming marketing manager of the information equipment division at Hitachi Europe in 1993.

'We all expected the US distribution giants to dominate the European, and certainly the UK, market. It hasn't happened, despite the best efforts of Merisel (didn't their problems start with the name change from Softsel?) and Ingram (which, despite a late entry, seems to be making a better fist of things).

'Although the battle is by no means fully resolved - and indeed probably never will be - local entrepreneurs have well and truly held their heads above water. Specialisation has certainly succeeded in holding its own against the broadline distributors and seems to be of increasing importance.

'While the local boys have done well in distribution, it's a pity the same can't be said of product developers. Europe has all but abandoned any product innovation ambitions in the US and Japan, with the Pacific Rim seizing on new developments to bring them to the mass market.

'Reseller franchising just didn't work in Europe. Despite success in America, the concept of trading under a nationally promoted banner has not succeeded, unless the brand truly reflects ownership. Computacenter, SCH and so on have undoubtedly succeeded where the franchises have failed - it looks like the punter wasn't interested in just the appearance of national unity, they wanted the real thing.

'The British Isles have succeeded in consolidating a very strong position as the point of entry for localisation of product manufacturing, with American, Japanese and Korean countries concentrating the vast majority of their EC investment into the UK and Ireland. This has also consolidated the golden triangle between the M40, M3 and the A34 as the management centre of the European PC industry.

Tom Schuster, MD of Novell, has spent much of the past decade running European channels for Novell, Uniplex and IBM.

'Resellers have emerged over the past 10 years as an ever more important and sophisticated part of the information technology community. But while installations and applications have become more complex, the cost of technology has continued to decline and is reaching a broader market.

'At the same time, technology has become increasingly mission-critical to every organisation, so there still remains margin in mystery and the most successful resellers have continued to drive themselves up the value chain, offering more valuable service and insight into their customers' business by developing new products and areas of specialisation.

'In the next 10 years, networking will continue to be the major driver of the industry. But this will enter into our lives in new ways and offer new services both at the office, at home and on the road. The challenge for resellers will be to recognise these opportunities and seek out the technology and service suppliers who want to work with them as genuine partners and do not see them as a quickly disposable route to market.'

Ten years ago Mike McCormac was selling AT&T Unix systems to vertical dealers and moved into PCs in 1989. He is now marketing manager for Olivetti's PC distribution business in the UK.

'Channel business has moved from a cottage industry to a market dominated by the sophisticated large players during the past 10 years. The driving forces are now margin and profit - this was definitely not the case 10 years ago.

'As a result dealers, especially from the smaller firms, find themselves in a dilemma about how they can differentiate themselves. They can no longer just shift boxes, they have to add a value. There is a much greater level of understanding across the market these days.

'This means that the question is no longer "how do I use the product?" but more "how can I use IT to solve my business problem?" The industry as a whole is now so fluid, with such fast-moving product life cycles, that it is much harder for the smaller players to keep their heads above water.'

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