The biggest challenge facing specialist value-added distributors over the next few months will be the impact of the internet on the business community ? in particular the development of intranets and systems based on network computers, and the increasing use of the Net for procuring products and services.
As these grassroots changes filter back up the IT supply chain, value-adding distributors (Vads) are finding themselves faced with a do-or-die scenario. In the long-run, they could be caught in a pincer movement: on the one hand, by broadband and hybrid distributors using their size and clout to win sales over the internet; and on the other by software vendors looking to extract profitable value-adding activities from the channel and selling them direct over the Net.
Not only will smaller distributors find it difficult to compete with larger rivals when it comes to evolving new logistical ways of selling over the internet, but they must also cope with rapidly evolving product and skillsets, reach out to new customer bases, and head off the threat of new or revamped niche competitors. For Vads, the danger is that the internet could be their Waterloo.
Undoubtedly the greatest challenge of all is moving sales and marketing functions on to the internet. This initially means making product information available on a Web site, followed later by ordering and transaction processing.
Obviously, it requires an awful lot of investment, and even if stable electronic commerce systems were available at a reasonable price today, they may not be as easy to implement as they are said to be. Security, privacy and taxation issues all remain unresolved, especially for distributors operating across Europe.
Certainly, Vads don?t have the resources of either the broadband commodity distributors, such as Ingram Micro and CHS, nor the increasingly influential hybrids, such as CCD and ETC.
Both sets of distributors are being targeted by the big vendors to use their e-commerce technologies in setting up sites. Microsoft, in particular, has been targeting several major distributors to use its Merchant Server technology. The big boys have one important reason to be first to market ? a lot of internet-related franchises could be won by the leader of the pack.
But the key to business success often has a lot to do with timing. Not all Vads are convinced yet that the time is ripe to make such dramatic moves. The newly named Ilion (formerly known as Persona) has no immediate plans to move sales on to the internet. Group business development director Paul Mainwaring argues that such systems will really suit only those companies that are pushing high-volume low-margin sales.
?It only works when the dealer knows what he wants and how to use it,? he says. ?Then he?s only looking for price ? the best deal. On the kinds of products we?re involved with, dealers need more information, technical help and support services. It?s too soon to offer those things on the internet.?
Being a pan-European distributor, Ilion is also weighing up the benefits that may be gained by delaying decisions until uncertainties about monetary union are resolved.
But James Wickes, managing director of storage specialist Ideal Hardware, does not think the Net suits only commodity sales. He argues that Ideal?s customers have varying levels of expertise on the products it sells, and therefore they will require different levels of response from an online ordering service.
?We don?t decide what is a commodity product. The customer does,? says Wickes. ?We need to offer them product at the level of commodity they perceive it. What we need is [online] software that offers the same level of service and interaction that we currently offer over the phone.?
That?s clearly a tall order, and one that could take a while to develop. In the meantime, Ideal has taken the first few steps. ?Putting up a site with information about our products and list prices is an absolute no-brainer,? says Wickes. ?But knowing the price of something is often only where we begin when dealing with our customers.
?We need to take into account individual customer purchasing histories, and be more flexible in dealing with them. That will mean quite an investment in software that is sophisticated enough to do that.?
Ideal?s initial foray into establishing a Web presence has produced probably the most sophisticated site created by any UK distributor yet (see box). Wickes estimates that registrations to the Ideal site have exceeded 7,000 users, 20 per cent of which are European resellers outside the UK.
?Our aim has always been to get moving and keep ahead of our competitors,? he says. ?We have been successful by being one step ahead in the past. When we started, we were pioneers with sales teams on the phone, rather than having the one-to-one relationship where the salesman went out and met the customer. We need to be ahead of the game on this as well.?
Online transaction processing is not the only way the internet will have an impact on distribution channels. According to the Gartner Group, distributors will need to do several other things to keep in the game, such as encourage the flow of goods with such activities as in-channel assembly or software distribution over the internet. They will also need to enhance the flow of information by providing more data on such things as inventory availability, warranty and delivery terms, and ? as always ? enhance the rate of consumption by offering post-sales services and logistics such as training and maintenance.
The internet is also likely to change beyond recognition delivery of value-added services like training and support. In the US, training companies have started to emerge that offer courses directly over the Net ? bypassing third-party channels altogether.
But not only will distributors have more competition from new training organisations, there are also signs that some manufacturers are eyeing the opportunity to extract value-added services such as training from the channel, and deal directly with customers over the internet.
Some distributors have started to react to this potential threat, and are working on developing services using the internet which resellers can sell to their customers. As part of its Lion Programme of value-added services, Azlan is developing a range of branded services under the enhanced support programme banner. The plan is to allow resellers to offer customers a range of online services, such as Web development, security audits, email feasibility studies, router configuration and so on.
?Our aim is to offer enhanced services online to customers who subscribe to our technical support programmes,? says Azlan sales manager Nick Sears. ?We?re also working to develop online training courses, as our facilities run to capacity and online services will mean we?ll be able to sell more.?
In this field, Azlan could show the way. The company is said to be working on developing online marketing services that resellers can use in the course of selling their branded services and products. These include a dial-in multi-choice test for IT managers to find out whether they need training in given areas, or a diagnostic connection over the internet to determine weaknesses in a company?s intranet.
Although these more sophisticated diagnostic facilities may still be a long way off, online training is already well-advanced in the US. Online courses have many obvious advantages over existing training setups: they offer direct access to worldwide experts, much greater flexibility as to when they?re used (they needn?t even interfere with day jobs), and can involve email forums where you can discuss coursework with other ?classmates?. There?s no need to gather everyone in one costly location, and people can pace themselves better on their own than in a mixed ability class.
The problem for distributors is whether vendors, for whatever reasons of their own, may decide to offer training directly over the Net.
Recently, several of Novell?s authorised education centres (NAECs) expressed concern that the company?s Infi Learning Centres (ILCs) programme was designed to move training revenues out of the channel and on to the internet. Novell claimed it was simply a change of emphasis from offering company-specific training to something more industry focused, embracing interactivity with other Java-related technologies from Sun, Netscape, Oracle and IBM. Distributors may have to move fast to protect existing revenues.
Yet, as every optimist knows, every grey cloud has a silver lining. Where some disties see threats to existing revenues, others see opportunities for new sales. Many niche distributors ? and resellers ? are waking up to the fact that the intranet represents an area where IT managers? anxieties are growing daily. Where there?s fear and anxiety, a true salesman smells opportunity.
?There?s a real buzz about two things now: authentication and encryption,? says Chris Durnan, managing director of Peapod Internet.
?For most big organisations, the IT focus has moved away from Lan and Wan management and is now on the firewall ? the borders where security and authentication start to become important,? Durnan adds.
Peapod is putting together a portfolio of products that address these concerns. But part of its sales and marketing strategy involves alerting users to the potential perils of introducing intranets.
?There?s a big misconception that IT managers face threats only from the outside of the firewall,? says Durnan.
?But there is a growing awareness that you can face a lot of problems within the intranet from disgruntled or untrained employees. Companies are recognising that they need more internal control over the people who are using the intranet.?
Sure enough, Peapod Internet has the answer to that problem ? a product from an Israeli company, Abirnet. The software is called Sessionwall and it lets the network manager control and monitor access to sites on the internet, as well as monitor email activity.
Naturally, the fear factor generates sales, but, just as naturally, it has its detractors. Mainwaring says: ?The key to selling intranet software is to go into a business and find out what they want to do businesswise on the internet. It?s not about ?you want an intranet because everyone?s getting one, and what about all the security products you?ll need with that, sir?. We?d like to think resellers approach it from the point of view of: ?This is your business, what do you want to achieve in a year?s time?? You can sell on fear, but that?s not about an ongoing relationship with your customers.?
Mainwaring claims Ilion does not feel threatened by the impact of the internet. In fact, he says, dealers will be more inclined to deal with Vads that have a pedigree. ?Value-added distributing is all about supporting resellers, and our customers have never been in more need of support than they are now. We aim to give them product and platform choices, and the knowledge, services and training to back that up.
?We sell all three major operating systems on which intranets are built ? NT, Novell and SCO Unix. Customers have got to build an intranet on one of those and link it into existing systems ? we can help them on that. Many other Vads don?t have the track record we have in Unix and networking. Ideal?s a storage distributor, and always will be. It might be great at TV and have a pretty internet site, but is that what resellers want now??
As with all markets, the roster of hot products continues to change at a fearsome pace. These days, Novell is not what it used to be as a channel maker, while Netscape has increasingly been seen as a market mover and shaker since it drastically culled its distributor roster earlier this year. Azlan says it is now making more profitable sales with Netscape than Microsoft or Novell, and that change of reality is more widely reflected in its portfolio.
Sears says: ?Our aim is to offer a 100 per cent product range ? a complete solution for anyone wanting to put in an intranet. Azlan is aiming to have all the market leaders and key market makers, such as Netscape, FTP Software and Checkpoint.?
For physical connectivity, Azlan plans to offer a branded service from an ISP, but despite talks with some of the big telcos ? AT&T and BT ? it has yet to sign up a supplier.
Alongside the changes in the product portfolio, Vads are also finding that they are supplying new types of accounts. ?We?re dealing with new categories of customers, such as the Web design companies, and ISPs buying for their own internal infrastructure,? says Sears.
?Or we get the smaller ISPs buying stuff like Netscape in volume, and niche security companies looking for client-end authentication and encryption products. It?s a lot more than just the traditional PC dealer channel.?
The traditional channel may well be threatened by the emergence of new competitors angling to develop intranets and Web sites for their PC customers, but other old threats are starting to re-emerge as well. Very few of the new distributors can give their resellers a categorical assurance, as Azlan does, that they are committed to the channel.
The Peapod Group does sels direct, although Peapod Internet goes 100 per cent through the channel. But Durnan thinks resellers should not have a problem with this.
?We do an 80:20 mix and that?s considered OK. Most resellers won?t mind because they are the kind of customers they wouldn?t want to service anyway. It?s when you start doing 70:30 or 50:50 that resellers start to think something?s wrong.?
He thinks that the expertise being built up within the group as a whole ? partly by being first to market and supporting direct implementations in big business ? can only benefit resellers in the SME market.
?Our feeling is that we will have an advantage if we get in first and find all these new products even before they hit the exhibition floors and others start hearing about them. We need to make windows of opportunity for ourselves and dealers,? Durnan says.
Timing is what it?s all about. Most Vads are trying hard to convince their customers that the time is right to move into intranet development, set up a Web site and start marketing over the Net. On the other hand, they feel that the time is not yet right to begin sales and support activities on the Net.
?Online commerce is still very much in the future,? asserts Mainwaring. ?We don?t think the return on the investment is there yet. Major retailers like Argos and Tescos have tried it and they?re struggling. We need to time it right.?
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