They say that when New York sneezes, London catches cold. It?s an old one, but it?s still true. Any changes in the way the US reseller channel does business are likely to be followed by similar trends over here, but more exaggerated. And there?s no reason to think that will change.
They had Vars in the US five years before the term was even heard in the UK. Many of the UK?s top IT corporate names are American, the US is still where most of the computer industry?s technical R&D is done and it is there that most global IT business strategies are evolved and marketing and distribution decisions taken. By the time Vars were finally recognised over here, they had far more influence and sold a greater proportion of business than they did over there.
Even taking into account the geographical and cultural differences between the two nations, it is easy to see certain trends and changes which emerge in the US and then evolve and develop in the UK. Computer superstores were a runaway success in the US while we were still sucking our teeth and wondering whether the UK shopper would ever drive to an out-of-town location to buy their computers and software. They did.
The big new thing in the US at the moment ? no, I?ll start that again. The big thing in the US is the internet, the thing that has created more sweeping changes than anything else in the channel and the industry as a whole.
In the UK, the internet is still at the stage where businesses are setting about building a Web site because that?s what their competitors are doing. But in the US, the majority of people ? that?s right, the majority of people ? have internet access and are happily using it for shopping, accessing information or communicating with each other. In the UK, analysts are talking about the internet coming of age, but in the US it is becoming as much an established part of society as the telephone.
The effect of this on the channel is summed up by Frank Kingsland of Tetra, who is now based in the US where Tetra is building a reseller channel. He says: ?The internet and the casual familiarity with which it is now used in the US creates the biggest difference between the US channel and that of the UK. The vendors can almost manage their channel through the internet, which of course offers even greater advantages in the US where, because of the distances between cities, there are potentially greater cost savings.?
But the internet is not just offering a more cost effective way for vendors to support and manage their channel, it is also a business opportunity for resellers. Pamela Gray, who founded Sphinx in the early 80s and is recognised as a leading industry pundit, says that many US resellers are immediately jumping on the internet bandwagon and already offer internet-led services like Web site building and intranet construction. Gray now lives in California where she is building a new organisation called Hermetika, which acts as a global electronic business match- making service. She says: ?Margins are still high in the US for resellers who are involved with the internet, electronic commerce and multimedia on the Net, although that situation will change as more users become technically competent.?
The internet has also affected the way that resellers send and receive software, to a far greater extent than electronic commerce has been taken up in the UK. Gray says: ?There is no doubt that the internet is rapidly changing everything over here. Purchasing of hardware and software and the supply of software over the Net is very common, and auctions are also very popular. The distributors sell to and support their dealers over the Net as a matter of course. It is the rule rather than the exception.?
There are also differences in the approach of US and UK resellers towards their customers. Kingsland says that when US resellers adopt a vertical market, they learn far more about the business and the prevailing issues than the typical UK reseller.
He says: ?The manufacturing sector is particularly strong in the US ? at least, that is where we are seeing more potential Tetra resellers. And those resellers know far more about the manufacturing industry than a British reseller would. They study it more. They get to know as much about it as their customers do.?
US resellers will also do more research into a customer?s business, believes Kingsland, so that they are able to suggest real business improvements as a result of the technology they are selling. ?Many resellers working in the manufacturing sector will have staff with manufacturing skills,? says Kingsland. ?They really see themselves as a manufacturing industry IT company, rather than an IT sales organisation which happens to work in the manufacturing sector.?
Gray says: ?I would hate to say that the US resellers are fundamentally any more savvy than those in the UK, and I have always found British resellers to be well informed and fairly aggressive in the marketplace. But in the US there is probably a wider spread of excellent to bad whereas the UK reseller is more uniformly good, especially in the technical areas.? But Gray agrees with Kingsland that in the business and financial areas, US resellers are smarter, better trained and more aware.
?On the other hand,? says Gray, ?it is easier to get greenfield business startup funding in the US, so you get more businesses taking the plunge as dealers or Vars even if they are not properly qualified to do so.?
The issue of vendors selling direct, in conflict with their indirect channel, is as big in the US as it is here. Just like here, the whole debate has been recently highlighted by Compaq?s announcement that it plans to change its manufacturing to build to order as well as openly selling direct. Gray says: ?More PC manufacturers are putting more effort into direct sales. They have to compete with the Dells of this world. There is also some degree of duplicity because they will deny the extent of their direct sales activity or disguise it as support, so that they don?t alienate their resellers.?
Like the UK too, there is a firm core of vendors which is committed to a strategy of direct support coupled with product fulfilment through the channel. Kingsland says: ?When Tetra first came to the US, we started selling direct and then moved to set up an indirect channel. You need those first few reference sites but sales are easier to make and better supported through the reseller channel and I firmly believe you can?t have a combination of direct and indirect.?
Matt Miller, marketing manager with Remedy Corporation, sees more vendors in the US splitting their channel between direct and indirect, but is unsure that the trend will follow here because of the differences in geography and distance. He says: ?For US vendors coming to Europe, it definitely makes more sense to go through the channel 100 per cent, but back home there are reasons why many of them make up to 60 per cent of their sales directly. Some American companies in Europe try to introduce a direct channel but then find that it doesn?t work.?
Miller says that in the US, Remedy has a combination of direct and indirect business, but expects to remain 100 per cent indirect in Europe. ?That is because of the cultural differences and the fact that resellers can deal with customers in their own countries far better than we can,? he says.
Miller also points out that the channel in the US is more clearly defined, a change which may come to the UK. ?You see corporate resellers and chain store resellers and there is less confusion than over here, where the term dealer or Var can mean similar or very different organisations.?
Miller also see differences between the users in the UK and the US, which inevitably affects the resellers too. ?In the US there are far more early adopters, so you get more resellers selling to technically astute users, while here resellers and dealers really come into their own when products cross the chasm and become more mainstream,? she says. This means that UK resellers have more opportunity to achieve margin through added-value skills and support, while US customers need less support.
Interestingly, Miller sees a trend for US resellers to deal with fewer vendors and predicts that this could be a tendency which travels to the UK.
?Resellers have learned that there may be some benefits to being multi-vendor, but they are far outweighed by having the special relationship and extra support and sales leads which come from having a more exclusive relationship with a few vendors, and not using competing vendors for specific products.? He says that this reflects a trend among users to select one reseller to provide all their IT kit, so that in the event of problems it is clear where the buck stops. ?Resellers in the US realise more clearly that partnerships with vendors create loyalty which has benefits for the resellers, although UK vendors are more clear that they need loyalty from happy resellers to keep a healthy sales figure. American vendors are more keen to dabble in direct selling.?
If the adage about New York sneezing is still valid, then the UK reseller community could do worse than look to another well worn homily for advice: he who hesitates is lost. Time and again, the US has dictated the way industry trends will go and anyone in the UK who thinks this is unlikely to continue could well find they miss out.
The internet is just one example. It has taken off in a big way in the US and while there are some very real reasons why it won?t be as big over here, it is bound to gather momentum. Not embracing it as an option would be short-sighted to say the least.
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