Dealer Perspectives - Distributor viewpoint

The continuing and widespread consolidation in the networking market is having as hard hitting an impact in the channel's distribution tier as it is everywhere else. But according to some, this is not necessarily a bad thing. Jos White, marketing director with networking distribution specialists, RBR Networks, foresees an increasing focus on a limited number of manufacturers that will enable both distributors and resellers to provide more than just products.

'Key vendors are merging with and acquiring smaller manufacturers.

It enables them to offer a more comprehensive product range, together with end-to-end systems incorporating and integrating technologies.'

Steve Lockie, general manager of the networking division at Computer 2000, says the market is still growing but some of the growth is coming from surprising quarters. 'In the old days, there was a lot of uncertainty and doubt about networking, but things have moved on and we are now seeing a lot of business coming from the retail and mail-order channels. It's something broadliners addressed effectively, but it's been harder for the specialist distributors.'

The de-mystification of networking has also led more resellers to the broadliners' doors in search of a one-stop supplier, he claims. As a result, says White, distributors will be forced more and more to concentrate on a single vendor and, as a knock-on effect, this will provoke resellers to follow suit.

'Every reseller will have to align itself to a single manufacturer instead of taking a multi-vendor approach for area specialisations. This will mean that they are all equipped to offer good products in each area, and support and benefit from sales leads,' White says. He believes that once this is commonplace, the market will be left with three or four players - Nortel/Bay, Cisco, 3Com and Lucent.

However, Duncan Crook, managing director of networking distributor Equinox, is much more sceptical about what the future for the incumbent and all-powerful top networking vendors. 'The days of the big three - Bay, Cisco and 3Com - are definitely numbered. The big-name companies have had it all their own way for so long, but the dynamics of the market are changing as more competition enters the fray,' he says.

'It doesn't stop there. Not only is there more competition in the market, but - worryingly from the perspective of these companies - it's coming from the very companies to which they had previously been selling kit.

It's going to be a painful double hit for the big boys and their revenue take.'

The market is going to fragment into several specialist areas and niches as a direct result, says Crook. Resellers are going to be forced to rethink their strategy, as the vendors that have been at the top of the chain find their positions threatened.

'These companies will no longer be the dominant brands. We will start to see lesser-known brands emerging as the market takes a fresh look at the competing brands and technologies. Whereas up until now the main companies could sell kit purely on the power of their brand name, the market is going to realise that their competitors' products are just as good and often better.

Not only that, but the cost of both capital investment and ownership will often be lower and margins for the reseller will be significantly higher.'

The advent of new networking technologies is also having some other effects on the overall market and presenting the channel with some interesting areas of opportunity in the process. Ian Kilpatrick, managing director of the Wick Hill Group, says network access and security are areas that are vastly underestimated by some sections of the channel. He says: 'Network security is a huge potential market that has previously failed to achieve its broader potential for resellers and their corporate customers. This is changing.

'First, as intranets and extranets become increasingly ubiquitous, so too do the associated remote access requirements of the companies running them. Businesses want and need to know who it is they are dealing with across the Web, and this is signalling a substantially increased demand for access security management, authentication, certification and reporting technologies. Secondly, there has been a steady growth in business-to-business e-commerce over recent years and this has become a technological driver for low-cost, easy-to-implement security technologies,' Kilpatrick says.

'This leads neatly to the third main market driver. The next generation of firewall devices that are multifunctional and typically easy to install and configure have changed the network security market radically.

'The Gartner Group predicts they will represent 80 per cent of the firewall market by the year 2001. Corporates are beginning to install these technologies internally as well as across their external gateways. The FBI estimates 70 per cent of security breaches come from within the main firewall, so there is a ready-made market to exploit.'

Another example of how resellers can add value to both their invoice and their customers' installation other than through the addition of value-added products, is through value-added services. Once again, as with so many issues facing the channel, it's all about education. After all, if the customer doesn't know something is broken, they aren't going to let anyone fix it. Kilkpatrick adds: 'Training represents a huge opportunity for network resellers to deliver additional tools to their customers that work alongside the products that they already have.'

John Lucas, operations manager at telecoms consultancy In-Touch Associates, says the ongoing migration of telecoms companies into the networking market is having an effect on the market and its incumbent players. 'Traditional telecoms equipment suppliers are concerned about the impact of upcoming technologies on the converging networking/telecoms markets.

'The aim of the technologies is to simplify network switching which reduces switch prices and therefore margins,' he adds.

'This is the main reason behind the telcos buying stakes in the newer networking companies - so they can ensure they have a firm foothold in both technological camps. The telcos still feel uncomfortable with any network that does not contain a large telco switch as it calls their whole existence as a business into question. They are also spending a great deal more on access technologies because they see it as the key to most services and it's an area they understand.'

Convergence is the real buzz-word in the networking business now, says Lockie, but it's not something that we should get too carried away with just yet. 'The telecoms people talk about 99.99 per cent availability because you need your phone system all the time. There are very few computer systems that have that capability at the moment and if you are going to manage these technologies together you are going to have to deliver something close to that kind of availability,' he says. 'Yes, there are cost savings to be made, but only if you have a robust enough set-up. There's a bit more work to be done before it's a real opportunity.'

Lucas thinks the need for internet working to old legacy systems and allowing customers to communicate across a wide range of premises is far more significant than many suppliers like to admit. 'A corporate customer will expect and demand that all its employees have the same level of service regardless of their location.'

But he says perhaps the biggest areas of opportunity for the channel will lie where the user's method of communication can be changed - where the user can be shown a new technological angle.

'The best opportunities will be created if the interface to the user can be changed,' Lucas says. 'For example, the concept of the video-phone has always been promoted purely with the idea of being able to see the other caller. But this technology also presents another opportunity to innovate. The inclusion of a video screen in the phone allows the use of menus and software, giving it the advantages of a PC. Combining the phone with the PC could provide all these advantages - until now customers haven't seen it as a possibility.'

Crook says: 'There's no doubt that it is the telcos that have made the convergence market really start to accelerate. IP is going to continue to establish itself as the dominant protocol for data/voice/video applications and this will contribute to the further acceleration of the networking and telecommunications convergence market. Meanwhile, on the battlefield of the routing sector of the market, Gigabit Ethernet is going to sustain its emerging dominance over ATM.'

The overwhelming body of opinion is that resellers must think much more laterally if they are to spot the emerging opportunities. It seems that the opportunites are out there, but they are not necessarily to be found in the traditional areas.

According to Crook, resellers must also learn to approach customers with a more serious edge and a more heavyweight message where networking is concerned. 'If IT is still perceived by many as being something of a black art, then networking is at the darker end of that art. In terms of complexity, it remains a technical market and it ought to be treated as such, and accorded due respect.'

He firmly believes there will soon be no room in the networking market for resellers whose customer approach is anything less than professional, and that taking the kind of half-hearted, non-specialist view that was so prevalent in the past will ultimately prove fatal. 'There is an increasing trend towards more managed networking services. Many users are devolving responsibility for their networks to specialist providers,' he says. 'If resellers are not networking specialists, they should partner up with a reseller that is - and do it quickly. There is no more sure-fire formula for a channel business failure than not having the capacity and the expertise to offer networking services to your customers as part of a wider-partnered portfolio.

No network means no application, which means no desktop sale, which means no server sale, which means no peripherals, which, in turn, means no business.'

White says the situation in the channel has not been helped by poor service on the part of many distributors, and points to a growing number of requests from resellers calling for an improvement in that service. 'The distribution channel has been suffering from a bad reputation in terms of service levels for far too long. It's high time we woke up to the fact that providing unbeatable service is the only way to guarantee reseller loyalty - and reseller loyalty is the key to success. Right now, there are some very serious questions resellers need to be asking their distributors, and the distributors cannot avoid answering them.'

Crook concludes by saying that the current channel conditions have been brought about at least partially through the increasing maturity of the networking market and the growing expectations of users. He says that now, more than ever, users want absolute value for money - despite the fact that networking is rarely, if ever, about absolutes. 'As this phase in the market's growth continues, users will focus more and more on issue of total cost of ownership. That means that the days of the cheap, stopgap networking systems are at an end.'

This, perhaps more than any other, is a concept that vendors, distributors and resellers alike will have to get used to if they are not to fall between the cracks of an ever more disparate, fragmented and specialist market.

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