Wholesale change?
With diminishing hardware margins, concerns over support and the rise of cloud, channel players are questioning the value of distributors in today's market, Jack Gilbert reports
"A single-tier vendor-to-reseller model in a software world is eminently possible," Graham Brown, managing director of VAR Gyrocom, said of the changing dynamic of distributors in the channel.
In years gone by, when the channel was focused on shifting tin, the distributors' role was never questioned. But as the market changes, debates have emerged over what the real value is of today's disties. Some are claiming that as distributors' hardware margins are squeezed and sales pressures increase, the traditional value-add of post-sales support and other services is diminishing. Meanwhile, the rise of the cloud is also seen by some as a looming threat for distribution, with question marks around how distributors can stay relevant with this new dawn and what purpose they can serve.
Dave Wilding, account manager at reseller Shadowfax Technology, recently spoke out about Dell's Indian return merchandise authorisation (RMA) support but he said the fault lies with broadliners who pass the buck with post-sales issues.
He said there is a general lack of support from the large distributors and singled out Exertis as being particularly unhelpful, claiming its customer service teams are reticent to help with RMA problems.
"The big ones are the worst; we will get a more dedicated service from the more niche players but the broadliners are more difficult to deal with, especially with their high turnover of people you deal with and teams of sloping shoulders," he said.
Wilding also picked out Ingram Micro, saying it is guilty of failing to provide technical account managers and that they have too many accounts which mean communication is often difficult. Exertis was unavailable for comment, while Apay
Obang-Oyway (pictured below), Ingram's northern Europe cloud director, said: "We are committed to making sure it's a partner-first business and we make sure everyone has the right experience and the right training."
Wilding said he has experienced little evidence of the big distributors' "value-add", and thought this could be a consequence of rising sales pressure and targets as traditional hardware profits fall.
"Now with their margins being so tight for products, they are being squeezed," he said. "To some extent I can see their argument that they cannot do much value-add because if their margins are only three to five per cent on PCs and servers, there probably isn't the margin to offer much service. So that does raise the question that in the cloud world, what is the point of distributors, because if they aren't doing the value-add and there isn't the volume purchases anymore, their business could sort of cease to exist."
Taking on cloud
Last February Westcoast became the first UK distributor to join Microsoft's Cloud Solution Provider (CSP) programme, which allows partners to directly provision customer subscriptions for Office 365, whereas before this customer engagement was done by Microsoft. A number of other distributors joined the scheme last year, including Ingram and Tech Data.
Distributors organising the administration of licencing for resellers could be seen as a way for them to add value in the cloud era, but while Wilding said it was good that Microsoft is embracing the channel, disties can often slow things down.
"The problem now is that with the disties in the chain they have to process orders manually with Microsoft and it can take four to six hours for their processing teams to handle the request for changes and new orders," he said.
"That's too slow and it's a step backwards in terms of service. Now we have the benefit of having the turnover and the control on the margin as opposed to the billing going through Microsoft but I think the disties need to step up a little to handle that."
Wilding singled out Ingram's Cloud Marketplace, launched in the UK last March, and said while it's a step ahead of most distributors, it has often caused problems with it sending invoices to customers without invoice numbers.
Ingram's Obang-Oyway conceded that the distributor has encountered "teething problems" with its Cloud Marketplace. But he said this is a result of the "strong" adoption of the scheme, with over 1,400 partners added to it, and it is working to resolve these problems quickly by listening to partner feedback.
On the whole, however, Wilding said he could not see the value in having distributors in the CSP scheme, and felt it might be Microsoft simply "placating" the disties.
"Apart from taking a bill from Microsoft, adding their margin and then billing it on to us, I don't know what else they [distributors] are doing," he said.
A single tier?
Gyrocom's Brown (pictured below) said the channel's shift from the tin-shifting model means the value-add of distributors has changed.
"What we are seeing is the commoditisation of the hardware element and a lot of functionality shifting to the software layer," he said. "Then [that means] distribution have got to look at different ways of engaging themselves as their traditional value piece of logistics and import/export model sort of disappears."
For Brown, the key functions of distributors today are helping to build relationships with vendors, and supplying credit.
But there are other ways of sourcing credit, through companies such as MarketInvoice, which can act like distributors for this service, he said.
Not what it used to be
Brown said distributors are not as essential to resellers as they used to be.
"I think we are starting to see resellers become more independent of distributors," he said. "We are certainly aware of what we need, and we have had some conversations with distribution about how some of the value wrap in their business model isn't applicable to us, [and] what can we do about that in terms of reducing margin retention.
"Distribution is under constant pressure from people like us and I think it's a real challenge for distribution to remain relevant."
However, Tim Curran (pictured below), chief executive of industry body the Global Technology Distribution Council (GTDC), said he is confident that distribution will survive and flourish amid the shift to the cloud.
Curran supported this claim by quoting a recent GTDC survey which found that 72 per cent of the cloud solution providers it surveyed said they see value in working with distributors around cloud services today.
"The industry is going through a major transformation," he said. "But we have done this several times; when the internet came out many people said distribution is going be cut out, but we weren't and we became the backbone for most internet resellers. Then when software went electronic, many people said distribution is going to get cut out, but we didn't, and once again with cloud people say distribution is going to be disintermediated.
"I do not believe that's going to happen and [I think] distribution is going to emerge as a major partner of cloud vendors and solution providers."