Are disties' services aspirations a threat to resellers?

Distributors are intent on beefing up their services capabilities. But is this trend welcomed by all VARs, asks Doug Woodburn?

A decade or so ago, you knew where you stood in the channel.

Manufacturers made the kit, distributors did the warehousing and logistics and resellers provided installation, integration and support and owned the customer relationship.

This may be a crude oversimplification of what the channel looked like around the turn of the century (when both Computacenter and SCC operated distribution arms), but some argue the lines that generally demarcated the channel back then are becoming blurred as distributors - as well as vendors - stray further from their traditional turf and deeper into professional and cloud services.

The trend may be more evident in the US, with Avnet snapping up a string of solution providers across the Atlantic in recent years with the aim of transforming them into professional services offerings for its resellers. Only last month, Tech Data kept the pattern alive by acquiring US datacentre services provider STG, while here in the UK Westcoast has invested in its own datacentre and Exclusive Networks recently acquired support services firm ITEC.

From the distributor's perspective, the aim is simple: To boost sales and create new opportunities for their reseller partners.

Answering the services bell

For Tim Curran (pictured), chief executive of the Global Technology Distribution Council - whose members include most of the above names - the trend is not only desirable but also essential from the perspective of the resellers.

"It is imperative for distributors to answer the services bell, and it's being rung from all standpoints - solution providers as well as vendors, ultimately down to the internal IT operations of today's end users," he told CRN. "All need to respond with a massive uplift in service capacity and depth."

However, Etienne Greeff, managing director of security VAR SecureData, said attempts by distributors to conquer areas such as cloud can be a touchy subject.

"Everybody is moving towards the same centre ground, which is to provide the customer with a solution that incorporates product and services, and distributors are no different," he said.

"There can be reticence as it's a little bit in [the resellers'] backyard and the lines can become quite blurry. Who owns the customer relationship is the important thing. If you have someone else providing the services, they start owning the customer more than you do and resellers don't like that generally."

Services-touting distributors can present a further threat in allowing "Fred in the Shed" to resell not only product but also services, enabling them to compete with larger resellers with in-house capabilities, Greeff stated. That said, they can also represent an opportunity for services-focused VARs such as SecureData, he added, by offering a new route to market for their services.

A watchful eye

Martin Hellawell, chief executive of VAR Softcat (pictured), said he had a lot of sympathy with the distributors and welcomed the trend, but added it's something he is keeping a close eye on.

"If you look at the way at least part of the world is going, the distributors need to re-invent themselves," he said. "I don't think the traditional business is going to dry up and go away but as more and more of it moves to an as-a-service, cloud-type model, the traditional warehousing and logistics role that distribution provides is less important than it was. For them to sustain their growth they have to look at that. I fully understand why they are doing that, and so they should."
Softcat uses distribution a "fair amount" to augment its services when it needs extra engineers, Hellawell said.

"Some of them are very good at those types of services, which is helpful to us. But I'll keep my eye on it. There is always a chance someone could get carried away and start to become a reseller themselves - in which case that would be an issue - but I haven't yet seen any of that or even a hint of it."

Paul Barlow, managing director of VAR Servium, also harboured few concerns.
"Every time a distributor brings out a new service in the channel, we embrace it because we have a very strong partnering model for delivering services," he said.

"You now see Westcoast or Tech Data or Ingram doing imaging and PC configuration. Once upon a time this was something most resellers did on a bench downstairs. We still have that in-house but as soon as it gets to a certain scale we will get distribution to do it as it's just more economical and they can cope with 400 PCs a day. Without sounding cavalier, [distributors buying services firms] doesn't worry us."

Kieran O'Connor, sales director at VAR Total Computer Networks (TCS), said his firm continues to lean on distribution for services, despite having beefed up its in-house capabilities in recent years.

"You still get thrown a curveball from customers every now and again and if you've got someone you trust - that you know won't sell direct - that can help you; that's a good thing."

As an example, O'Connor said TCS often partners with Midwich's True Colours division to fulfil audiovisual installations where it lacks dedicated resource.

"Tech Data has just opened a £1m demo centre in Heathrow," he added. "We don't have a £1m demo centre and it's quite useful when you get a customer that wants to see HP 3PAR working with VMware, Hyper-V or Citrix, to take them there and they brand it as Total Computers for the day."

Stuart Knott, managing director of VAR PCS Business Systems, also saw no harm in the trend.

"I think it's one of those things the industry can be scared of but if you're a reseller doing services well, there's no reason a distributor should be able to do it better," he said.

And Greeff (pictured) conceded that the threat posed by distributors isn't any greater than that of vendors.

"Everyone is trying to go after the same lunch," he said.

"Blue Coat, Websense, Zscaler: effectively in the past we used to provide that service and now they are. There's been a convergence of what's required to solve the problem. Vendors, distributors, resellers and service providers are all scrambling to do the same thing, which is to provide a solution that incorporates products, services and consultancy. Resellers can't rely on no-one competing with their services."

Tough transition

Distributors used to working on wafer-thin margins may view services as easy money but those expecting instant success will be disappointed, Greeff warned.

"The evidence suggests the distributors haven't been as successful as they hoped they would be," he said, singling out Arrow as one of the few that are close to achieving an end-to-end managed services or cloud offering that appeals to resellers.

"Until it's a fully integrated offering, it's difficult to sell via the reseller channel and it doesn't really work."

"Very often, there's a bit of kit there that is maybe not part of the capability of the firm that provides the managed service. It's more complicated than people think, so the fact resellers can now resell managed services doesn't mean they will."

Hellawell agreed: "It's a lot easier said than done running a services business; it's harder work than running a logistics business. It requires a different mentality. Distributors will find it difficult to take that road but they need to take that road so I fully understand it."

Crossing the rubicon

September 2010 - Computerlinks moves into cloud

Security VAD (since bought by Arrow) launches own range of cloud services under the ALVEA brand amid efforts to boost profit margins

June 2013 - Avnet buys Seamless Technology

Avnet claims recent services acquisitions have been "well received by partners" as it snaps up US private cloud and datacentre services outfit

October 2013 - Westcoast opens datacentre

Investment in its own IL3 datacentre in Wales enables broadliner to provide Microsoft and other cloud services to its resellers

April 2014 - Westcon buys Intact

Cisco and Avaya distributor says acquistion of UK-based channel services firm will help partners generate new revenue streams

June 2014 - Ingram buys Rollouts

World's largest distie says workforce and project management services gained through acquisition will allow its resellers to pursue larger deals

November 2014 - Arrow launches MSP scheme

Distributor claims 600 MSPs are using cloud aggregation platform ArrowSphere xSP as it launches first dedicated programme for MSPs

December 2014 - Exclusive buys ITEC

VAD adds to its existing Passport range of professional services by acquiring UK-based global services outfit

May 2015 - Tech Data buys STG

Acquisition extends Tech Data's datacentre and professional services skills in North America