Vendors land blow in direct versus channel debate

Doug Woodburn
clock • 5 min read

End users prefer to buy from vendors and are more loyal to them than resellers, CRN/Computing research has found. But all is not lost for the channel, according to Doug Woodburn

One of the first questions anyone who works in the channel faces when asked to explain it to a family member, friend or new colleague is: why does it exist?

Everybody has heard of HP, Dell, IBM and Microsoft. But most people would assume that businesses buy their hardware and software directly.

As we all know, the answer is fairly simple: no single vendor can offer every piece of the IT puzzle, or hope to reach every target customer without the help of a network of partners. Their specialism lies in designing and manufacturing the technology, and the channel's in selling, integrating and servicing it.

What your friend or relative also won't know is that for decades an awkward tension has existed in our industry between direct and indirect sales.

Despite the basic division of functions described above, vendors are often tempted to sell direct when they can, throwing them into co-opetition with their partners.

And neither can the channel take its existence for granted.

For every occasion when the indirect route seems to have won the day - as when Dell ditched its 'direct-only' mantra in 2007 - we're told the channel is facing a new existential threat, be that from direct-selling SaaS vendors or from the commoditisation of IT, or some other frightening spectre.

Even in 2017, market commentators can't agree on whether the channel has never been in ruder health, or is in decline.

Advantage vendors

It's an argument that may never be settled, but recent research by CRN and sister publication Computing - unfortunately - adds weight to the latter school of thought.

Indeed, the further I read into the research, the more I had to shield my eyes from its findings.

The report makes fairly sobering reading for the channel, although I would like to add a few mitigating points in response myself.

End-user respondents were asked whether direct or channel relationships leave them happiest.

Unfortunately for the channel, direct sales scored an average of five out of seven on the satisfaction front, compared with only four out of seven for channel sales (see graph below).

The research also asked both end users and channel sellers about the first port of call for end users when researching new technology and services. Some 64 per cent of VAR and MSP respondents believed that they were the first port of call. But the reality is that 53 per cent of end users prefer to go to the vendor directly in the first instance, and only 35 per cent the VAR.

And neither are customers as loyal as the channel think they are.

Some 66 per cent of VARs and MSPs believed that end users were more loyal to them than to vendors. The opposite is true. Only 36 per cent of respondents considered themselves loyal to VARs, yet 48 per cent considered themselves loyal to a brand and/or vendor.

The research also questioned why end users use the channel. Only 30 per cent of end users rated relationship as important. However, when asked about why they thought end users favoured them, channel players believed that relationship was the key factor - some 61 per cent of VARs and MSPs made this the number-one reason.

Resellers are also massively underestimating the importance of cost. This came tenth on the list of sellers' reasons for buyers using them, with only 19 per cent rating it as important. But cost was first on the list for buyers.

In defence of the channel

So end users prefer to deal with vendors directly and are more loyal to them than resellers?

While this might come as a blow to the channel, there are a couple of points I would make in mitigation.

Firstly, while it's true that an end user may have a better experience dealing with a vendor individually than with a reseller, generally speaking they would only ever be able to get part of an IT solution from any one vendor.

If an end user were procuring only a fleet of servers, buying them direct would almost certainly be cheaper, and they may even get a better service if they are a big customer. But then they'd have to do the same for storage, networking, voice, printers, software and security etc. Who would integrate it all together, and who would wrap a service around it?

With very few exceptions, only resellers are in a position to stitch a total solution together.

The question also assumes that end users know exactly what technology they want to buy. But in the event that an end user didn't know which technology best suited their needs and approached a vendor for guidance, they would certainly get a biased answer. Only a reseller could give an impartial viewpoint.

Take these factors into consideration and there are good reasons why end users would favour partners over vendors which may not have been exposed in the research.

That said, the research certainly suggests that resellers and MSPs can be over-confident about their standing with customers.

Resellers that are happily convinced that they "hold the relationship" with end users and effectively act as gate keepers for the vendors should take stock. It might be true, but in most cases probably isn't.

That's just one of a number of key topics discussed in the research, which looks at how buying and selling enterprise technology in the era of cloud and digital transformation has changed. Click here to request the full report.

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