'Distributors are being secretly wiped out by marketplaces - here's why'

Is the channel being cut out? Asks Channelyze co-founder Ashley Speight

Is this the end of the channel as we know it?

The plan is in place, and distributors are being secretly wiped out with marketplaces lowering their fees to induce customers to transact through them.

Is this the end of the channel as we know it?

Are marketplaces trying to kill not only the distributors but also the VARs?

With Microsoft's and Amazon's marketplaces having cut their fees in recent weeks, what are they trying to do?

Is the entire world really going to thrive on the direct acquisition of products? The channel is slowly being monopolised with a handful of players trying to cut out the middlemen.

What is the role of the distributor?

The distributor is there to recruit and sell solutions into the supply chain that ultimately end up with end users of the products in question.

Traditionally, when distribution was hardware focused, the distributor would store and move hardware components in their respective territory. This provided a quicker delivery time than having to send from abroad and ensured local support and response times in the fulfilment of the orders to retail.

Nowadays, with the world of software taking over as opposed to hardware components, the traditional style distributors are struggling to give value in the chain. When software products can be supplied by the manufacturer or vendor directly to the end user without the need for distribution, it renders the distributor useless. Or does it?

The distributors that are struggling to add value are the ones that are still seeing this as a "box shifting exercise". They want to just sell the solutions when orders come into the vendor for the product and make money on simply transacting. This is not the role of the modern distributor, and this is a sure-fire way to be cut out of the chain completely.

This is where all the talk of distributors needing to transform in order to survive is coming from.

The introduction of marketplaces

There is a lot of talk of marketplaces cropping up to make life easier on the partner to be able to transact and obtain the products that they require in a self-service style. This is essentially killing the distributors.

Is this going to work globally?

This is essentially a US idea where the distributors on the ground in that market struggle to add value because they primarily fulfil orders.

In Europe, APAC, the Middle East, CIS and Africa, it's different. We work with many different languages and multiple different cultures so that the distribution layer is generally required to be able to support business in-territory.

Marketplaces could be the answer to the low-ticket items that are sold through the channel, or even direct because the returns are so low that it doesn't make sense for the distributor to be working with these products.

But take a product that requires advanced technical knowledge and implementation skills, and it becomes a logistical nightmare to sell this through only a marketplace.

As a case in point, if a customer from Taiwan wants to by a next-generation firewall from a US vendor, and the end user doesn't speak English and there's no documentation available in the local language, how is the partner on the ground supposed to fulfil this order without the support of a distributor acting as a true extension of the vendor? Certainly it would be very difficult.

This becomes even more difficult if a marketplace tries to cut out the channel partner full stop. Now that order becomes impossible to fulfil.

Marketplaces are going to work for the geographies that don't require an extension of support in-country by a third party company. Namely the US, Canada, UK, Australia, and New Zealand. The rest of the world is a huge place where distribution is a required factor in the support and implementation of technical products as well as partner support and recruitment.

Cut the distributors out in the emerging markets and non-English speaking markets and you lose a revenue stream that you wouldn't normally be able to obtain by yourself.

Another way

Now imagine a world where the marketplaces are owned by the distributors for the partners to obtain the products that they require.

This keeps the support and supply chain intact with the value coming from the distributor in being able to fulfil, support and maintain in-country partners on the products that they are providing.

It's not standalone companies that need to become marketplaces, it's the distributors themselves!

The best way

Let's go one step further and say, what if the resellers themselves became marketplaces where they provided a store front for their specialist products that they work with for their customers?

The customer visits the reseller's marketplace, they choose the product they want (or think they want), they select that product which in turn sends a notification to the partner. This then informs the distributor who can register the deal with the vendor keeping the support chain intact.

The vendors could essentially have hundreds of marketplaces around the world in different languages that are owned by their resellers but fulfilled and supported by distributor in-market.

This is the aim of Channelyze.io. We turn the distributors into a platform for their resellers to be able to buy they products that they need for their customers in one place and via the distributor!

If these marketplaces continue to try to kill the distribution channels, they are going to kill not only the distributor but also markets that require a distributor to serve it. The consequence of this is that emerging markets are going to fall behind due to a lack of support in local languages.

Over automating and taking away the human aspect is good if you can communicate directly with the vendor but if you can't, it's the end of the road for the non-English speaking markets.

Ashley Speight is co-founder of Channelyze.io