What IT Companies Learned from the Last Recession

With IT vendors struggling to make their numbers and laying off workers in droves, how long will they be able to resist the temptation to take channel business direct in attempts to control costs?

In the economic recession of 2001, the answer was clear as some vendors with strong channel histories, particularly Hewlett-Packard, were adamant about taking at least some of their business direct.

Back then, the debate over direct versus channel sales still raged, mostly fueled by Dell, which held out on launching a formal channel program until the fall of 2007. The vendor had held fast to its direct strategy since its founding, but changed direction after a string of underperforming quarters and customer service issues.

Dell’s change of heart is one market condition that has changed since 2001, but there are others. And those changes, according to some deeply entrenched channel veterans, make it unlikely that vendors during the current recession will try very hard to bypass or cannibalize their channel partnerships.

Keith Bradley, North America president for distributor Ingram Micro, says a unique set of circumstances was at play in 2001: The IT channel was reeling from the downward curve in demand that followed the dot-com and Y2K phenomena. By then, Y2K was becoming a memory and the brunt of dot-com companies once hailed as the future of the industry had gone down in flames.

In the current economic crisis, Bradley notes, those conditions are absent.

Another change, he says, is that while in 2001 a lot of big vendors still thought that going direct allowed them to control their selling, general and administrative (SG&A) expenses, today the debate over direct versus indirect sales is over.

Distributors and solution providers have proven beyond a shadow of a doubt that, for the brunt of IT products and services vendors, partnering with the channel is a more cost-effective way to move products, especially for vendors selling into the small and midsize business market. Rather than build sales and marketing infrastructures for the impossible task of reaching SMB customers, no matter how small, vendors for the most part realize that tapping the already established channel infrastructure makes more economic sense.

“In the end, I don’t see how vendors could make more money by circumventing the channel,” says Joe Quaglia, senior vice president of U.S. marketing at distributor Tech Data. “Speed, efficiency and cost are the primary concerns when it comes to delivering solutions to the market, and vendors recognize the best mechanism to do that is through distribution and their channel partners.”