Arrow Looks to Change Midmarket Channel EquationBy Michael Vizard | Posted 2008-03-31 Email Print
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Arrow's announcement that it is forming a new unit to focus on midmarket solution providers puts the distributor up against Tech Data and Ingram Micro, and means midmarket VARs are more sought after than ever before.
The subtle nuance that distinguishes a volume distributor from a value distributor just got a whole lot finer now that Arrow Electronics has fleshed out its plans to service the midmarket.
The Enterprise Computing Solutions Group of Arrow has been signaling this move for some time. But it comes at the same time when Tech Data and Ingram Micro have been slowly pushing their way up market.
According to Kevin Gilroy, president of the Enterprise Computing Solutions at Arrow, the best way to distinguish between what Arrow is doing compared with the traditional volume distributors is to look at what percentage their SG&A (selling, general and administrative) expense represents as a percentage of revenue.
According to Gilroy, distributors such as Arrow typically spend twice as much on SG&A as traditional volume distributors. To Gilroy’s way of thinking, Arrow is willing to make the strategic investments needed to help solution providers be successful selling comparatively complex solutions such as an end-to-end document management system that will be used in a hospital that has a lot of compliance issues.
As a sign of its commitment to this strategy Arrow is also doing something that most other distributors eschew. It is making significant investments to build out its ability to support solutions providers in the midmarket ahead of revenues. Typically distributors like to leverage the money they get from the vendor community to drive any program. Arrow is investing its own money to create a new business unit.
What all this means to solution providers depends heavily on how much they want to rely on their distribution partners for technical and operational support. In these challenging economic times, any channel model that offers the potential to offset more of the capital investment costs required to be successful to a distributor may be attractive.
But a lot of solution providers already have their own resources in theses area, so the only real help they need from a distributor is financing the transaction. The simple fact of the matter is that Tech Data and Ingram Micro already have a lot of customers selling into the midmarket. They just don’t need as much help to do that as a partner of Arrow might. The other thing to consider is that while the actual percentage of SG&A being spent is indicative of commitment, it doesn’t necessarily reflect that actual number of dollars being spent to support solution providers in the midmarket.
What is certain is that the midmarket solution provider is now the most sought after constituency in the channel. Vendors need a more effective conduit for reaching solution providers in this market, and as a result distributors are willing to spend more to get this segment of the channel. To that end, distributors are now positioning themselves as channel management companies that vendors can rely on to outsource all their channel activities.
As this continues to happen, it will then be up to each individual solution provider to decide how much they want to rely on distributors to manage their relationships with the vendor community. Whatever they ultimately decide on that particular point, the one thing they can be certain of is, between Tech Data, Ingram Micro and Arrow, there are a lot people willing to go to almost any length to get their business.