Arrow Looks to Change Midmarket Channel Equation

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.