Distribution Growth Is Good for the Channel

While spending by small and midsize companies slowed in the third quarter, the business of IT product distributors increased by more than 6 percent.

Spending growth by SMBs dropped to 2 percent from 7 percent in the third quarter of last year, according to a recent report by Raymond James and Associates, an investment and research firm in St. Petersburg, Fla.

The SMB spending number and the IT distribution growth figure would seem paradoxical on the surface, considering the products that make their way into small and midsize businesses are handled by distributors such as Ingram Micro, Tech Data, Synnex and D&H Distributing.

But the explanation is simple: Channel companies and vendors that rely on solution providers to get their products to market are gaining ground against direct-selling vendors.

It’s anything but a surprise, considering the number of vendors that in the past year or two have strengthened their commitment to the channel, in some cases abandoning direct efforts altogether.

Even Dell, which has long relished its unofficial position as channel enemy No. 1, appears ready to embrace the channel. Executives said recently that the Round Rock, Texas, vendor may consider alternatives to its direct model as the company seeks to improve its lackluster financial performance.

Dell may never come to terms with this, but what vendor after vendor has come to realize is that the channel is the single most efficient and cost-effective way to get products in the hands of customers.

By tapping VARs and integrators, vendors free themselves to focus on their core competencies—developing products and strategies to market them to the right people. It isn’t mere coincidence that one of the most common reasons vendors give for embarking on all-channel go-to-market strategies is that having sales staffs to pitch products to end users is expensive.

That the channel is gaining ground against direct-selling vendors at a time when there is a renewed urgency to focus on services and solutions selling is especially encouraging. Presumably an increasing number of channel companies are finding the right balance of products and services.

Even companies that have embarked on acquisition sprees to boost volume and widen their reach are taking extra care to pump up the services side of their businesses. In fact, a good number of acquisitions that have taken place in the channel over the past year or so have involved companies seeking to acquire managed services capabilities. Conversely, providers already offering managed services are making acquisitions with an eye to convert the customers of acquired companies to the managed services model.

Many customers still are not ready to embrace managed services. Click here to read why.

Efforts to focus on services will have a big payoff if the economy slows down in coming quarters, as projected by certain economic indicators. Technology buyers are likely to put capital expenditures on hold if the slowdown affects them, but those who have services contracts with solution providers will still need the services.

Then again, with fuel prices taking a downward turn and a letup by the Fed recently on interest rate increases, perhaps the slowdown won’t be as bad as it might have been. That would make it easier for distribution to continue its gains into the fourth quarter and beyond. And that, overall, would be good for the channel.

Pedro Pereira is editor of eWEEK Strategic Partner, contributing editor to The Channel Insider and a veteran channel reporter. He can be reached at ppereira@ziffdavis.com.