The Changing Landscape of IT Distribution
In the beginning, there were aggregators, and manufacturers who saw that buying could be consolidated said, "This is good."
This was long before the emergence of the cloud and other modern-day products and services that would reshape the distribution landscape.
Back in the 1980s, the early days of the IBM PC, Compaq, Apple and other manufacturers, the rise of aggregators, such as Connecting Point, Entré, Intelligent Electronics, MicroAge and others, represented an excellent solution to a big problem. That was when IBM selected Sears Business Centers, Nynex Business Centers and the nascent ComputerLand franchise chain as resellers in its new channel program. Prior to that, "nobody but IBM could sell IBM," so selling to these large chains meant broader distribution of their new small computers without having to carry swelling ranks of receivable accounts.
Aggregators fit this model perfectly. Small, local computer retailers became part of one or another of these buying groups so they could offer their customers these exciting new products.
The Emergence of Distributors
With co-marketing and fee agreements emerging, it wasn't long before the need to belong to the chain became burdensome. Several companies, including Micro D, Intelligent Electronics and others, merged to become Ingram Micro. Meanwhile, Steve Raymund was creating Tech Data with a pure logistic distribution model that made it possible for channel partners to operate with minimal inventory and better credit facilities, improving their cash flow. Many others would follow.
While the early aggregators functioned primarily as buying cooperatives making it possible for resellers to purchase products to sell, this new age of distributors quickly realized that they could provide much more that would attract more resellers to them than to their competitors.
In a March 2006 Channel Insider column, Raymund wrote about the advantages of IT channel distribution. "The ultimate question should be 'Is this the best way to increase shareholder value?'" wrote Raymund, currently Tech Data's chairman.
Raymund was addressing the growing concern that manufacturers might choose to eliminate the middle man and start selling directly to resellers. However, his vision was much larger.
"We're not focused on developing the next great product," he wrote. "We're dedicated to finding the next great way to help our customers penetrate new markets and overcome unique business challenges, predominantly in the SMB space. They know that our success depends exclusively on theirs. In fact, we're helping foster new opportunities by connecting our customers with each other for broader geographical coverage or diversification into new technology areas and vertical business segments."
Innovation and real support, both business and technological, would be what would separate one distributor from another.
A Different World
"In the last few years," explained Paul Bay, executive vice president and chief executive of Ingram Micro U.S. and Export, "we've seen the relationship change [between Ingram and its customers] as we moved from being a logistics partner to an indispensable business partner."
Bay expanded upon this, adding, "We are involved in our partners' businesses in so many more ways than ever—no longer about getting this product to this place fast, although we do that too, but about education, resources such as field technology consultant, professional services and support around disruptive technology, such as mobility and cloud."
Pete Peterson, who recently left Tech Data after 19 years, most recently as senior vice president of global business development, agreed. "In the past 10 years, there's been a major transformation driven by the macro-dynamics such as cloud and its impact. Mobility, social media. Those things have had a major impact on how we partner, how we go to market," said Peterson, now vice president of global channel sales at networking vendor Brocade. "In the end result, this has made the partnership between the partner and the distributor a lot more strategic."
Raymund's original model may have simplified the relationship with resellers, making it easier to finance and obtain products, but over the past 20 years, the need for further support became an opportunity to differentiate via added value.
"The distributor being in the middle of the relationship between the vendor and the reseller was built around access to working capital in terms of receivables financing and available inventory," explained Peterson. "Now there's a much greater synergy in how we go to market together. Distributors are helping with demand gen on behalf of the vendors in partnership with resellers. It's a much stronger partnership."
According to Synnex Senior Vice President for Marketing for North America Bob Stegner, "Some vendors push to go to distribution because of the value we can add, not only in the way of services, but the complementary technologies, both hardware and software, that make up the total solution."
Distribution provides pre-sales tech support, attach support, services opportunities and contact management as well as billing. "Many resellers want to bill their customers directly, which they can do through us," Stegner said.
Relevance in the Cloud
Many analysts have questioned whether distributors can develop and maintain relevance as resellers shift increasingly to selling cloud-based solutions.
Distribution executives, past and present, see their value remaining consistent as the cloud continues to grow in the market.
"Distribution in its purest sense," Peterson explained, "is being able to aggregate a broad portfolio of solutions. Multiple server vendors, PC vendors and more. Distribution becomes the rally point. Resellers gain value by being able to access a broad set of solutions. For distributors, the value is in providing a broad selection of cloud solutions, and it's all around providing best-in-class solutions. For example, the best Internet service provider is Amazon because they have a broad portfolio of solutions."
Ingram's Bay observed, "Cloud offers distribution the chance to add new and different value for our channel partners, both solution providers and vendors."
Emphasizing the importance of complete and comprehensive cloud solutions for resellers, Bay added, "If you are in the cloud business successfully, you are representing multiple solutions and multiple vendors—and scaling that is difficult to do without support. That's why we've found that our partners value the deep experience we bring to cloud technologies, in particular the operational platform we have in place."
Recent estimates put Ingram Micros' annual cloud revenue at about $200 million, relatively small in what has been widely estimated as a multi-billion dollar business. Clearly, there's much more room to grow.
"The channel will continue to be a very strong and viable entity," predicted Peterson. "There's a major transformation going on in how people want to receive their IT, leveraging cloud versus physical assets. This will make the interdependency and synergy between reseller and distribution extremely valuable."
Over the past 20 years, the "channel" has polarized, with product sellers at one end and consultative service providers at the end. Many channel partners still embody some of both. The next polarization predicted by many is a clearer separation between those resellers who focus on Fortune 500 customers and those who focus on the small and midsize business (SMB) market.
The emergence of channel partner groups—such as the SMB Nation, the membership of the Computer Technology Industry Association and others—demonstrates that this is already taking place.
The early resellers were highly innovative and fiercely independent. When Ingram Micro and Tech Data first led the transition from aggregator to distributor, many likely did not foresee them providing the rich diversity of business and technology support services they do today, but now resellers choose which distributors to align themselves with, based to a great extent on those services.
"Distribution must step up to educate the channel and leverage our global view to identify opportunity and then deliver on the necessary resources to turn that into successful business growth for partners," Bay said. "We will continue to be making investments in the assets and services our partners need to drive success for their end-user customers, such as we're doing with professional services now."
Ending on what he feels is the most important point of all, Bay concluded, "Regardless of the changes in our industry, none of us will succeed standing alone; we cannot keep up with the rapid evolution of our industry without building relationships between vendors, distribution and resellers based on trust, and then pushing each other to embrace change."
Howard M. Cohen is a 30-plus-year IT industry veteran who continues his commitment to the channel as a columnist and consultant.