Distributors strike a balance as resellers struggle

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The converged world demands new skills and capabilities that legacy companies struggle to offer

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Billy

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1 December 2017 | 0

Billy MacInnesIt was my privilege to give a presentation at TechTrade Live in October in which I extolled the virtues of the channel. At one point, I noted: “If channel partners did not exist, vendors would have to make them up.” It was a glib statement but it was also true.

Just how true is demonstrated by the latest report from the Global Technology Distribution Council, entitled The Distribution Landscape and Disruption, which makes it very clear that distributors play a vital role for many vendors.

According to the report, more than 75% of vendors expect to increase the value of their business transacted through distribution and 70% of them predict a rise in the share of business going through two-tier distribution.

Vendors expect the bulk of their business to be transacted through value added distribution which will grow largely in the mid-range and SMB markets. And they accept that distributor costs will need to reflect the enhanced value added services needed to compete in today’s market.

More than 60% expect the cost to distribute to remain the same or increase over the next couple of years. A whopping seven out of 10 vendors say their internal cost to distribute is “the same or more than the distributor costs”. Nearly one in five estimate their direct cost to distribute is more than double what they pay to distribution as a percentage of sales.

According to the GTDC, the shift to value added distribution is “associated with the positive impact created by the development of integrated cloud-based services”. That transition is being put into operation “through the investment in cloud-based platforms and advanced order-to-collect billing processes”.

While 85% of respondents identify subscription-based billing as a key requirement, the ‘traditional’ role of the distributor as integrator has not diminished. Vendors are looking for distributors to offer integrated cloud-based services but also to provide integration across the full breadth of product offerings of multiple vendors. “In more than one way, the distributor is seen as the ‘glue’ pulling the divergent offerings together,” the report says.

It warns that traditional resellers may struggle. “It remains to be seen how many legacy resellers are able to acquire the new skills and processes required to operate in the new converged world,” it states. “Equally, it will be important for the distributors and vendors to enable the financing of the new pay-as-you-go model.”

The GTDC identifies a number of challenges that need to be addressed. They include recruiting and retaining qualified and experienced staff, as well as making changes to the way credit is provided to the channel to sustain the transition to an annuity-based model.

This is significant because vendors and distributors accept that the move to cloud-based services means there is more cash flow pressure on smaller partners and less profit to be spread thinly over an extended period of time.

“Distributors and vendors need to find innovative ways to finance the transition and ongoing development of the subscription model,” the report acknowleges. “Creative financing models are increasingly important.”

The GTDC also argues data will become a critical area for ‘future value exchange’. A key role for distributors will be consolidating, standardising and providing access to enable the use and interpretation of Big Data. The GTDC says distributors need “to assume a prime role in data aggregation for go-to-market as well as supply chain operations”. Distributors and vendors will need to be able to utilise and apply data to provide real-time, detailed and granular data collection and mining.

The report confidently predicts there will be no increase in direct business in the coming years. “The ability of the distributor to offer integration capabilites and to have the infrastructure that enables that to happen is one of the key reasons why it is unlikely we will see any resurgence in direct business,” it argues. “Although the IT landscape will change dramatically, there is no future landscape which doesn’t include distributors.”

You can’t put it any more directly than that.

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