This year, Commtech celebrates 15 years as a value-added distributor. In all that time, the company has stayed true to a very clear and simple strategy of focusing on sectors that aren’t commoditised and ensuring it is knowledgeable about the solutions it provides.
The distributor’s longest serving product area is security but it has built a substantial presence in the storage arena on the back of an exclusive deal signed in 2008 to distribute EMC in Ireland. The deal was a significant win for Commtech and proved to be a big driver for growth, especially as the storage giant had a negligible channel presence in Ireland until that point. In the space of three years, EMC helped propel the storage business from a small percentage of Commtech’s overall sales to more than half.
“Ireland is a particularly aggressive market compared to its size. One of the benefits of Brexit could be to reduce competition from the UK for Irish resellers.”
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“We grew the EMC business from zero to a mid €30 million business,” says managing director Justin Owens. The distributor took on Dell in 2013. Following a global review of distribution for the merged Dell EMC operation. Commtech has been reconfirmed as a value distributor in Ireland. “We’re the only distributor in Ireland that has both ‘Traditional Dell’ and Dell EMC,” he adds. “It’s still a very important part of our business.”
Going direct
Owens predicts the Dell EMC merger “will be good for the channel. Dell does more direct business in Ireland than in the UK and I expect the percentage of business going direct will, over time, come down to the European average, so there should be market share for the channel”. Acquisitions of other vendors by Dell EMC have provided additional opportunities for channel partners.
Another up and coming storage brand for Commtech is Flash vendor Pure Storage, described by Owens as a “challenger brand”. While it has a more limited product set than Dell EMC there isn’t a huge amount of competition to the brand. “It’s the best of the vendors that has emerged over the past five years in the flash space,” he claims. “And it’s the only one that has achieved critical mass and escape velocity.”
Commtech distributes Pure Storage in the UK and although it is not an exclusive partner, it provide around 90% of Pure’s distribution revenues there. Owens believes its success is because the distributor picks particular brands and puts a very strong focus on them. “For some of the large distributors, unless a vendor is doing significant revenue, it’s very difficult – €10 million in revenue is important for us but for larger distributors, it’s very small and doesn’t buy much mindshare.”
He views consolidation taking place in the distribution market as a good opportunity for Commtech. “The accountants take over and a lot of the value goes, you get cost-cutting and office mergers.”
Among its other brands, Commtech distributes, Quest, SonicWALL, Exagrid, Nexsan and Barracuda. “We try and have a number of key brands with up and coming brands positioned around them.” Owens says. He believes Intel’s recent decision to divest from McAfee, another Commtech partner, could be good for the channel as well because “when private equity companies buy something they tend to really drive sales”.
Rebalancing act
One of the biggest changes for Commtech over the last five years has been the establishment of a UK operation which has grown to the point where it now accounts for 45% of the distributor’s overall turnover of around €100 million. “The UK has helped us to balance risk a little bit,” says Owens. While there were some effects from the EU referendum vote in the UK and fluctuations in the value of sterling, the UK business grew in volume terms by 30%.
The short term transition during Brexit “could be pretty tough”, but he expects things to settle down over time. It could also benefit the Irish market. “The UK market is a very, very competitive market,” Owens explains. “In Ireland, we have the same margin model that is applied to the UK but without the same volumes. It’s difficult to compete as an indigenous Irish company because the market opportunity is much smaller. Ireland is a particularly aggressive market compared to its size. One of the benefits of Brexit could be to reduce competition from the UK for Irish resellers.”
The distributor has plans to bring its UK and Ireland operations closer together over time. “Traditionally, we had an Irish operation and a UK business and they were done separately. Going forward, we want to position the business as a UK and Ireland business, one company with shared resource across regions.” For example, order processing, quotations, marketing, operations and logistics for the UK business are handled from Ireland.
Owens reveals that Commtech expects to double its UK headcount this year. “We’ve invested for the future and plan to significantly ramp up that business over the next two years.” It has already increased staff numbers in Ireland over the previous two quarters.
Headroom
He predicts the UK business “is likely to get a bigger share of overall revenue over time. The biggest limiting factor is getting vendors of scale. There is a lot of headroom to grow. Pure Storage is growing at 40% a year. And the market size of the UK is very attractive to us”.
There are plans to provide more information about what the company with the website acting as “a single pane of glass” for the organisation. “We haven’t made enough of all the great resources we have,” he admits. “We want to try and reflect the amount of activity that we do. In any given week we probably have two events going on. We have a very large marketing spend and do an absolutely colossal amount of stuff.”
Looking at the Irish market in general, he feels that most partners are doing well and the outlook is good. There has been a “huge move to cloud service and a lot of partners are putting in infrastructure for large customers to run private cloud and hybrid cloud.” The mid market “is going very well” and Commtech is experiencing “a lot of traction” in the hyper-converged and converged space.
Owens expects there to be a lot more cloud adoption in the SMB end of the market but believes things will be different for customers in the mid market and beyond. “There’s still a lot of infrastructure sold as people still want control over their systems and they’re not totally happy to outsource them to the cloud.”
He says many vendors are shifting towards cloud or subscription-based offerings and that’s a good trend for Commtech. “Replacing chunkier deals with long-term subscription-based ones could affect revenue in the short term but it’s a good healthy business in the medium term.” Brands like Sungard and AppRiver are “very complementary with a lot of our storage and infrastructure partners”.
Commtech is currently embarking on a rebranding exercise. “We’ve been in business as a trade-only distributor since 2002,” Owens remarks. “The brand has evolved over time and we’ve had many different iterations of logos and marketing. So we’ve decided to freshen up the whole thing and go back to the drawing board. We have a new website going live and branding across the board to try and reflect our ethos as a business.”
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