Thinking on their feet

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1 April 2005 | 0

Distributors continued to take a bit of a battering in 2003, but sighs of collective relief could be heard across the sector as vendors continued to renew their commitment to distributors and appreciate the vital role they play in furrowing channels to market.
For their part, distributors continue to evolve their market strategy depending on whether they are broadline box-shifters or specialist firms. Most are choosing a course somewhere in between the two, as demand for value-added services continues to grow.

1) The years 2001-2002 were painful ones for the IT industry. Has anything you have observed in 2003 given you some optimism for the forthcoming year?

Rory Wilson, Microwarehouse
Yes, business activities in Microwarehouse increased noticeably in the last four months of 2003. The improvements came from a number of new product releases – particularly Microsoft’s Small Business Server 2003 and Apple’s G5 supercomputer. We also notice an increase in channel security business with market leader Symantec (antivirus, firewalls etc) and a strong demand for TFT monitor replacement.

 

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Frank Salmon, CMS Peripherals
The first thing would be to say that IT coming out of the channel in 2003 is alive and well. The direct and indirect players appear to be maintaining their share of the market and are able to co-exist with each other. More importantly for CMS, there has been good growth in professional services around data storage management that will continue through to 2004. The other good thing to come out of 2003 was that the cutbacks will improve efficiencies for 2004. There will be better forecasting and less stock in the channel, both of which will make the channel more efficient. Our customers are likely to be focused on compliance issues and vulnerability next year.

Brian Honan, Osmosis
Government and large corporations look like they are ready to start spending, also small to medium sized businesses seem to have cash surpluses due to ‘cost cutting’ in the 2001/02 period. All in all, it looks like being quite a good year in 2004.

John McHugh, TNS Distribution
The most exciting trend we have seen is the merging of historically separate sales channels, which opens up potentially huge new markets to the IT trade. There are great opportunities for resellers to break into markets such as IP Security surveillance, which had once been the stomping ground of CCTV installers, security companies and electricians. Most security installations are now moving to IP based systems which traditional CCTV installers and electricians are afraid of. There are also great margin opportunities in these areas as CCTV installers and electricians are not used to working on the same type of low margins that we are in the IT trade. This type of convergence can also be seen in the audio, video and consumer electronics business with the emergence of LCT TV and DVD products.

Michael O’Hara, Data Solutions
Corporates started to spend money in 2003! This gives me some optimism going into 2004 but there is a reality health warning included. The financial directors are questioning the necessity of all IT projects and insisting that they are ‘cost justified’. This has lead to downward pressure being placed on price and hence margins achieved by resellers and distributors are being squeezed.

2) Cost reduction, speedy return on investment and doing more with less were seen as being the key factors driving IT investment last year. Is there any evidence that expansion will drive investment in 2004?

Rory Wilson, Micro Warehouse
I believe the environment has changed, but the key factors mentioned will not change for most businesses. But we are seeing some signs of expansion. For instance, new investments in server technologies and a growth in PC sales.

Brian Honan, Osmosis
The current US monetary stance seems to be refuelling the US economy. Seeing as we have a lot of US Investment in this country, that expansion has to happen to satisfy the ‘supply and demand’ rule.

Frank Salmon, CMS Peripherals
I think the dynamic will change in 2004. The main driver behind that will be increased liquidity in the stock market leading to additional consolidation and more acquisitions in general. Lots of companies are back on the acquisition trail and there is more money in circulation. There are lots of new opportunities for niche growth and investment.
 
John McHugh, TNS Distribution
The fact that companies analysed every euro they spent has been great for a company like TNS Distribution that distributes for the better value smaller manufacturers. When money is tight, people will take more time and look at the options available, not just go with the biggest name.

Michael O’Hara, Data Solutions
Cost reduction has being the key factor to maintaining IT businesses over the last two years. I think that over those heady days of the dot-com boom we all got a little carried away and were carrying too much overheads in our businesses. IT companies have realised this and have carefully taken the excess costs out of their businesses over the last 18 months. Today these companies are well positioned for expansion in the market in 2004.

3) Given the increased commoditisation of hardware and the emergence of open source software over the past few years, how do you see the role of the IT distributor changing over the next 12 months?

Rory Wilson, Microwarehouse
Since 2001, most distributors have adapted to a low cost, efficient business model in which channel credit, stock management and reseller breadth are key. In the case of further commoditisation, the role of distributors over the next 12 months will be enhanced as this service is greatly valued by most vendors. Open source software has really yet to make a significant impression below the enterprise space.

Brian Honan, Osmosis
Yes. Those contributing factors have driven IT distributors away from the ‘Box Shifting’ model into more of a hand holding, value add service provider. We, as a company, have had to diversify into areas that will allow us add a lot of value to the products we distribute.

Frank Salmon, CMS Peripherals
Within the IT distribution scene, there are two different models emerging. One is the broad ranging distributor concerned with fulfilment, logistics and mature products, while on the other is the specialist distributor that offers the value added services. They are seen as the market creators and provide the specialist knowledge. Ultimately the customer will decide which is best, but vendors need to recognise that both models have a value in the channel. Distributors need to work closely with vendors to remove duplication.
In big territories, vendors will try to do more corporate level business direct, with IT distributors servicing the SMB market. In small territories, including Ireland, the indirect channel is much better placed to reach the SMB and corporate market.

John McHugh, TNS Distribution
The role of the IT distributor has become much more important over the past few years. A few years ago, everybody said the channel was dead and everything was moving to the direct Web approach. This was proved to be inaccurate as in all cases it’s ‘horses for courses’. If we were in the business of music distribution I would be very worried as a serious change is under way with the delivery of music and video driven by companies such as Apple. Fortunately for us, the IT business is in most cases a solutions business where some consultation is needed between the end user, reseller and distributor. If the distributor can design the total solution, have stock and deliver quickly, they will be invaluable.

Michael O’Hara, Data Solutions
It is extremely important for distributors to keep adding to their product portfolios to allow them to continue to grow their businesses each year. Also vendors are also reviewing the way they take their products to the market and who they should partner with to achieve this. More and more vendors are looking for distributors to be pro-active in driving their product sales. Vendors themselves (who also went though their own cost reduction exercises over the last 2 years) now appreciate the value of good distribution partners. The net result is that the role of the IT distributor now means that they must have strong product knowledge from both a technical and sales point of view, as well as marketing skills, sales and technical training and quality customer service.

4) What are the compelling technologies and services that will drive your company’s business in 2004, and how does your company differentiate its own from its competitors’?

Rory Wilson, Microwarehouse
Microwarehouse’s compelling services and differentiators include the small number of key vendors, one of the industry’s most knowledgeable sales teams, and the provision of a top quality service.

Brian Honan, Osmosis
Osmosis Ireland have had to keep ‘thinking on our Feet’ so to speak. Also we are not one of the large safe broadband distributors, therefore we are able shift, change and adapt to market conditions and sentiment. In saying that, we do have niche markets to concentrate on. This makes us slightly different to the run of the mill IT Distributors out in the Irish Market.

Frank Salmon, CMS Peripherals
In the specialist data storage arena, the buzz phrase for 2004 is ‘data life cycle management’ (DLCM), traditionally known as hierarchical storage management or HSS. Within that, NAS and SAN have come of age and will be big this year, along with DLCM. On the services side, compliance will be a big issue for all companies this year and we also see opportunities around the whole area of vulnerability.

John McHugh, TNS Distribution
Over the last three years, we have doubled our sales every year. This is down to being a niche distributor focusing on SME dealers.
Only the very big and specialist distributors will continue to do well over the next few years. We specialise in networking and components. This gives dealers something to hang their hat on. Training has become a weekly activity in TNS Distribution with most training courses being free. At the start of the year, we fitted out a new training room that holds 25 people.

Michael O’Hara, Data Solutions
DataSolutions operates in the managed application delivery (MAD) marketplace and sell products in all four areas of this market: application serving, security, performance and connectivity. What differentiates us from our competition is our focus on the MAD market and the fact that we have specialist and in depth knowledge of the products we sell.

5) What grounds for optimism do you see in the local market in 2004?

Brian Honan, Osmosis
The vibe out there at the moment, and the feeling in 2003, was that we are not out of the woods yet, but around the corner there is a lot of positive feeling about spending in 2004. With large corporations leading the way, we will see hopefully every size of company follow.
We have to get it across to the small and medium sized businesses that cost cutting has made them more efficient and profitable, so now they have to look at investing in IT to take themselves to that next level.

Frank Salmon, CMS Peripherals
The growth area is in the SMB space and within that, a big element will be services opportunities and data management. The corporate space in Ireland will be a little bit slower in 2004, but I do expect revenues will remain stable. However, the growth opportunities will be in the SMB space in 2004.

John McHugh, TNS Distribution
We are hoping for more of the same, but the business is out there. It is time to look around and see what new channels are opening up in front of us and moving quickly to get into these new markets. Take a look at IP Surveillance and become an expert in this area. Five per cent of the CCTV market is IP based at the moment, but this is set to rise rapidly over the next five to ten years.

Michael O’Hara, Data Solutions
I think that 2004 will see significant growth in the area of mobility. Broadband is now available and is starting to be taken up; wireless solutions are becoming more stable and secure, and the need for a mobile workforce has never being stronger (just look at the traffic congestion on our streets). This is all good news for the managed application delivery market, as enterprises look to make their corporate information available to their mobile employees.

02/02/04

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