ChannelTrends: The Distribution Transition

With the current buzz surrounding cloud, mobility computing and other transformative technologies, a key group of players within the IT channel seems to be taking a back seat. Despite the shift in technology business models and continued infringement from consumer electronics, distribution is still a crucial element of most solution providers’ businesses. And it will likely remain that way for quite some time, but its role is in a state of transition. Another sign of that transformation could be the muted messaging coming from the distribution leaders, with more emphasis on business and certification programs than individual product announcements.


Just take a look at the IT channel-centered media for proof. Sure, key alliances are still flaunted, but the majority of distribution news items these days seem to focus on specific support programs for solution providers, including: vertical market expertise, cloud and managed services enablement, business analytics, and more.


Even the news coming from distribution events is more partner-focused. Distributors have taken a lesser role in the reports and discussions—as they push their vendor and solution provider partners into the spotlight. Their role is becoming more about enablement of solution providers’ business planning and operations, shifting away from the traditional emphasis on logistics and pricing.


Distribution Numbers Remain Strong

That shift in philosophy doesn’t necessarily demand consolidation or a downsizing of these organizations; those activities haven’t really been evident over the past couple of years—even with the struggling economy. The distributors will likely point out that this is more of an enhancement than a change in their focus, and the improvements seem to be paying off.


For example, Tech Data reported more than $24 billion in revenue for the year ending Jan 31, 2011, up from $22.1 billion the previous year —an increase of almost 10%! Ingram Micro also saw it sales grow 17% in 2010, to approximately $34.6 billion, and the company attributes that success to a rise in global demand. The revenue growth trend continued across the board for all the publicly traded distributors, including: Avnet ($26.5 B in revenue/27.7% annual increase), SYNNEX ($8.6 B/10.4%), ScanSource ($2.1 B/12.6%). Chances are that the privately held companies fared at least as well. Clearly, distribution may be a little quieter in the media, but they are financially strong and making a successful transition to the new IT channel.

Some of the distribution companies experienced sales declines the previous year, but the latest results are still above the 2009 numbers. Despite the change in IT channel focus from the traditional strength of distribution (hardware and software), their revenue and profitability continue to climb. But how can that be with focus on managed services and cloud?

First of all, hardware isn’t dead. Businesses still need servers, workstations, network access systems, AV equipment, cash registers and a myriad of other devices. Infrastructure has to come from someone, and distributors have the ability and desire to supply it. While some solution providers have lessened their dependence on device sales, a lot of that business continues to be sourced through distribution. A number of Dell, HP, Lenovo and e-tailer hardware orders are fulfilled through the same distributors that supply the channel. It’s been that way for years and will likely continue. The current distribution infrastructure offers vendors a number of advantages as well, such as logistics efficiencies and inventory management.

And not all solution providers are ditching their traditional reseller sales models; some still choose to control the vendor relationships for their clients or are reluctant to give up a profitable part of their business. While 20-25 percent  hardware or software margins may not be the current norm, if a solution provider can pick up 10-12 points without a major effort, why not keep that part of the portfolio? That same philosophy applies to traditional software sales.

Despite the economic challenges, it is truly a great time to be a solution provider. There are numerous technologies and delivery systems to offer, prospective partnerships are plentiful, and distributor programs to leverage. That doesn’t even factor in the education, tools and collaboration opportunities that CompTIA brings to the table.


New Value Propositions

Distributors still offer the same traditional benefits: technical assistance, marketing, e-commerce support, logistics (including private-labeling and drop-shipping), credit, networking opportunities, vendor support and, of course, pricing. But they have also introduced a myriad of new support services to keep pace with their partners business and technology needs. SYNNEX and Ingram Micro each initiated programs (including specialized suites of approved vendor offerings) designed to help solution providers build successful managed services practices, with a reduced learning curve. Cloud and mobility are being supported in similar ways, with several distributors developing solution templates and curriculum.


Despite reports to the contrary, distribution is not dead. The players are changing their game – engaging  CompTIA and other organizations to help their partners gain business skills and new efficiencies to better compete in the new IT channel. For example, Tech Data and other distributors are hosting CompTIA-developed channel training sessions in a number of communities. These types of collaboration are part of the new model for distribution, with many more resource sharing activities on the horizon. Today’s distributor is more focused than ever on solution providers… the way it should be.


Brian Sherman is founder of Tech Success Communications, specializing in editorial content and consulting for the IT channel. His previous roles include chief editor at Business Solutions magazine and industry alliances director with Autotask. Contact Brian at Bsherman@techsuccesscommunications.com.