Resellers: how to choose a distributor

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This article appeared in the August, 2009 issue of CRN magazine.

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Resellers: how to choose a distributor
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Why big is sometimes best

Ingram Micro is the largest distributor in Australia and its US parent is the biggest in the world. With more resellers on its books than any other, 90 vendors and national reach, Ingram is the channel's best-known distributor and everyone has an opinion on how it does business.

Walters says its size, 30-year history in the US and its public listing on Wall Street give it credibility, trust and objectivity.

Everything at Ingram is super-sized, from lines of credit to stockholdings. Walters recognises that Ingram can't pretend to be the only distributor a reseller needs.

"Resellers need to have a choice, they need to make sure they don't have all their eggs in one basket, for whatever reason," Walters says. "I understand all that. But our philosophy is to give a breadth of vendor, market and technology coverage with depth of product and stockholding and credit which will allow a distie to contribute to their distribution as much as possible."

Its greatest asset is the size of its vendor line. Sourcing products from many vendors through one distributor means fewer bills to pay and relationships to manage.

With so many vendors on the books, how can Ingram afford to provide support to each, as many distributors seem to be doing these days?

"The bigger you are and the more product lines and vendors you carry, the more difficult on paper it may seem to provide a depth of skill and knowledge around individual vendors," Walters says.  "That's a balancing act that we work hard on (every) quarter."

He says the company's sales footprint in Australia is 250 people from solutions architects down to the customer support representative. "We have a lot of general guys who are trained on a weekly basis to increase their technical knowledge around the technology sets," Walters says. 

But what happens after the sale?

Ingram sees itself more in the mould of a conventional warehouse and logistics expert that leaves after-sales support to the reseller.

"Our general philosophy is that installation services and post-sales services is the domain of the reseller," Walters says.

"If we start getting into areas of on-site installation then we start getting into the domain of what our core resellers are doing themselves. I believe that the resellers' role is to maintain the relationship with the end-user and to be their trusted adviser for technologies."

 Old school vs new school

Ingram's philosophy has held true for distribution for decades and still works for many distributors that focus on the risk of buying and holding stock from vendors. In Australia, vendors are accustomed to outsourcing many of their needs to distributors, which are happy to move up the food chain.

But a trend expands the distributor portfolio down to customer activities. Distributors such as Westcon Group and 24/7 Distribution provide business process outsourcing that gives resellers a bolt-on capability to supply customers with technologies that they don't have the staff or expertise to deliver on their own.

The ability to supply a distributor's full range expands a reseller's usefulness to its customers in ways that would have required banding together with another qualified reseller. And it reduces the role of the reseller to a sales consultant who owns the customer relationship and moves more margin back to the distributor.

Given the economies of scale in distribution, it is easier to keep a team of engineers in work outsourcing to resellers than it is for a reseller to keep generating projects for its own engineers. Staff which aren't working are costing a business money.

Conventional distributors such as Ingram believe that lending out engineers for on-site installation is bad for the channel. Although a distributor involved in installation might help its resellers, it is competing for business that would have gone to resellers who made the investment in accreditations, staff and experience.

"A partner who hasn't invested in architects and everything else saves [him] from having to invest in that on a fixed cost basis. [He will] just use the distributor on a variable cost basis. That gets in conflict with the other resellers in the market," Walters says.

At the other end of the scale is a company such as 24/7 Distribution. "Some people would call us a pseudo-vendor because of all the services we offer," says managing director Tony Geagea.  

Founded five years ago, 24/7 saw its revenues grow 30 percent in the past year and its resellers nearly double. Resellers get the deluxe treatment - a demonstration facility that Geagea describes as "tier-one real estate" launched in December has a concierge service and free coffee and food for resellers and their customers.

The distributor goes to the resellers' customer's site to demonstrate technologies, has a dedicated quote team that pays for any error in a reseller's bill of materials, engineers for installation and integration work on the customer's site and runs a nationwide, around-the-clock helpdesk and maintenance program that responds to problems within two hours.

And Geagea says his sales department generates "lots" of leads a week for its resellers.

It pays for all this by targeting underperforming second-tier vendors. "Taking on more responsibility from the vendor equals higher margins because it's fee-for-service but we have a bigger job to do," Geagea says. "They fast track our abilities to grow faster."

He cites the distributor's work with Mitel: its market share rose from 4 percent to 14 percent in a couple years. Geagea says he replicated this success with other vendors. "We've proven [the model] and tested that it works."

And he says 24x7 is very good at maximising a reseller's sale by cross-selling technologies; its engineers install technologies that its resellers can't.

 Experts on the move

So where should technical expertise sit in the channel? Are vendors worried about distributors pushing resellers away from accrediting themselves?

HP, one of the most experienced channel players, believes expertise should exist at every level - vendor, distributor and reseller.

"The more people we can have in the community that are trained in pre-sales the better it is and as a vendor we are very happy to invest in that," says Paul Robson, director of enterprise servers and storage for HP South Pacific.

HP was aware of the potential conflict between skilled resellers and their distributors and sought to minimise this in its channel-training strategy.

Its top accreditation, the business partner solution architect program, is divided into two streams for resellers and distributors to ensure the roles are complementary.

While distributors and resellers can carry HP architects, the vendor says training ensures they are complementary rather than competitive.

Reseller training [of architects] is focused on specific product sets and markets, Robson says. In distribution, they are generalist and have access to technical pre-sales capability of complementary product sets, such as networking and software from other vendors.

Although HP promotes its program to resellers, keeping technical knowledge in distribution is a priority.

"A distributor that has a trained and accredited HP business partner solutions architect will deliver a much more thorough solution in response to a bid," Robson says. "Their expertise can provide a more holistic solution which delivers better value to the customer and also extends the opportunity for the partner."

Future of the channel

The move towards bigger distributors and leaner local vendor operations looks like it will continue in Australia.

Although most IT products (and everything else, for that matter) are made in China, much of the intellectual property is owned by US or European companies.

Australia is too small for a vendor to set up the infrastructure to distribute and sell products. Witness Dell's decision to move away from its direct, online model to invest heavily in its channel.

In most cases, the establishment costs, dealing with different tax legislation and building up local knowledge are not justified given the size of the Australian market.

Outsourcing distribution and sharing resources used by other vendors going through similar channels is a less expensive way to enter a market.

"Most vendors have worked out that it is cheaper to go through the channel rather than go direct," says Express Data's Cochrane.

"That's come through very clearly in this downturn because you are not seeing them put headcount on. Vendors in the US have been cutting back on people and they're looking for the channel to do more because it's cheaper for them to do it through us rather than do it themselves."

He attended a meeting with analysts in the US last month who confirmed that the balance of power was swinging from vendors to the channel. Vendors found that their revenue was drying up but their costs were still very high and so they needed the channel to represent them.

 "End customers keep telling the vendors that they don't want to keep buying point products, they  want an outcome and vendors don't typically deliver outcomes," Cochrane says.

"You need a VAR [value-added reseller] or an integrator or a reseller to deliver an outcome for you. So I think the channel is in a good position and the biggest challenge right now is financial models rather than whether the opportunity exists or not."

But there are some hurdles on the horizon. Cloud computing lets vendors sell to customers and many technologies that required hardware are moving to cloud-hosted software services. Unified communications and storage are just two examples.

"There are challenges down the path with [software as a service] and cloud computing and how that's going to be managed in a distributed environment," says Ingram's Walters. "There's always a lot of conjecture about where distribution is heading, and is there a need [for it].

"It's up to disties to come up with thought leadership to be the conduit. There's always going to be a role for a consolidator because vendors don't have the footprint and business model." 

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