Under review: How Australian distributors cope with constant vendor change

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This article appeared in the November 2017 issue of CRN magazine.

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Under review: How Australian distributors cope with constant vendor change

Who would be a distributor, cajoled as they are to take on more and more responsibilities by the very same vendors who are constantly putting pressure on margins? And even when a distributor does manage to do everything right, they can still find themselves out on their ear thanks to a vendor merger or split.

While such challenges are not new, this year has also seen a particularly frenetic cycling in channel chiefs in Australia, with HPE, IBM, Cisco, Microsoft, Citrix, Telstra and many more all appointing new executives.

This and other factors have contributed to a cycle of almost constant review for distributors, diverting resources and energy into the fight to retain or win business.

Nick Verykios, veteran distribution executive and managing director of Arrow ECS for Australia and New Zealand, describes the current review cycle as unprecedented.

“It causes disruption to productivity,” Verykios says. “It disrupts workflows, because you are not going to be investing if you don’t think you are going to be around, or if you think you are going to have more to do. And it readjusts the kinds of investments you are making in terms of your own internal infrastructure.”

While CRN often reports on the outcomes of a review and any changes to distribution relationships, this does not fully convey the level of disruption taking place.

“A vendor will do a distribution review, and the only thing that is announced is if there is a change,” Verykios says. “If there is no change you don’t hear about it, but the review has happened.”

The cycling of channel chiefs may be coincidental, but recent years have also seen a heightened level of mergers and acquisitions, led by the massive Dell-EMC merger as well as smaller deals such as Broadcom’s acquisition of Brocade. When two companies merge, distributors are often rationalised. The HP split also sent ripples through the channel, especially for those elements that went to Micro Focus.

But the turnover in channel chiefs has also been a key factor. After all, what is the first thing a new channel chief does? Launch a review.

Musical chairs

In September 2016 Telstra appointed Charlotte Schraa as head of its specialist partner channel, replacing Keith Masterton, who departed that June and now heads up channel development at NBN. In August this year, HPE parted ways with South Pacific SMB and channel director Chris Trevitt, along with partner manager Nicholas Lambrou, with Marina Fronek announced as the new head of channel in October.

Rhody Burton left IBM in May to be replaced by former Pure Storage executive Nigel Peach in September, while Lenovo elevated Brendan Lau to cover channel in July following the departure of Margrith Appleby in March. At Cisco, Tara Ridley was promoted to lead the partner organisation in May. Brian McColm left Cisco to run the Citrix channel after the departure of Belinda Jurisic, who is now at Veeam.

Geoff Wright’s role also changed after his employer, Dell, acquired EMC; he now runs channel for the merged entity. Wright happily concedes that the accelerated cycle is now a fact of life for distributors, with Dell EMC in a constant state of review.

“You never really start a review and finish a review,” Wright says. “You are always looking at one or two years out, to how our product range is going to change, how the partner landscape is going to change, and how our customer buying patterns are going to change.

“Of those three questions the most important one is the customer, and working back from that – what are we going to be selling. Secondly, who do we need to sell to those people, and how will distribution fit in that landscape.”

Hence, Wright says for any partner relationship, a central focus is the quarterly business review.

“For two executive teams, if you’re not telling each other how you are going and what you are going to do next, how does that partnership work?” he asks. “If you can’t have robust healthy discussions then I think your partnership is not working.”

Wright believes the review cycle is in part a response to the overall disruption being felt through the tech sector, thanks to several overarching trends, coupled with numerous players seeking market relevance.

“You’ve got vendors who used to be bigger than they are [now], so they are struggling to get relevancy

and to work out what is next for them,” Wright says. “And then on the other side of these gates you have vendors that are growing very fast. The speed of change in our industry gets faster and faster and faster, so everything compresses.”

According to Munsoor Kahn, director at distributor Digital Networks Australia (DNA),  seasonal factors can also play a role.

“This time of year is danger time for disties, because the US vendors are all moving into their new financial year, and they are always looking at what went well and what didn’t go well,” Kahn says.

The nature of change means that as doors close for some distributors, they open for others. This has been the case for Nextgen Distribution, which has joined Meier Business Systems and Tech Data on the roster at Micro Focus following the software vendor’s acquisition of HPE’s software business.

According to Micro Focus’ acting general manager of channels for South Pacific, Richard Outten, the focus has been on specialisation in enterprise software, to complement Tech Data’s general distribution coverage.

“We look for someone who will invest in having both sales resources that are dedicated, and also presales technical-type resources that are dedicated to the technologies that we present through them,” Outten says. “So what that allows them to do is then on our behalf recruit onboard and enable the right channel partners to help us grow that network.”

Like Wright, Outten believes any part of a software business now is under constant review.

“It’s just that the distribution network has probably been something that has been able to let run, and is now coming under a bit more of the usual rigour that the rest of the business comes under,” Outten says. “Which is rightly so, because we need to make sure that whatever we are doing in terms of go-to-market is supporting the growth of the business. And if it is not we need to tune it to fit.”

Of course, there are also losers, as Dicker Data and Ingram Micro experienced this year when their New Zealand operations lost the rights to distribute Cisco.

According to Cisco’s Tara Ridley, that decision came after a six-month assessment process which she describes as one of the most intensive Cisco has been through in the region, and that comprised multiple categories of past and present performance.

She says Cisco’s new distribution partnerships in New Zealand allow for combined focus and investment, which will be put into the partner network.

“It makes sense that we are focused, united, more open and aligned on strategies,” Ridley says. “We also can’t overstate or reiterate enough how much Dicker Data and Ingram Micro New Zealand have been exceptional distribution partners, and that there were no systemic failures that led to this determination. Cisco has a great relationship with both Dicker Data and with Ingram Micro.”

But it is not just the review process that creates headaches for distributors. DNA’s Kahn says he has never seen as much focus from vendors on channel margins as in the past few years.

“We are seeing a lot of vendor pressure, all the way through the channel, in terms of being competitive in deals and making sure the customer is getting the best price,” Kahn says. “With so many vendors now listed, and quarterly revenues being absolutely gospel, the pressure is intense for everybody to squeeze and make deals happen.

“That is probably short-term thinking and probably will change over time, but that is a trend I have seen develop over the past 12 months. And talking to other disties, they are saying the same sort of thing.”

Verykios agrees, adding that a degree of desperation appears to have crept into some vendors’ strategies.

“When you are talking about end users being a lot more informed about various ways to consume technology, everyone gets a bit desperate, because they want whatever they can get from a seemingly shrinking market,” Verykios says. “It’s not actually a problem, because the total market is growing – it just looks like a problem.”

While that desperation creeps in at the sales level, it feeds back into the reseller, and then back up to the distributor.

“The resellers and the distributor are compromising their margins to make sure they get the deals, which really aren’t as profitable as they once were,” Verykios says. “So therefore, margin shrinkage this year is probably worse than I have ever seen it.

“Complex technology gets commoditised, and so the money in the deals is shrinking. But the other side is the delivery of the project is also compromised.”

And at the end of the day, that is good for no one. For Verykios, that has led to some very different thinking about what is required to run a successful distribution business.

“You have to be a student of business more so than you have to be a student of technology right now if you are building a future for your business as a distributor.”

Factfile: Why change?

Distribution changes occur for a multitude of reasons: to expand a vendor’s reach; to consolidate with fewer disties; due to M&A; when a new vendor enters the country; after a pivot to channel; or when the distributor itself chooses to step away from a vendor. Here are some Australian examples of each scenario.

Vendor launching two-tier channel

In 2017, Ingram Micro and VExpress became Australian distributors for cloud-based video communications vendor BlueJeans, which previously worked directly with partners. In June 2017, Informatica appointed Tech Data as its first distributor in Australia.

Vendor giving more products to a distie

Microsoft added five Australian cloud distributors in June 2016 in Synnex, Dicker Data, Avnet, Arrow and SaaSplaza. In May 2017, Dell EMC expanded its partnership with Dicker Data to include its full storage range.

Following M&A activity

In February 2017, Synnex was appointed distributor for Vertiv, the new brand name of  Emerson Network Power after it was spun out of Emerson Electric. In July, Micro Focus, emboldened by its US$8.6 million acquisition of HPE Software, appointed Nextgen Distribution as its master distie for Australia and New Zealand.

New vendor launching into Australia

In August 2017,  IT service management software vendor Continuum entered the Australian market by signing Bluechip Infotech.  Similarly, security specialist distributor EMT won workspace management solutions vendor Matrix42 when it launched in ANZ in July.

Distributor ending the partnership

While generally the rarest reason for a change, it is not unheard of for the distie to break things off. Specialist distributor Sektor terminated its partnership with HPE networking brand Aruba in August, seeking a consolidated line card of vendors.

Vendor consolidating distributors

Cisco ended its New Zealand distribution partnerships with both Dicker Data and Ingram Micro, opting for a single distie model with Westcon-Comstor.

Expanding the distribution roster

Pure Storage added Dicker Data as its second distributor in May 2017. Dicker joined Arrow ECS, which was appointed in 2015. Hitachi also added Dicker as its second distie, joining Lynx Technologies.

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