Few IT players face the kind of business model disruption felt by distributors. They’re caught in the crossfire of industry change coming from multiple directions.
Technology products are being commoditised, with downward pressure on prices. Physical infrastructure is increasingly delivered over a network instead of on the back of a delivery truck. Licensing models are transitioning from large, perpetual deals to subscriptions.
Vendors are in a state of continued upheaval as they remodel their own businesses, which leads to a lack of consistency in their downstream relationships (we cover this trend in more detail with the feature article, "Under review: Australian distributors face constant vendor change").
All of this puts pressure on distributors to evolve while protecting market share on their traditional turf.
CRN undertook this major research into the Australian distribution market to uncover insights and opinions about distributors from their upstream and downstream partners. We want to thank everyone who took the time and effort to contribute to this important research. Five respondents each scored a $200 Visa gift card in the prize draw.
Here, we present a top-line sample of the research. This is a cut of a much richer, more in-depth analysis, which includes specific data on the six largest distributors operating in Australia: Ingram Micro, Dicker Data, Synnex, Arrow ECS, Tech Data (formerly Avnet) and Westcon-Comstor. The data has been sliced and diced by vendor and channel partner responses, and offers insights such as:
- Where do each of these major distributors excel, and where could they improve?
- If a vendor had the freedom to work with any Australian distributor, who would they choose?
- What is the No.1 thing both channel partners and vendors want from distributor cloud marketplaces?
- Which distributor is best at marketing support, who scores highly in pre-sales, which disties excel at enablement and who stands out in customer service?
- What are the most important factors when a vendor or reseller chooses to work with a distributor – and where do each of the six largest distributors stand out or fall down?
#1. Who took the survey?
The survey respondents were roughly split between channel partners and vendors. The majority of respondents were senior decision makers.
More than 150 vendor executives and 200 channel partners contributed to the major research between September and October.
The majority of respondents were senior decision makers. Respondents included representatives of most tier-one tech players active in Australia, including members of the CRN Channel Chiefs group as well as winners from the CRN Fast50 and Impact Awards.
#2. What products and services do you provide?
Managed and professional services were the most common among channel partners, followed by networking, servers and PCs & peripherals.
#3. How many distributors does your company work with in Australia?
While the typical vendor worked with just two distributors, channel partners largely worked with more than four – both to purchase different products as well as get the best pricing.
#4. How many Australian distributors should a vendor have?
The majority of both channel partners and vendors prefer to see at least two distributors, to ensure competition.
Beyond this, repondents were split, with partners preferring as many disties as possible, and many vendors suggesting one was enough.
Quote / unquote: Channel partners
If a vendor has a sole distributor, there is no way to deal with poor service. If a vendor has a direct-only approach, there is no effective advocate or protected commercial means of dealing with cowboy behaviour from vendor employee reps. If there are more than two distributors, it spreads potential earnings too thin – making it difficult for the distributor to manage the investments, ongoing training, relationship management etc that are part and parcel of their commitment to a vendor.
Having a sole distributor is anti-competitive and you have to solely rely on that distributor for product. Having a second distributor allows choice for the channel and encourages competition.
You need at least two to compare prices. But these days a single distributor can't sell all the same products needed. Hence we have about 10 or more.
Quote / unquote: Vendors
Being an established vendor, it is good to at least have two distributors, not to compete on price, but to compete on services/value.
Our revenue means we would have issues keeping the distributors' attention if we spread over more than one.
You should always have two to keep one on their toes.
Depends on the size of your business but generally for risk mitigation you would want redundancy, however [we] would be open to a sole distie depending on what was on offer.
This is not a simple question. There needs to be enough business for each distributor to be able to add value, reach their specialist market and make a profit while balancing enough competition to drive a fair market price. In the case of smaller vendors, often a single, focused distie is better than multiple. A single distie will invest in partnerships to grow a new market.
In order to develop a mutually beneficial plan, that encourages trust and transparency, a single distributor partnership has always been the success model for me. Agreeing margins, KPIs and shielding the partner community from the details to ensure limited friction.
#5. What are the most important factors when choosing a distie?
Among channel partners, the three most important factors when choosing a distributor are price, product availability and pre-sales support. Among vendors, the top three are enablement / product knowledge, marketing support and pre-sales support.
Both groups agree about the significance of pre-sales support, but are widely split on other factors. For instance, marketing support was a top three factor for vendors but outside the top 10 for partners. On the flipside, price was the most important factor for partners but outside the top 10 for vendors.
#6. What do you think of resellers shopping around distributors on price?
In general, the majority of respondents from both groups see price-shopping as just the nature of the industry. Outside of the majority, vendors were twice as likely to see it as a real problem.
Quote / unquote: channel partners
"If you don't shop around you will not get [the] best price. If it was offered in the first instance, then shopping around would not be required."
"Knowing it is possible ensures distributors keep the pencil sharp."
"Distie margins are too high. More competition needed."
"I don't like it, but this industry has created a culture where the race to the bottom line has huge relevance."
"A lot of this behaviour is driven directly from certain vendors. Very little loyalty these days, I'm afraid."
"Price between distributors should be comparable."
Quote / unquote: vendors
"I’ve yet to meet a distributor that offers a truly unique and highly valued differentiator, and as such they haven’t earned loyalty from resellers."
"It erodes margins across the board and hastens the race to zero."
"I think it's an option partners can exercise, but I believe in partners working with one distie for credit terms and relationship."
"We are in a very competitive industry, but this becomes less of a problem if the vendor doesn't over saturate the market with too many distributors."
#7. If everything else was equal, would you prefer to work with...
Niche distributors pipped broad-based disties in terms of preference among both channel partners and vendors. However, partners were more evenly split, with comments suggesting they many appreciate the wider range and better pricing available from a mainstream distributor.
#8. How do you feel about the future for distributors?
Among respondents from both camps, the largest number of respondents expect only the strongest distributors to survive. It's no surprise, given the fast pace of merger and acquisition activity that has already seen many smaller disties swallowed up, not to mention several that have fallen into insolvency.
Quote / unquote: Channel partners
"There will always be a place for disties given they have the capacity to do what most vendors can't – scale and provide the depth a vendor requires. Certain vendors would struggle to exist in this country without a quality distie."
"As per law of the jungle, the strongest or most adaptable always survive."
"I shouldn't see a future for distributors, but vendors have yet to demonstrate that they can perform this function adequately themselves. There really shouldn't be a need for disties other than as 'agnostic aggregators' of both product and knowledge, but vendors' failings will ensure their long-term future."
"Distribution is always required, however, it is definitely not a level playing field."
"Glorified couriers that add way too much overhead on price."
"There is a definite move by vendors to push much of their direct resellers back to distributors. Dell being the latest of these."
"Distribution works very well if done right, and I believe it's only improving as time goes on."
"They are a key partner to most resellers who rely on their logistics capabilities and the fact that they bankroll many purchases for the short term."
"Distributors claim they work on razor-thin margins. What is the point in being in business if you only make a few percent? Also it is frequently possible to buy retail cheaper than a distributor price."
Quote / unquote: vendors
"Weak disties will go out of business or be acquired, forcing consolidation in the industry."
"Nature of technology will mean that resellers will be able to work directly with vendors."
"Without technical knowledge (across many surrounding technologies) there is no value-add."
"With the increased use of portals/web stores only the flexible, innovative and relevant will survive."
"They perform a valuable service for vendors and resellers."
"Too many mergers and acquisitions."
"Get big. Get niche. Or get out."
"Specialisation and therefore relevance will be the key for strength, as AI and machine learning impacts the purchase and support process."
"Market is getting cut-throat and things like cloud based offerings are reducing the need for distribution."
"Lower margin from distributing hardware and software, distributors who survive will be the ones looking at opportunities to add service revenue to support the channel."
"Vendors are starting to sell direct, the market is getting more and more price sensitive and only the best will survive."