Resellers, distributors - your countdown to oblivion starts NOW Whither the channel when it's all in the cloud? Whence the box-shifter when no one actually buys PCs any more? The answer is, of course, that once a particular business model has no more business then that business model ends. It is, however, possible to look at this in rather more sophisticated terms. The most obvious, since …
Distie-hood is no different from being a high-street retailer. If all you're offering is the same stuff that buyers can get online, but cheaper, then you're screwed. And good riddance.
Just because you hide behind a corporate facade doesn't mean you are immune to market forces (or disintermediation, as the effect has been called for at least 25 years) just as your domestic counterparts have already discovered to their cost.
The only companies that haven't cottoned on to the need to add value (or think that having a flashy marketing campaign and a 25% mark-up to pay for it counts as "adding value") are the ones who are either dead, or dying. However, even adding value isn't the same as it used to be. Integrators are finding it tricky, too. Instead of selling individual computers, bundling them together, installing some software and calling it a "system" is also a flawed business model - as so many end-users find that the internet gives them all the knowledge and expertise to do this for themselves.
for better or worse?
Computers once came with full schematics (I still have those for my PDP-11/05). In them far off distant days, you could fault find down to chip level with a datascope and the schematics.
Then the growth of VLSI meant that you were pretty well limited to board level diagnostics and fixing meant swapping a board or two and getting them repaired.
Then came the single board system and you had to change the whole kit and caboodle.
Now everything is sealed inside its casing (like smartphones) so when it goes phut that is it, in the recycling and you buy a new one.
As the article says, those resellers who don't realise that box shifting is a thing of the past in terms of profits for your bottom line and that servicing is going the same way, they will have to adapt/evolve to survive. In many cases, there is little they can do by way of 'value add'. Training? Nah.
Yes, the writing is on the wall chaps. Come up with some innovation and you will survive.
There is another reason why people will pay you.
It's the reason some organisations are stuck with AmEx as a travel agent even though a telephone to a bucket shop would probably be better value.
It's called "corporate lock in".
Any similar IT-specific examples? Struggling to think of any (other than the MS ecosystem, obviously).
"Any similar IT-specific examples?"
The whole BPO and enterprise services market is lock in. HP, IBM, et al generally can't do things cheaper than the customer when you include their margin, customer acquisition and account management costs. But by promising half wit CIO and CFOs the earth, justified by the illusory magic of labour arbitrage, they persuade big companies to hand over control of IT infrastructure and business critical functions like accounts payable and receivable. AP, AR, the IT helpdesk what are they if not transactional, low value services fit only to be performed by Indians?
And when after eighteen months it becomes clear that like for like costs are going up and up, service is sh1te and getting worse, the same CIO and CFO types find they've been had. They don't have control of their own staff to bring the service back in house, because after these staff were TUPEd to the outsourcer, said outsourcer then sacked them all and employed idiots on a pittance (HP, I'm glaring at you in particular, but the other vermin in the outsource sector are little better).
So that is the IT and BPO lock in: The vendors make sure that the customer is locked in for a good long while by a contract they don't understand. Said customers usually find they can't enforce the SLA on the vendor. And having TUPEd their own staff down the river, the only option is renew with the devil you know, or renew with the devil you don't know.
"It's the reason some organisations are stuck with AmEx as a travel agent even though a telephone to a bucket shop would probably be better value."
You have missed the point. I always use AMEX for my extensive travel around the glowing blue blob because of the value add they give. It’s not just about the ticket price its all about the connecting flights, the changes to travel plans, the hotel booking, the late night calls when you find the AMEX has gone to the limit etc etc.
One trip was meant to be 8 days in Mexico - it ended up 8 weeks circumnavigating the world. A phone call each time the plan was changed and all w as good. No bucket shop could do that. So it’s all about identifying what your target market is and offering appropriate services
"You have missed the point. I always use AMEX "
Are you arranging your own travel (ie is there no in-house corporate travel team in this picture)?
Anyway, in most organisations I've known, in 99% of trips, adding Amex as well as the remains of the in-house team adds costs, not value. Whether the added costs outweight their alleged added value in the remaining 1% depends on the circumstances.
"it’s all about identifying what your target market is and offering appropriate services"
Absolutely. If you don't need Amex's services, why pay Amex's prices?
As an IT Bod that started life as a biologist, I often think of the changes in computing as responses to a changing environment. Particularly with hardware. Memory and processors became cheap the PC was born. Storage became cheap big hard disks allowedcomplex OS's and software, Growing Bandwidth led to a practical graphical web etc..
But I would restate the "survival of the fittest" rule as it gives the wrong impression. There are plenty of unfit organisations and business models still lumbering around and they will be here for a while yet,,
I believe a better phrase is "winnowing of the weakest" because that is what really catches organisations out. Any bioligist will tell you that with extreme specialisation comes exposure to extinction If you're food supply or habitat dissapears overnight so will you, no matter how big your fat reserves are.
The cloud is not going to kill all the distributors and resellers for a few very simple reasons.
Firstly, whether company X has two-hundred employees in a private system or two-hundred in a cloud system, each still requires a whole lot of kit to be productive. Whether it's inhouse desktops or even tablets connected to the clouds, they still need at minimum a consumption device (tablet) or a production device (laptop or PC). And with such devices comes opportunities for device management, roll-outs, training and reconfiguration. Networking is still going to be required, probably even more so if you go for a cloud solution. And then you have the exchange of data between different classes of devices such as tablets and smartphones, all requiring clever software and hence skills most companies do not want to employ a full-timer for but want on an as-and-when basis.
Secondly, not every business will go 100% to the cloud anyway. Many are looking at hybrid public-private clouds, which still leaves many opportunities to sell kit, services and solutions for inhouse work. And then there are the services to help companies move in or out or between clouds - it's relatively easy to migrate an Exchange/Outlook instance to Office365, but what do you do if you're one of those suckers that bought Domino/Notes? If your core app is on an IBM mainframe how do you stick that on AWS? And what about the years of data you have stored away, do you even want to shift that archive into the cloud?
And thirdly, the cloud is made up of servers, networking and storage, just like ordinary companies' systems. If company X requires seventy Windows (or Linux) instances outside the cloud then they are likely to need the same amount of compute power in the cloud even if they are VMs. Cloud companies will still need to buy the kit to run that additional requirement, and whilst the big boys may go direct or build their own, plenty of other cloud service provides will still buy from resellers (and hence distributors) as it will still be the simplest, cheapest, surest and quickest solution. Sure, I could order twenty servers from Dell direct and wait weeks for them to arrive, or I can call a reseller and get them overnight from stock held at a distributor, and even pre configured with my special build. And not every company does have the inhouse skills to build every bit of the stack themselves, whether it is inhouse or in the cloud, meaning there will still be plenty of consulting opportunities.
And finally, because for exactly the same reasons the vendors started working with distributors in the first place - it costs the vendors to hold stock in different countries and run their own logistics, so they outsourced the problem to the distributors. And it cost the vendors to run large sales teams, so they outsourced that problem to the channel. And it cost the vendors to run large presales and consulting arms, so they outsourced that to the integrators and VARs. Sorry, but IMHO your prediction of the inevitable demise of resellers and distributors is more than a bit premature.
But when all this vendor 'outsourcing' provides little of no profit to those traditional middle-men and the upward pressure starts rocking the vendor sales and profit line, the habitat and feeding habits of those in between radically changes as indeed does the vendor appetite and desire.
Value-add for those in between had meaning when profit points were accessible but you'd be hard pressed to find them now and the cost associated with provision of value add is not one so easily accommodated. Distributors can can no longer afford to be vendor 'stockholders' and incur the cost of value add when their own sales are declining and find significant client sales carrying a top line loss.
Resellers too are no longer in a position to carry the flag to clients or align themselves with vendors that don't give a fig and shaft them at every opportunity.
No-one is suggesting the sudden demise of the 'channel' but clearly things are evolving and changing and to suggest otherwise or infer everything will be as before is ridiculous. Current distribution and reselling models will change, fade or become less relevant. Many vendors we see now as huge also face unprecedented challenges and none are granted automatic survival.
"Which brings us to the second way we can view this, from the evolution point of view. It's often described as the survival of the fittest but that's not really quite right. For it is the environment itself that does the selecting. You can be the fittest cheetah on the planet but you're not going to survive in a swamp as one."
In respect to biological evolution, fittest does not equate to physical fitness but rather as in 'fit for purpose'.
This explains why a very physically 'fit', but highly specialised company, when faced with new environmental pressures that it is not well adapted to suddenly finds itself no longer fit for purpose in the new context (think polar bear with no ice, still physically fit, no longer fit for purpose).
"And to the economist the ability to make a profit means that whoever is making that profit must, by definition, be adding value."
Not in all cases. An arbitrageur makes a profit (he wouldn't do it if he didn't think he has a better than even chance of making a profit), but doesn't actually add value. He buys where it is cheap, and sells where it is expensive, but he doesn't modify the stuff he buys and sells.
You might argue about whether he adds value by changing the object from "there" to "here", where "here" is an attribute of value, and "there" is an attribute of 'non-value', but I think that's excessively nit-pickingly pedantic.
"And to the economist the ability to make a profit means that whoever is making that profit must, by definition, be adding value."
Only in la-la land. In the real world, profits are defined by corporate politics, oligopolistic strong-arming, marketing bullshit, and other nasty things.
Real economists call practical value 'use value' and know that it's completely different, and completely unrelated to, actual marginal profit.
Economics is a branch of rhetoric, not a branch of science. It's primarily about creating the perception of value, not the quantification of real value.
As for disties - demand for PCs will continue for some time yet. If you're in that business and your USP isn't price (or support, at a pinch) you probably are screwed.
But are there really many box-only resellers left in the channel? I'd have expected most of the bigger money to be in consultancy/solutions already. In which case a move-to-cloud is relatively trivial - and probably a business opportunity.
An arbitrageur makes a profit (he wouldn't do it if he didn't think he has a better than even chance of making a profit), but doesn't actually add value.
Whether merchants, speculators and "arbitrageurs" provided a "valuable economic service" under the watchful eye of God has been extensively discussed during the middle ages.
The general consensus was yes....
"Whether merchants, speculators and "arbitrageurs" provided a "valuable economic service" under the watchful eye of God has been extensively discussed during the middle ages.
The general consensus was yes.."
That was then.
Times, behaviours, and tolerances, can change.
"Possibly even a training school for would-be designers?"
Bring it on. You may encounter some competition from tax payer funded institutions who have been providing design training for rather a long time (and with some success), but you try for a unique angle on that. I'd like to see what you come up with...
Including doing basic research before letting his fingers loose on a keyboard. If Tim were to look at a distributor, say Misco, he would find that they sell a lot of tech. stuff other than PCs, such as Cisco kit. Whilst PC's are an important product line, they are not their only product line.
Yes the IT distribution sector is changing and is currently going through a rationalisation which only the 'fittest' will survive. So looking at other sectors we can expect to see fewer but larger distributors and a number of smaller distributors exploiting niches.
We have the the death knell of distribution regularly for the past 20 years - but the one thing that distributors are good at is adapting their business models to market forces. When distributors need to be cheap and provide good logistics for an E-Tailer, a Retailer or a Cloud Provider - the IT channel has adapted to become the world's most effective channel. Those talking about adding value need to think about cost. The key value most distributors provide is supply chain efficiency by reducing costs for all parties. More and more vendor companies use the channel to do this and the efficiency of process existing in distribution far outweighs the capability of most vendors themselves.
Good process is good sales - and ALWAYS will be!
There's less of them chomping on a decreasing food chain and they keep eating up the competition to show growth.....therein lies the dilemma. Same with resellers.
New models required moving into the next decade that can meet the changing face of consumer and technology driven demand.
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