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All's fair in love and channels

All's fair in love and channels

What did Com Tech's David Shein do when in 1996 he forecast there would be a limited future for his value-added distribution business? He went direct to end-user customers.

Many a reseller considers this the ultimate distribution sin. Indeed, in the past if you questioned a distributor about direct intentions, they would adamantly declare that it would never happen and that pure distribution was the only name of the game.

However, a subtle breeze seems to be blowing through the channel. Much to my surprise, questions about direct intentions asked for this week's Distribution Channel Verdict supplement didn't have distributors back-pedalling like madmen.

In fact, most were conceding that in the future it was more than likely that distributors would have some type of end-user relationships and would engage in some form of direct selling.

As Prion's Michael Bosnar stated this week: "We'll go where the market takes us."

'Where's the loyalty to their customers?' many resellers will scream. Well, just like any reseller a distributor's first loyalty is to its shareholders and secondly its staff.

That's why David Shein made the decision he made when Com Tech transformed into an integration business. And that's why I'm quite positive more and more distributors will begin to deal direct with end-user customers.

In the US, IBM, Compaq and Hewlett-Packard all sell direct, but they're not truly selling direct. It's Ingram Micro that fulfils those orders.

Take a look at Hewlett-Packard's direct-selling Web operation in Australia, which is currently being fulfilled by reseller Leading Solutions. HP made a big fuss about how it was different to Compaq because it was a reseller that was fulfilling its direct orders. How much longer will that continue? I know a number of distributors who have put their hand up to grab a piece of that action. And why wouldn't they? As a distributor, fulfilment is a core competency. We're not talking about any value-add here.

Then again, let's talk about value-add. Why not? Every distributor and his dog is. If a distributor builds up a services infrastructure so that you can provide the same design, configuration and implementation skills that a reseller does, how long are you going to let the reseller - who is onselling those services and providing little, if any, value-add - skim off the margins you could be making?

As one channel executive commented to me last week, most distributors are almost certain to have a hybrid business model where they can leverage the economies of scale they get by selling services through smaller resellers to enable them to more efficiently and cheaply provide and sell services directly to larger customers.

It's already happening in other parts of the world, indeed it could be argued it is already happening in Australia. A good number of the major distributors already have direct-selling sister companies.

So next time you put a distributor in front of your customer, perhaps you'll think twice. You really need to own your customer, especially if they're particularly profitable. And you need to do business with a distributor you can trust and won't screw you over if it does decide to dabble in direct sales.

Philip Sim is editor-in-chief of Australian Reseller News. Reach him at philip_sim@idg.com.au


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