Microsoft has discontinued its distribution agreement with value-added reseller i.t.connXions (ITX), as part of an ongoing reassessment and rationalisation of its distribution strategy in favour of a broad-based model.
Microsoft's consumer and retail customer unit director, Alan Bowman, said the vendor has had a good relationship with ITX, and praised the company's technical services and skill set, but "under the premise that we're looking for broad-based and national distributors that can provide services across a full range of products, ITX really doesn't provide that for us", he said.
"We wish the guys well, and really for us it's a difficult decision, and we're going to work closely with them to make sure that the transition period is smooth."
Relations between the two companies remain amicable. ITX general manager Laurie Sellers says that while the decision to part company was largely Microsoft's, it was not due to lack of performance. "We were making our numbers, we were achieving our targets with them," he said.
Sellers believes Microsoft wants to focus on the time-and-place distribution model. "They didn't see any need for value-added distribution in their model, and therefore they would be reducing the number of distribution partners from the current seven down to a smaller number," said Sellers. "They were implying, therefore, that because we were a value-added distributor we had to make a choice as to whether we felt we fitted into that model or not."
Another contributing factor may have been that ITX's strength lay more in licence sales as opposed to full shrink-wrapped package distribution. "We did sell full package products as well," said Sellers. "If you add it all together we were making our targets. In our agreement with them it didn't differentiate between licensing and full package products."
According to Bowman, the decision was not taken on the basis of revenue. "It's more about what they're doing in terms of broad reach - how they are putting programs in place.
"Their focus wasn't broad enough, they didn't have a broad-based national infrastructure in selling finished products, but they did have quite a good mechanism for selling licensing. So it's a tough decision to have to make."
Sellers disagreed with the assessment on ITX's national coverage, stating that ITX has an office in every capital city as well as telesales and support teams.
As for Microsoft's remaining six resellers, Bowman said the distribution model is constantly under review, with contracts renewed on an annual basis.
"We're constantly looking at how we can provide distribution partners that offer the ability to be broad based, to be national, to offer resellers sufficient levels of credit, and to have the capacity to be able to deal with the broad range of products that we've got.
"So in saying that we're now looking at how we could rationalise our distribution to ensure that we've got very effective and efficient broad-based distributors servicing our products in the market.
Blessing in disguise
"Naturally what's going to happen is some distributors that we've had for some time potentially may not be distributors in the future. And we're working with all of them at the moment to work out the best way of moving forward for this year."
While not happy to have lost the distribution licence, Sellers said the decision might prove to be a blessing in disguise for ITX. "It's fair to say that they represented a reasonable chunk of our revenue, a much smaller amount of our gross margin, but probably very little of our profit," he said.
"Whilst there will be some short-term pain, in the longer term it's effectively freed our resources to concentrate on products that give us and our resellers a better return, and we've got many of them."
He sites Netscape, Hummingbird, Attachmate, FTP, Citrix, Cognos, and Cheyenne as software products that give a healthier return than Microsoft.
"The other thing is, in some ways it's consistent with our network computing strategy," said Sellers, "where we've established relationships with Netscape, Oracle, Citrix and so on, along with other connectivity products that are relevant to network computing."