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Editorial: Time for a cull?

Editorial: Time for a cull?

While commoditisation in the hardware industry is nothing new, it seems a number of the bigger resellers have finally had enough - so much so, in fact, that there is talk of setting up a national reseller organisation to give the channel a voice.

The argument being put forward by a number of the country's largest resellers centres on claims that it is too easy to gain access to product through distribution. A growing army of one-man band consultants - who take an opportunistic approach and ruin the market for everybody by screwing the margin out of sales - are of particular concern to those at the top of the tree. These consultants can afford to do this, it is argued, because they have no staff or infrastructure costs. If this is true, what could or should be done about it? And, perhaps more importantly, who would be responsible for driving the change?

Let's start at the top of the chain. During the past couple of years, there has been a mass vendor awakening as every man and his dog tries to tap into the SMB market. This is historically reseller heartland and even vendors with enterprise heritage like EMC and CA have been fluttering their eyelashes and looking for a slice of the action. Unfortunately, some have been guilty of appointing too many resellers, which often ends up with those partners cutting each other's throats. Vendors take note: building closer relationships with a smaller number of partners would be better for all concerned.

So what about distribution? According to the country's largest distributor, Ingram Micro, it currently has 9000 active resellers that buy product every month. And yet, figures produced by market analysts at GfK earlier this year, suggested there were less than 7000 IT resellers in the market during 2004, of which 1100 were mass merchant branches. That takes us down to less than 6000 dealers, retailers, VARs, integrators, service providers and software developers. So who are the thousands of resellers being counted by Ingram but not picked up by GfK? How many of them are one-man bands that pick up a couple of sideline sales every month to supplement their day jobs?

The larger resellers claim these operators make up a significant portion of the low-end market and would like to see something done about it. Furthermore, they believe the disties are in the perfect position to do it. If the major disties all agreed to impose minimum spend or purchasing frequency restrictions, they argue, it would weed out many of the fly-by-night operators. But Ingram makes the vast majority of its revenues through a volume model based on timely delivery at competitive prices. Why should it, or any other distributor for that matter, restrict access to product lists in order to protect the interests of larger resellers? Especially when you consider that many of those organisations have direct relationships with the vendors and don't buy through distribution anyway (except to second source when they need something in a hurry).

There is no quick fix to the problem of skinny margins but the formation of a national reseller organisation could only be positive for the channel. Members could sign up to a code of conduct and a badge of accreditation would be a safeguard that let customers know they were dealing with a trustworthy business. Market forces suggest there will be consolidation in the IT reseller channel; only dialogue will determine whether it could or should be manufactured.

See next week's issue for more on this and other PC channel topics that were discussed at a recent ARN round table event held in conjunction with Lenovo.

Brian Corrigan is Editor of ARN. Reach him at brian_corrigan@idg.com.au


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