Editorial: Changing dynamics

Editorial: Changing dynamics

Debate over the number and quality of resellers plying their trade in the Australian IT industry is back under the microscope this week following the comments of Acer A/NZ boss, Charles Chung (see page 1 of ARN, March 15 2006 edition).

While Cellnet CEO, Adam Davenport, thinks fluctuation in reseller size and number is normal market behaviour, Chung suggests aggressive consolidation is taking place at the top end of the market. The voracious appetite of companies such as Commander suggests Chung is on the money.

Davenport is right to point out that the number of dealers will always be in flux; this is a dynamic industry and change is the only constant. But there are some compelling reasons for believing the pool of resellers is shrinking and will continue to do so.

The average selling price of PCs and other IT hardware continues to fall at an alarming rate. While average margins have been a concern for some time, they are now hitting levels where only the fittest will survive. General economic theory dictates that significant scale and rigorous operational efficiency are the only way to make a return when an industry reaches this level of maturity. As the resellers at the top of the food chain continue to grow, their economies of scale will make it increasingly difficult for the little guys to compete.

There will always be room for small specialists to move into the market and make a quick killing from emerging technologies. But as those technologies move towards commoditisation, those niche players will be gobbled up by the heavyweight VARs and integrators as extensions of their skill sets. I believe the Australian IT channel will eventually head down the same path the software industry is already taking; with a relatively small number of players controlling the market and acquiring smaller, more nimble organisations that prove their merit.

For now, the Internet is a great leveller and smart operators can make their companies look a lot bigger than they are by putting together a slick website. Increasing your proportion of online business is already an important tool in improving operational efficiency and Acer chairman, JT Wang, has urged resellers to take full advantage of ecommerce opportunities (see page 10 of ARN, March 15 edition). While some were already making excellent progress, he said others had been slow to react. Relying solely on traditional business models as an IT reseller is likely to put some dealers on a fast-track to extinction.

While vendors are making a lot of noise about convergence and the onset of digital living, Wang was also clear to point out that Acer has no intention of giving the PC channel access to its AV products anytime soon. This segregation of different product sets into established channels is a familiar story among the vendor community and any traditional IT resellers waiting for broad access to CE and AV categories to boost average margins shouldn't hold their breath.

One company looking to lead the way in attempts to break down these barriers is local PC manufacturer, Optima (see page 6 of ARN, March 15 edition). Company chairman, Cornel Ung, refused to disclose the names of vendors he is trying to enrol into his 3Cshop program. But if he can get some big names in his catalogues, it could be a foot in the digital door for many smaller resellers.

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