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Assessing the threat landscape

Assessing the threat landscape

Independent resellers are expressing concerns that cut-price bulk deals leave them unable to compete (see page 1 of ARN November 29, 2006 edition). While not a new phenomenon, some are complaining it is a growing trend. Vendors and distributors are not without blame for this trend. You have to question the wisdom of offering significant discounts on a couple of hundred units when it upsets so many other partners.

Having said that, business is business and suppliers can only suggest retail pricing levels in a free market. It is the behaviour of a minority in the reseller ranks that are creating headaches for everybody else.

But what other changes in market dynamics are threatening the traditional IT channel?

Last week's column looked at how vendors have driven costs out of the reseller model in recent years and how that has created an army of one-man operations that can sell prices at a tiny fraction above cost because they have no overheads.

As an example, a friend of mine was looking for a new digital SLR camera recently and found the model he was after on a website that gave a North Sydney address. When he got there, the business was not on one of the shopping streets as he had expected, but in the middle of a residential area. The bloke who opened the door walked him through the apartment, complete with dog and young children, to a room that was full to the rafters with IT kit. He scribbled a receipt, they shook hands and the deal was done.

I hope for my friend's sake the camera isn't a lemon because I don't fancy his chances of getting much after-sales service. But even on a reasonably expensive piece of equipment, he had no hesitation in making the saving. The rise of such operations is a major worry for traditional corner-store resellers. Dell has long been public enemy number one for the channel but its star is somewhat on the wane at the moment.

Long the darling of Wall Street, its share price tumbled after successive quarters of missed revenue targets. It is still a tough competitor, particularly at the lower end of the market, but other vendors have learned how to compete and fears that its model would be the death of the channel have now receded. At the same time, a resurgent HP has looked more channel-friendly since new CEO, Mark Hurd, took the reins. Other major vendors like IBM have been making similarly positive noises.

From a channel perspective, the telcos are of far greater concern to the traditional IT channel than Dell. As the industry continues its transition to a model driven by applications, they are positioning themselves as one-stop shops for an array of managed services.

Telstra bought Kaz, Optus bought Alphawest and Commander has had an insatiable thirst as it builds its reseller business. I would suggest they are the competitors the channel needs to fear most.


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