Gone fishing

Gone fishing

The only surprise in Gartner's claim that half the world's channel companies will disappear within two years is the rate of consolidation (see page 1 of ARN November 22, 2006 print edition). I am in no position to speak from a global perspective but I would be very surprised if so many Australian resellers were gone by the end of 2008.

Consolidation is a normal process in any maturing market and there can be no doubt it is taking a strong hold within all layers of the IT distribution market. But the number of active resellers is not diminishing at any great rate of knots. Instead, the percentage of business done by larger resellers is steadily increasing.

For example, 20 per cent of Cisco's SMB sales were being made by its gold partners five years ago. That number is now closer to 60 per cent, which is a worry for distributors and tier two resellers alike.

But does it mean one in every two resellers is going to shut up shop? My guess is probably not. While decreasing margins have created a lot of pressure and forced most resellers to build some level of services into their model, they have also seen the industry get smarter about delivery mechanisms.

A reseller can now take an order, call a distributor to request stock and have it delivered directly to the user without ever seeing it. In some cases, the delivery will even sport the reseller's logo. Then there's the move to online, which has also cut significant costs out of all levels of the distribution chain.

These initiatives have been devised by vendors and distributors as a way of keeping resellers viable. I am not naive enough to believe this is altruistic (the truth is they need resellers to maximise sales and improve their own bottom lines) but the end result is the same.

However, while the move to greater efficiency has helped keep many genuine IT resellers in business, it has also seen an explosion in the number of one man consultancies. You don't have to be Einstein to set up a website and, as one vendor said to me last week, there are people fishing off the coast of Queensland that take orders without ever having contact with their customers. This game is pure product fulfillment and makes it difficult for many genuine companies to justify their price lists.

The reality is that independent resellers who have been running small businesses for many years could end up being sucked into the black hole Gartner spoke about at this year's ITxpo in Sydney. They can't compete with the prices of one-man bands that have no overheads or the economies of scale brought to bear by the big retailers.

The industry is in danger of driving a valuable knowledge base out of existence. There's no doubt the drive to greater efficiency is much needed, but maybe who has access to those efficiencies needs to be policed a little better.

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