Distribution: State of the nation

Distribution: State of the nation

Despite the carnage of 2001, over the past 12 months the number of distribution companies in the Australian channel has grown by 17.6 per cent.

According to channel research company Inform Business Development, 105 rookies and 429 distribution veterans are currently competing for a slice of reseller business across Australia, and a staggering 68.4 per cent of those still cite hardware sales as their primary source of revenue.

Although the departure of hardware heavyweights Siltek, Sealcorp and CHA was highly publicised, the most significant drop off (1.5 per cent) actually occurred in software distribution. In total, 51 distribution outlets were either swallowed up or closed, while the number of services-centric distributors remained steady at 10.9 per cent.

The Inform figures challenge the commonly held belief that the distribution channel is undergoing a rapid and radical consolidation. If anything, they confirm that the major threat to the distribution channel doesn't come in the form of new or disappearing distribution models or market volatility, but from the inability of organisations to quickly adapt to those conditions.

"It's very easy to run a distribution business when the market is growing," said former Siltek CEO Hugh Evans. "But the prosperity of the past has led to inefficiency. The economic downturn has shrank distribution volumes and contracted budgets, and the guys who survived are the people whose parent companies had the deepest pockets or those who managed to maintain the balance between their overheads and services," Evans said.

Parental sponsorship aside, the increasingly anaemic IT market and questionable management strategies have forced even the likes of Tech Pacific to resort to radical cost-cutting measures and embarrassing decision-reversals to stay viable. With their performance levels oscillating almost as dramatically as the market turnarounds that supposedly caused them, top-heavy distributors are finding their size and scope to be the biggest impediment to their ability to get in line with the declining levels of business.

But the effect of shorter product cycles, rapidly disappearing margins and unrealistic growth expectations had only a minor effect on tier-two distributors, which seized upon the new realities to deliver value-add to the reseller.

"Adapting to the market where there is a high volatility of products and distribution models is often easier for the small guy," said David Hein, managing director of South Australian outfit Hightech Distribution.

While they're more susceptible to factors such as unpredictable patterns in vendor distribution strategies, Hein, whose own company was challenged by Acer's one-tier strategy last year, believes the answer lies in offering a diverse range of products and services to the customer base.

"Distribution as we know it now may well become defunct in the future, but turning your unique skill into a revenue stream means not all of your eggs are in the one basket," he said. "We've experienced significant growth in services, as we are an authorised repair agent for a number of vendors. We also offer wholesale network roll-out services to SOHO resellers who often don't have the resources or expertise to do them themselves."

This kind of "customised partnering" is also finding its form in software distribution, where electronic delivery is rapidly changing the rules of the game by making the time and place factors obsolete.

"The new operational paradigm has made software delivery far more efficient, allowing us to adopt an integrated approach where we design a new revenue model for the reseller," said Glen Miller, managing director of Sydney software distributor Janteknology.

Advocating the "delivery of business solutions" to the reseller, Janteknolgy has just launched an automated online security vulnerability scanning system, a service that allows resellers to identify security problems in their clients' systems, creating an additional revenue stream to their business.

"This represents an added-value revenue opportunity for the channel, because in addition to offering the service, resellers can use the resulting vulnerability report as the basis for providing additional value-added services and/or security products," says Miller. "In the current market climate, this provides resellers with a business development strategy focused on security, which is a high-growth market sector."

The service is part of the larger goal to create "strategy for profit" and deliver it to the reseller as a ready business solution, ultimately building the type of partnership loyalty that bigger players have little interest in as they relentlessly pursue volume sales.

Of course, broad-based distribution in itself will never become redundant and is not necessarily problematic even in tough times, as the continuous success of companies such as Dicker Data and IT Wholesale shows. But the importance of value-add, the mantra the distributors have been feeding to resellers for years, has to be put back into the distribution equation in an environment unlikely to ever experience the levels of growth recorded over the last decade. Loyalty, after all, also has a dollar value, and these days every dollar counts.

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