This is my first editorial as editor in chief of ARN. Our former editor Gerard Norsa has gone to Melbourne to be with his family and will continue to play an important role as ARN's editor at large. By way of introduction, let me share my views on the channels of today and our dear friends at the new HP. So here it is!
As the industry continues to yield to market pressure in the pursuit of higher efficiency and greater returns, it's becoming increasingly apparent that a lot of it will come down to redefining the role of the middleman.
One doesn't have to be John Forbes Nash to figure out that the only way to satisfy finance capital's ferocious appetite for quick returns is to commoditise IT distribution. And it seems that no-one is more aware of the need to do so than HP's steamrolling CEO Carly Fiorina, whose rollout of the hybrid distribution model - including the new channel program PartnerOne, effective from November 1 - has been the talk of the industry for the last few months.
Fiorina argues that the backdrop of the change in HP's distribution model is the consolidating industry, in particular customers who demand more value from their IT suppliers. The real force behind the decision, however, as industry analyst Andrew Orlowski points out, is digital capital financiers, who are "getting their arses kicked in real time". They are, in turn, pressuring the industry, which was once admirable in its pursuit of innovation, to focus on moving more boxes instead.
Doing a Dell', when Dell itself is not only flirting with a reseller model but fast becoming one of the most prominent channel companies, poses some interesting questions. If Dell recognises that customers get their value from services traditionally delivered through intermediaries, why doesn't Fiorina? Well, she does. However, she also believes that cost efficiency equals more direct dealing. In reality, asking the channel to deliver more value' is passing the shareholder message to the supply chain - move more boxes, fast.
What is at issue here is that the either/or distribution models of the past are finally crystallising into a hybrid. On the one hand, it reinforces the value of the channel, but, on the other, legitimises the need for co-existence of direct and indirect models in order to deliver value to both sides of the equation - financiers and customers.
Of course, there are lessons to be learnt from IBM's renewed commitment to its resellers, which has seen its indirect PC market share (read: the value delivered to the shareholders and customers alike), go up by 4.5 per cent. Even traditionally direct dealers, such as white-box manufacturer Ipex, have discovered the value of partnering with the retail channel, proving that direct and Web-centric distribution models simply don't work with consumers, who prefer to walk to the local shop and take advantage of the service provided to them by the traditional reseller.
Sun's Scott McNealy recently admitted that Sun's abandonment of the channel during the dotcom era has cost the company dearly and is openly critical of HP's direct services push, arguing it will make only its investors happy. Furthermore, if Sun's example is anything to go by, the effect is likely to be temporary, for growing a direct business model tends to put a heavy burden on the bottom line.
While Fiorina considers her job to be keeping HP's shareholders - not its channels - happy, the question remains whether the model she is touting as a replacement can sustain market whims. HP is what it is today due not only to its impeccable record of innovation, but also to the successful relationship it has with its business partners. But will shaking these foundations to respond to market imperatives of efficient investment be enough to sustain the required growth? Please feel free to challenge me on these views. I'd be delighted to hear from you.