EDITORIAL: The weakest link

EDITORIAL: The weakest link

Declaring the IT distribution channel to be in the midst of an evolutionary phase is probably more an exercise in stating the bleeding obvious than it is imparting any great wisdom. It's pretty clear that in the current economic downturn some businesses are simply not going to survive.

Whether it's by acquisition, insolvency or simply entrepreneurs deciding to do something else, resellers unable to adjust to the shifting landscape risk becoming irrelevant in future technology partnering channels.

But that doesn't mean all existing businesses in the channel are doomed.

Mass merchant retail has proven its standing in the supply chain and will obviously remain the prime avenue for sales to home consumers and very small businesses. Meanwhile, most of the big retailers are working hard on building up their corporate, government and education sales to take advantage of economies of scale in their supply arrangements.

Harvey Norman now has a corporate sales operation. Coles Myer is ramping up its Harris Technology division (which has always been strong in corporate sales) and Woolworths, the owner of Dick Smith Electronics, has been quietly fine-tuning its CRM and Web sales capabilities. I suspect the IT sales future of these companies is secure.

Companies specialising in security, managed services, storage, outsourcing, software customising and back-end integration projects are also on fairly solid ground if they are prudent. These are all services that customers are willing to pay for because they contribute to driving costs out of running other organisations.

Meanwhile, I also envisage a hugely significant role for regional resellers with business and technical skills. They have the opportunity to become the services arm in the efficient supply chain of the future.

By "regional resellers" I don't just mean small operations in rural towns. I'm also referring to city-based channel companies that service all manner of customers in their local area.

Margins on mainstream PC and LAN hardware are only going to get slimmer so the trick will be to abandon a product sales-centric business mentality. This doesn't mean regional resellers should stop selling hardware, it just means there should be less bewilderment and furrowed brows at shrinking hardware margins and more emphasis on building up billable service hours.

The nature of very big deals being signed these days and the rise of direct selling has seen the bundling of services into the overall contract, which in many cases involves implementation and maintenance work in diverse locations.

Resellers often don't get a look-in on these deals. Typically, a large multinational vendor will partner with a logistics company and a value-added reseller while a large services company steps in to provide warranty and technical support.

These services providers need to have feet on the ground in many locations to provide support, and they are in turn partnering with smaller regional resellers to provide those services. Regional resellers that can position themselves to deliver such implementation, integration and maintenance services stand a much better chance of getting a slice of the pie.

So who won't survive?

Unfortunately, I see trouble ahead for dealers trying to move boxes in and out without adding too much value, especially since most of them are unwilling to hold a great deal of stock these days.

While the need for resellers to build services revenues is not a new message, it is rapidly escalating in urgency. If you don't add value and therefore can't charge for that value, you are kidding yourself if you can't see that your days are numbered.

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