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Internet muddies channel waters

Internet muddies channel waters

Continuing "confusion and chaos" in the channel is IDC Australia's crystal ball outlook for the next 12-18 months, according to its research manager, Graham Penn.

Speaking during his presentation titled "Channels in Chaos" at last week's IDC Directions '99 conference, Penn warned there are more big changes coming for all tiers of the IT distribution channel.

The Internet will continue to muddy channel waters, he said, and "the vendors themselves are very active in establishing the future and seeking better ways to reach the end user.

"To resist change is almost to guarantee irrelevance for vendors or their channel partners," Penn said. "Just as the buyer in the 'new economy' is changing, so must the channel. The confusion and chaos which we have seen over the last year or so will continue. The channel will carry on playing a major role in our industry but will inevitably change and evolve as time goes by.

"We expect to observe significant transformations over the next 12 months as each of the players evaluates their position in this new market," Penn added. "We are now entering a period of rapidly changing relationships and they are necessary in a rapidly changing market."

Penn said IDC's research shows indirect channels account for 60 per cent (or over $6.2 billion) of hardware and software revenues in Australia, as well as "significant" revenues from services over and above that.

Penn observed that changes in business practices and the use of new technologies has resulted in some "real blurring" of some of the distinctions between direct and indirect.

"The channel is consolidating," Penn said. "The low end is migrating towards direct, reflecting the very low margins and prices which are operating in commodity hardware. Interestingly, the high end appears to be migrating towards indirect as channel partners provide value-added intermediary services and make the products closer to the end user."

In addition to the obvious product, pricing and availability information that is already being supplied in abundance over the Net, there is now also increasing order placing and tracking. The technology is now there to move to the next stage, Penn said.

One of the major emerging metamorphoses in the channel is the emergence of an electronic software delivery (ESD) industry. ESD will significantly affect the way software of all kinds is marketed, sold and delivered but more importantly provide both opportunities and dangers for the channel.

Exploding industry

"Indeed, the Internet has the potential to become the new distribution channel for software," Penn said.

From global revenues of $US200 million in 1997, the fledgling ESD industry trebled to $US600 million in 1998 and is tipped by IDC to do so again, up to $US2 billion this year. By the end of 2001, IDC is conservatively predicting ESD will be worth nearly $US6 billion globally.

The good news about ESD is the chance it offers to build a business around delivering Internet functionality, providing electronic services, digital retailing or software licence "clearing houses".

"Building the communication infrastructure, delivering services and enabling new technologies each provide opportunities for people to build businesses," Penn said.

On the downside, Penn opined that during the transition period all players need to understand the new customer and technologies or face "disaster". "Customers want solutions, not products," he said, adding that the old ways of software licensing will "no longer apply".

"Some channel partners will obviously be affected [by ESD] more than others," Penn said. "They can choose to work with it but if they resist they will probably find that their business will be under a lot of pressure."


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