Software and modem distributor Quadtel is to dramatically scale back its business after succumbing to intense competition from fellow distributor Tech Pacific.
The final straw for ASX-listed Quadtel came last week when security software vendor Network Associates withdrew its distribution agreement with Quadtel and appointed Express Data's new online distributor, Express Online, for its McAfee range of products.
Network Associates marketing director Allan Bell said the vendor was aware of a changing focus in Quadtel's business strategy. Asked whether Quadtel was being replaced by Express Online, Bell said there was no link between the two events. Similarly, he talked down any suggestions that the move was the result of Quadtel's recent management change which saw software distribution dynamo Rodney Orrick leave the distributor to take up a post at mass-merchant Harvey Norman. "It is not a question of personalities," Bell said.
According to Bell, over the past 12 months Quadtel had been accounting for a "declining percentage" of retail sales of the McAfee product range, the bulk of which was now being pushed through Tech Pacific.
Bruce Ind, the current chief executive officer of Quadtel, was not surprised by the vendor's decision. "We knew this was coming," he said. "The split is amicable as far as we are concerned."
Ind said Quadtel once managed the entire distribution process for several high-profile software vendors, including the distribution of joint-marketing funds for the likes of Network Associates. But as soon as the distributor started winning more high-profile accounts such as Symantec, "Tech Pacific noticed". Over the next 12 months the broad-based distributor flexed its muscle in the retail space to steal this market share back, Ind said.
"We have to get away from competing against the likes of Tech Pacific," he said. "They will burn us every time. We have to go back to our roots -- to better-margin, niche products."
Ind said that with large software vendors moving elsewhere, Quadtel will now revert back to the original business model of Marketing Results, the company it acquired in early 2001. Under this business model, the company will generate profits from re-marketing software -- manufacturing and distributing of CDs loaded with software created and owned by other companies, and paying royalties to the owners of the intellectual property. Marketing Results has traditionally achieved strong results with this strategy, most notably with the Dragon suite of speech recognition software as well as several computer-based learning/training products.
As for the old Quadtel side of the business (i.e. the distribution of modems), Ind sees the DSL (digital subscriber line) market increasing but is wary of the intention of several vendors to "go direct". "I am not sure how long it will go on for," he said.
Ind said there has been some natural attrition of staff since Quadtel lost several high-profile accounts, but there is "more to look at" with regards to reducing expenses. He said there are also several legacies of Quadtel's past, such as the lease on its premises in North Sydney, that will soon be cut out.
The distributor is nonetheless positive about its future prospects. "Our revenue won't be as great, but our profitability will be much better," Ind promised.