2002 in review: Top 10 channel issues

2002 in review: Top 10 channel issues

Each year, certain issues have a major influence on the way the channel evolves and contributes to the entire IT industry. ARN has selected 10 topics that helped shape the channel in 2002.

* The rising cost of insurance

The collapse of HIH, an uncertain economic outlook and the so-called "war on terror" conspired to see insurance premiums rise dramatically. At a time when channel companies were looking to cut costs, this is one overhead that blew out substantially and severely impacted the viability of any marginal businesses trying to eke out a living in the IT industry.

* Hard drive failures

Throughout the year the hard drive market has been plagued by supply and reliability problems. How then can three hard drive vendors collaborate to simultaneously reduce the warranties on their product from three years to one, claiming that improved reliability was reducing the need for anything longer? As any distributor or white-box assembler will tell you, the number of dodgy drives in the market is beyond a joke and vendors are no longer prepared to warrant that they will last more than 12 months.

* Government outsourcing

Over the past five years, government agencies at local, state and federal levels bought into the grand vision of outsourcing their IT requirements to specialist IT services companies. Generally, these companies were foreign owned and full of promises to reinvest in the local industry. Unfortunately, 2002 was the year many of these dreams came apart at the seams. Any perceived savings were eaten up by late and over-budget projects, unfulfilled promises and the collapse of many local service companies that were squeezed out of the game.

* Vendors going direct

Vendors may well be more reliant than ever on their channel partners to reach customers, but this has not stopped many of them from trying their hand at a shorter route to market. If it was not questioning the value of distributors by insisting on dealing direct with resellers (Acer, HP and Cisco to name but three), it was bypassing both tiers by heavily promoting Web sites and call centres to the end users themselves (IBM).

* Tech Pacific turns it all aroundIf you want a sure-fire disaster in your small reseller database, introduce small order fees and other barriers to business as Tech Pacific did in 2001. This year saw fresh blood at the helm of Australia's largest distributor. The ensuing changes won back many of the customers that had stopped doing business with it and returned the company to profits.

* Price wars

Despite volume distribution consolidating down to a handful of players, there has been no let-off in the competitive pressures on commodity items. A new urgency at Tech Pacific to "meet the market" on price has halted Ingram's grab for market share on many commodity items. Meanwhile, as vendors seem happy to continue appointing distributors almost willy-nilly to keep their numbers clicking over, margins inevitably suffer and the amount of stock stuffed into the channel increases. It's a battle royal out there at the moment.

* Flat PC sales

This time last year many pundits were insisting that the upgrade cycle would ensure the second half of 2002 was going to be better than the first. PC sales are still there. They are not yet in decline, just flat, but the almost exponential growth of those glorious yesteryears is no more than a receding ship-smoke on the horizon. Thank God for notebook and PDA sales, which are showing healthy progress -- albeit with very little margin.

* What happened to Powerlan?

Once a darling of the channel and a player on the BRW rich 200 list, Theo Baker and his Powerlan empire is crashing and burning. A series of puzzling ASX announcements and questionable asset-stripping exercises has left the realm in ruins and a sour taste in the mouths of many investors and partners. It seems there is nowhere for this company to go but down.

* The rise of security

The world really is a different place since September 11, 2001, but this is not the only factor that has made security the number one priority for every home, enterprise and nation. Nasty new viruses, the increasing importance of data and a healthy dose of marketing hype have all contributed to make security a holistic issue in modern society. The fact the channel knows so much about their customers and their customers' technology means it is a bandwagon that has been well worth jumping on.

* Continued rationalisation and consolidationAt the big end of town, 2002 was the year that saw HP buy out Compaq and IBM buy out a good chunk of PwC. At the other end of the scale, it was the year that many mums, dads and other small businesses decided it was all too tough to carry on. In between a host of distributors, resellers, service companies and developers had to either reduce staff numbers, merge with their competitors or allies to save costs and expand markets or go broke altogether.

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