NET EFFECT: Trust me, I’m a channel entrepreneur

NET EFFECT: Trust me, I’m a channel entrepreneur

Dig back through the pages of ARN over the years and you’ll find a trail of wrecked channel companies. Rapidly changing economics forced the hand of many a good, and let’s face it — really dodgy — channel operator.

Some resellers went out in a blaze of controversial glory (remember Edge Computers?), while smaller shops quietly locked the doors on a Friday afternoon and called it quits.

Invariably the story behind these channel wrecks includes a twisted tale of financial woe. Perhaps the distributor should not have kept extending the line of credit, the reseller backed the wrong technology horse and the margins unexpectedly dropped off due to desperate selling.

Or maybe the reseller in question just simply didn’t know how to run a business.

Enter Hugh Evans, former boss of distributor Siltek Asia-Pacific, and prior to that, founder of Agate. After wading through the mess that saw Siltek ejected from the game, Evans is a sharp tack when it comes to understanding channel economics.

During his post-Siltek days, Evans avoided the downward spiral of naval-gazing. Instead, as reported exclusively in ARN last week, he’s back as a channel entrepreneur with the launch of Moneytech. Moneytech is more than simply a new credit card for handling transactions between resellers and distributors. In his time off the field, Evans realised that at the core of channel economics is the notion of trust.

Distributors trust that their resellers will pay up on time. Resellers in turn trust that good relationships with key distributors will help them mask difficulties in cash flow. Unforeseen circumstances can force even the best resellers to plead for an extension of terms from 60 to 90 days, for example.

What’s significant about Moneytech is that Evans hopes to completely turn that model on its head. Moneytech has set itself up as the trusted economic engine of the channel. Resellers must submit themselves to a rigorous application process that includes a 100-point check. In return, they have the ability to trade with all registered Moneytech distributors. The hassles of signing up with each distributor are gone.

Distributors benefit by receiving immediate payment from Moneytech after receiving a reseller’s order. Gone is the old process where a reseller’s and distributor’s separate credit institutions conduct the transactions. Backing Moneytech as the new trusted authority in this web of channel transactions is a network of mainstream financial markets and institutions. In addition to providing around $250 million in card funding facilities that will stimulate channel spending, Evans has arranged insurance policies through this network to cover any bad debt. Hello credibility and goodbye overnight Moneytech me-toos.

Distributors, now trading with approved Moneytech resellers, can run businesses that are risk-free — at least from a transaction standpoint.

Meanwhile, Moneytech profits by deducting small credit card joining fees and a merchant services fee between 1.4 and 2.2 per cent based on considerations including volume.

For all the profits Evans’ company stands to make from this world-first ecosystem, he’s also cleaning up the channel as a result.

Moneytech promises improved credit checking and tracking, faster payment cycles and much more visibility into stock flow and inventory levels.

And that’s something that will please vendors no end — remember how much money Cisco lost in 2001 because of high inventory levels? $2.25 billion. Yes, “b” for billion. Evans also told me that Moneytech will be able to track and confidentially provide vendors information on that ultimate evil: channel stuffing.

So will it work? The biggest risk to this venture is lack of channel support. The system works best when the majority of players are on board.

Evans reports most major disties and many vendors are keen, and should be on board once the system goes live in October. And once he’s issued at least 500 credit cards to company directors, Moneytech’s a winner.

So are there losers? I can’t imagine Evans has made too many friends at Visa or Mastercard. Beyond that, Moneytech will need to earn the channel’s respect. With just one pivotal player in this new financial game, no company will want to find itself caught by the possibility of Moneytech raising its transaction fees. But that possibility is a long way off. All eyes are now on the short-term impact of Evans’ move.

For example, any reseller who once relied on special favours from distributor mates will quickly discover new fiscal boundaries. In sport, they call that a game-changer.

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