Vendors shed channel tiers
- 28 September, 1999 09:58
Resellers and distributors are on a collision course for the end-user dollar as the two-tier distribution model comes under renewed threat from more efficient Internet-based business methodologies.
In a recent round of market direction briefings to prime Hewlett-Packard distributors, the vendor's major channel partners were advised to start collecting data on IT spenders.
Singapore-based consultants from the VIA International management confirmed they had addressed Australian distributors. One, who wished to remain nameless, said the free advice received included prompts towards business models that circumnavigated many traditional resellers.
Laurie Carmichael, MD at HP distributor Digiland, said the hugely successful Dell model of dealing direct over the Internet has forced all tier-one vendors to reassess their go-to-market strategies.
"So the tier-one vendors are telling us that it's in our interests to have our own end-user databases," Carmichael said.
Michael Bosnar, MD of Prion, points to Ingram Micro's buying up of dealers in other parts of the world as a sign of what may be to come.
Meanwhile, he believes the big traditional channel vendors are "not seeing the same return on investment" as Dell and therefore are reconsidering go-to-market strategies.
"We're going to be guided by the market and we'll see a lot happen in the next 12-18 months," Bosnar said.
Hybrid models where distributors have both reseller and end-user accounts are becoming increasingly popular in the US while inefficient or no-value resellers will "face the consequences", Bosnar said.
Chris Spring, Sealcorp's managing director, also sees change in the channel en route to more efficiency.
"Vendors will decide they don't want two levels of margin," Spring argues. "They don't want two levels of deliveries, two chances to make mistakes."
Consequently, as distributors push further into services and integration, the function of themselves and their resellers will merge and in the end "one of them will have to go".
Chris Greig, Hewlett-Packard's Australian general manager, commercial channels organisation, insisted their was nothing sinister about the recent consulting with distributors. HP invests a lot of money in offering such value adds to its distribution partners and has used a number of consultants over the years to help keep its channel partners up to date with world trends and business initiatives, he said.
"It is a vendor investing in trying to make sure that the supply chain, including its partners, is absolutely profitable and able to satisfy demand in the year 2000 and beyond," Greig said. "You can't do that without promoting discussion about what that business model might be.
"There will always be room for a partner that adds value. I'm not sure there are many distributors that could replace what the corporate resellers do in the marketplace but there is a lot of duplication between vendor, distributor and reseller and the customer sees that.
Greig feels that it is not just the vendors who have to rethink their business models and gather information on customers. Distributors and resellers have to do so as well, he said.
"This industry needs to get a lot closer to their customers," Greig said. "I don't think that anybody disputes that. We have been selling into this marketplace for over 30 years and therefore have a lot of knowledge about what the end-user community is and wants."
Big HP resellers Centari Systems and Leading Solutions both reiterated that the way for resellers to survive into the future was to ensure that they added value.
Frank Colli, managing director of Leading Solutions, said : "The real key is to ensure that you are adding value. Those that don't have no future."
Jon Johnson, managing director of Centari Systems, said that he was not overly concerned about sharing information about his customers with suppliers, although he does limit database information exchange to name and address.
Johnson believes it is inevitable that the channel structure is going to change under margin pressure.