Editorial: Making a stand in shifting sand

How will IT distributors shape up in 2009?

The role IT distribution plays has been undergoing a change for several years now. But the rising popularity of utility-based computing, as well as challenging economic conditions, could make this year the most disruptive one for distributors yet.

In this week’s issue, we’ve kicked off the first interview in our new Distribution Directions series, where we ask the chiefs of major Australian distributors for their views on the state of the market, 2009 plans, and where distribution is headed. This series of in-depth, exclusive articles will run in coming editions.

In our first instalment, Avnet’s general manager, Gavin Lawless, offered an optimistic view on the distributor’s future locally but admitted the market would be mostly fl at this year. At a global and regional level, Avnet has been feeling the pinch, with lower revenue and profit results illustrating turbulent market conditions. According to its worldwide recent Q2 figures, its revenue decreased year-on-year by 10.2 per cent to $US4.27 billion, while net income slid to $95 million, a drop of over $40 million compared to the year before.

Despite these results, Lawless said the Australian arm was experiencing steady growth and solid results, and striving to improve processes and systems to remain relevant and ready for the future.

One point raised during the interview was the effect of managed services and software-as-a-service (SaaS) upon distribution, and whether distributors fit in the shifting landscape.

Lawless cited a longer-term opportunity for distributors to provide physical datacentre and services provisioning to resellers, particularly in the mid-market, who either couldn’t or wouldn’t invest in such infrastructure themselves but wanted to offer some form of on-demand computing, or managed services, to customers.

In ARN, we’ve talked at length about the opportunity managed services presents at an integration and reseller level, but I’m not convinced it’s as easy to make that argument at a distribution level. And there’s a big question mark around whether there’s enough margins for all three tiers – vendor, distie and reseller – if you’re going to deliver technology as a utility.

But regardless of whether it will or won’t work, what Avnet’s position does show is that distributors are starting to think outside the box and investigate different ways they can service their customers.

itX’s decision to develop a niche distribution arm providing tracking and mobile asset management solutions is another example, albeit different, way of branching into alternative business streams. The company initially made it clear it wasn’t content simply being a traditional IT distributor when it purchased hosting company, ICO International, 18 months ago. In its address to shareholders late last year, the company flagged more hosted managed services were to come.

There’s no doubt market conditions will precipitate more consolidation in the IT channel this year – good or bad. What’s also certain is that distributors are going to be fighting even harder to sustain margins and retain vendor relationships. It’ll be interesting to see how other distributors besides Avnet and itX respond to the changing IT space.