Friday, 25 November 2011

The Channel is Dead, Long Live the Channel

This Cloud thing is making vendors do some potty things. Lots of them are investing greatly in their own hosting capacity and then they try to circumnavigate the channel in terms of dealing with the end user. Yet they also want to use the channel's leverage in customers to get recommended for the sale, recognising the role the channel plays in reaching so many customers.

Something tells me this is not a long term business model that has sustainability.

Channel executives are canny folk. They survive most onslaughts on their business and barmy channel strategies by vendors with ever decreasing margins and hoops to jump through and still grow at the end of it. The trouble is that customers just keep on buying. Vendors just don't seem to get all this as they continually claim that Resellers and Distributors offer less and less value yet more and more is bought from them.

Broadline Distributors are a great example of this - the mighty Ingram Micro and Tech Data should have died long ago according to vendor executives if they really do provide no value in the channel but they keep on turning in growth. And they still are the 'Go To' guys when vendors need a favour.

So why is Cloud so much different? And why are vendor executives at some of the top firms in the world so convinced that this time distributors will whither on the vine and die? Perhaps they ought not to say it too loud in case the distributors hear and they might live to regret those words.

All is well at the distributors. Numbers look good, margins are holding with a few collywobbles about supplies of this and that from Thailand and the 'will they, won't they' at HP but by and large things are pretty rosy. It's fair to say as the phenomenon of 'Bring Your Own Device' takes hold, some of the distributors are getting uppity about revenues flowing through things like airtime providers or App Stores but they can't complain too much when they also supply smartphones, as in Tech Data's case, by the bucket load. 

In fact, most distributors are pretty sanguine about such vendor comments that their value ceases in the Cloud. They adopt their hardy pose and say, 'Well we've survived all this industry has flung at us yet' and knuckle down. Much of what they do is for the now as annual, quarterly, monthly and daily numbers drive their mentality and so thinking about what might be in 2015 is usually just a number in someone's imagination. What the business might look like then is not the thought du jour.

Somewhere along the road, vendors and distributors with the rest of the channel need a meeting of minds or else things just might get a bit messy out there. 

Just this morning a VAD Distributor in the Cloud reckoned aggregation platforms at distributors were the domain of only broadliners. That's a naive way of looking at things and although it may conflict with large resellers, the fact is that distributors have a huge presence in the mid-market where no one can afford such costly systems right now nor the problem of running them alongside their current ERP. Let distributors scale up theirs.

The risk here is customer stickiness. If a distributor does this right then it can aggregate the sales of all resources, products and services a Reseller sells on a single monthly bill. It will accumulate vast history, even bill-on-behalf of some Resellers. Effectively it will become both the bank and the back end system for thousands of Resellers and just as it is hard to change your ERP system overnight, it will become equally hard to change your distributor once you commit Cloud business to them. All of which means that margins should start to solidify and even creep up while churn may become lower. 

So that VAD distributor needs to get wise. And so do the vendors. End users will not appreciate having thousands of suppliers. It would be hell for consumers to have to buy their Apps individually from the myriad of software writers and the App market would never have taken off the way it has if that was the case. Apple changed the paradigm for us all in terms of online software hypermarkets and aggregated billings and, guess what, they make plenty of money out of it, far more than the average distributor does on software today.

So aggregation has an important and huge future and it is the one thing that may make those vendor executives regret their words about distributors. Meanwhile, distributors ought not to get over confident that just buying a platform will do the trick. There has to be a meeting of minds and the strategy must coincide with that of the vendors. That's going to take a while.

Why? Because many senior executives at vendors and channel alike simply don't get the Cloud yet.

Calx Europe is a Business Acceleration company specialising in helping vendors and channel develop and implement Cloud strategies. Call +44 (0) 207 193 2356 for a no obligation discussion about the Cloud and its future.

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