Distributors and the Cloud: The Pink Elephant in the Room
Distributors and their role in cloud services: it’s the pink elephant in the room that nobody seems to want to talk about. I mean really talk about. Sure, the big boys of distribution have created tons of activity, websites, toolkits and forums around their packaged cloud services, but the question many solution providers are privately asking is: Is there real value to the channel in what the distributors are doing, or are they just trying to remain relevant in a services world where pick, pack and ship is now a given, not a bragging right?
As VARs have had to migrate their go-to-market strategies and reinvent themselves around a services and reoccurring revenue model, distributors have been trying to adapt as well — except their customers are the solution providers and supply chain efficiency is their core value. In an age where many organizations are buying their PCs, printers and many peripherals from discount superstore chains now, as well as direct from the manufacturer, distributors have had to evolve the services they offer to the channel and the permeation of cloud computing has given them the springboard to do it. Or has it?
Big distributors such as Ingram Micro (NASDAQ: IM), Synnex (NYSE: SNX), and Tech Data (NASDAQ: TECD), to name a few, have been spending a ton of dough and throwing considerable resources behind marketing themselves as cloud partners to the channel. Ingram has its dedicated website providing information about services, features and benefits of bundled cloud solutions for data centers, device management and security. Synnex last year launched a cloud services automation platform called CloudSolv, providing solution providers with scalable, comprehensive lifecycle management tools. And Tech Data has its TDCloud Academy and its provisioning portal trying to make it easy for VARs to manage the whole cloud business from one console. And so on. And so on.
It makes for great news fodder and live discussion forums, but how much of these services are the solution providers really using? Even further, once a VAR begins offering such basic cloud bundling services will it need to rely on the distributor after that? Lots of questions. Lots of pink elephants.
Fact: Distributors are the cornerstone of the channel in many ways and always will be. As solution providers continue to get out of the inventory business they have come to rely more on their distribution partners to carry everything under the sun so that they can meet all their customers’ needs. And believe it or not, the majority of VARs still get most of their vendor and industry information from their distribution partners. In addition to supply chain management, distributors are critical in providing education, awareness, and financial services.
But how does that transfer over to value in regards to a cloud play? Here is what a few solution provider executives had to say.
“It looks like [the major distributors] are all betting their futures on [cloud services] and from where I sit, the outlook is bleak. They’re all struggling for relevance in a market that doesn’t require aggregation. They claim they provide an excellent vetting service, but a good integrator is always going to evaluate any service they put their name behind themselves,” said one executive.
Others were not as brash but weren’t completely convinced, either. “Some distributors are providing cloud services where a VAR or cloud reseller can resell the distributor’s offering,” said another solution provider. However, he added that these general-purpose distributors still have not done a good job articulating their value proposition around cloud services and why solutions providers should consider them. “They are taking a number of packages and bundling them as a service and then reselling it to VARs who turns around, supports it and resells it to their clients,” he said, adding that these VARs will eventually build their own solutions.
So what is the conclusion? What role will distributors ultimately play in the cloud computing environment? Based on many conversations I’ve had with solution providers on this very subject it has become clear as mud.
In other words, the jury is still out.
Knock em alive!
When I read your comment that “Distributors are the cornerstone of the channel in many ways and always will be” I had to stop and think about it. I think distributors were the cornerstone of the channel back when it was more of a channel. As you know I write a monthly column for RCP called “The Changing Channel” in part because the channel is changing so radically so fast and I believe that distributors are afraid they will become a casualty of those changes if they don’t adapt. More and more channel partners no longer sell any products themselves, preferring to let catalog providers shoulder the accounts receivable.
As you also know, I’ve written for one of the distributors for one of the websites you mention in your post. They are very clearly taking a product/vendor-centric approach to selling cloud services and their customers do not like it. Many VARs I spoke to about my blog said they don’t bother with that site because that distributor “doesn’t get it” and is trying to fit cloud into their traditional business model. Unless they get that changed, they’re going to find the few partners they have attracted jumping ship and working directly with the cloud providers.
The one opportunity all distributors have seen and are rushing to leverage is the opportunity to aggregate provisioning, billing, and management of all of these cloud services with “one-pane-of-glass.” I think that’s like trying to create a one-warranty-program-fits-all-manufacturers approach, but I’d like to be proven wrong.
The channel today is less a channel and more a professional practice with technology professionals vending their expertise and experience by the hour for a fee. Products are just enablers. I think the distributors really need to think long and hard about what they really want to be in their next life.
Howard, Elliot: First a quick disclosure — I have a potential conflict of interest since I’ll be emceeing the Ingram Micro Cloud Summit in June.
That said, I have some strong opinions about distributors and cloud computing. I do think the cloud aggregator model can be valuable to VARs and MSPs.
The big question is rather simple: Can Distributors make enough cloud-related revenue to offset potential declines in server software and service application sales?
Of the distributors, I’ve heard the loudest statements from Ingram, Tech Data and Synnex, with occasional cloud updates from Avnet and Arrow. I think May will be filled with cloud announcements from several of those names. And the announcements will be real, live cloud platform milestones. We’re not talkin’ beta anymore.
Generally speaking, I think Ingram has the early edge based on learnings from the Ingram Micro Seismic (MSP) strategy leading into the Ingram Micro Cloud strategy.
That said, my original question remains: Can distributors drive enough cloud revenue and value to offset potential on-premises server revenue declines? Or, do distributors radically change their models to depend less on server-related dollars?
The VAR Guy, wherever he is, will be watching…
-jp
That’s the same conflict every channel observer faces; having to evaluate the same people who sponsor us. As Obi-Wan would say “Let go, Luke. Use your feeeeelings.”
When you boil it down the fact is that EVERYBODY in the food chain is now facing what the VARs have faced for more than twenty years. They have to confront shifting from a low-margin product orientation to a high-margin, lower volume, services orientation.
Take the example of the team that created Ameridata by acquiring about 140 resellers and turning them into a single entity selling tons of IT products. They were able to sell the whole shooting match to GE for a ridiculous multiple. Then about 15 years later they decided to do it again by acquiring a distressed public entity and turning it into MTM Technologies. This time they would do the same thing, but with services instead of products. Didn’t go so well this time, because you cannot apply the same strategies to selling and delivering services that you apply to moving boxes.
Distributors move boxes. Steve Raymund once told me “it could just as well be shoes.” How do you take a company that is GREAT at logistics and product movement and turn it into a completely different animal? DO you do that?
The advantage the distributors have is ballast. They have large sums of money moving to and through them that can be applied to adapt, but they have to accept the reality that they need to adapt. You’re hosting Ingram Cloud Summit again, Joe. Let me predict to you that 90%+ of what Renee Bergeron will talk about will be new vendors they have added, just like last year. That’s the Ingram mentality after years of being the BEST at it. That’s what Renee is measured by. She’s a very, very smart woman so she becomes very, very good at what Ingram needs her to be good at.
Just as many VARs have created whole new companies to foray into MSP and the Cloud, I think the distis need to consider the same strategy to solve the same problem, making the shift from products to service-based solutions.
Well, unlike thevarguy.. i am easy to find….LOL……great points both of you. I stand by my fact that distributors stuill offer incredible value to small to midsize VARs in terms of education, logistics and other services…but again their main service is supply chain efficiency….that is completely different than bundling cloud services…some SPs need the push and air cover but once established will they continue to need it..is the model sustainable? we will see…but its funny Howard..no one will go on the record questioning their efforts because they need their logistics….oh what a tangled web we weave…i try and keep things simple.. but then again.. i am a simple man…lets hear from some distributors… Steve? Bob?…chime in…
Howard@3: Just a guess, but I think Renee might talk less about all the vendors embracing Ingram Micro Cloud, and more about VARs and MSPs that are actually using the system. She provided some clues during VTN last week.
I will definitely keep your additional thoughts in mind as we keep watching distributors in the cloud.
Elliot@4: Your point reminds me of the challenge Dell faced. Once rivals neutralized Dell’s supply chain advantage, Dell had to adapt. That led to all the recent acquisitions by Dell… …
Thanks to both of you for the chatter. I learn from it.
-jp
What I found interesting and somewhat encouraging in the survey was that the top vendors listed were all from the original group of smaller vendors, not the mammoths that were introduced at Summit last year. This is consistent with the traditional VAR experience that it is the smaller niche vendors who provide the distinctiveness you need to stand out in an ever-growing crowd.
FWIW – the Ingram VARs I speak to want to hear more from them about solutions they can sell to their clients. Lessons from what the successful VARs and MSPs have accomplished sounds like the best way to give them that.
I think the Cloud is indeed the way forward (http://j.mp/w81xZV) and we should all embrace it, VAR’s or MSP’s or even Distributors. It will reduce cost and open up new opportunities for all IT professionals