CDW's Margin Changer

The first sign of the margin erosion likely to take hold is through a self-described CDW plan to drive Berbee solutions in VoIP, managed services, virtualization and server consolidation from the enterprise market to the heart of the SMB market. For VARs that have built a strong solution business with Cisco, IBM and Microsoft, it's time to look at hedging your bets with alternative offerings.

The vendor with the most to lose is Cisco, a channel leader that has invested heavily in a solution-oriented value channel program. CDW is sure to use all of its nearly $7 billion product and services muscle to press vendors for pricing advantages involving market development funds and back-end rebate targets.

Whether vendors give in or do a good job developing value-added programs that protect the demand generation being done by longtime loyal solution providers is likely to determine the margins of many a partner. Many channel programs reward MDF and back-end rebate arbitraging rather than demand creation for solutions.

One option for VARs is the new wave of Linux offerings aimed at providing compelling price/performance. There's Digium, for example, whose Asterisk open-source PBX is being embraced by Cisco partners frustrated with margins on Cisco business. VARs say they are seeing double-digit margins in the open-source market (in some cases, 50 percent compared with 10 percent on tier-one vendor solutions).

The single biggest hurdle facing the new CDW-Berbee combination is the cultural clash of CDW's low-priced-product business model and Berbee's high-value-add model. That clash is sure to result in internal battles leading to confusion and chaos in the field, which could benefit CDW-Berbee competitors. No matter how the CDW-Berbee deal plays out, a lot has changed overnight in the tier-one vendor solutions marketplace. Everyone in the channel is going to be impacted. That's why it's a good time for partners to place some new bets.

What do you think of the CDW-Berbee deal? Let me know at (781) 839-1221 or via e-mail at [email protected].