The Channel Has Changed But Have You

A More Structured Channel

Today's channel has become more involved and offers a variety of routes products can take from vendor to ultimate customer (see chart, page 74). Gone forever are the simple days when manufacturers offered a single route for product dissemination solely through an exclusive relationship with one distributor or a handful of strategically chosen distributors. Solution providers that embrace the new model can streamline their business operations and leverage their influence with their customers.

For example, in addition to selling manufacturers' individual wares to solution providers, distributors today can configure products into a solution, then drop-ship them to end customers on behalf of the solution provider, a process distributors like Ingram Micro, Santa Ana, Calif., and Tech Data, Clearwater, Fla., have nearly perfected.

Tech Data instituted a private-label delivery system several years ago in which the distributor scans reseller logos and produces packaging and invoices that make them appear to have originated from the solution provider, when, in fact, the distributor is the one

shipping products and, in some cases, billing the end customers directly on behalf of the resellers.

"This has been a very successful program for us," says Terry Bazzone, vice president and general manager of strategic business development at Tech Data. "It helps the resellers to be more efficient and reduces their gross costs because they don't need their own warehouses. It reduces the time and costs to get the product to the customer. This is an incredible way for resellers to grow their businesses without having to grow their own infrastructures."

Bazzone says Tech Data's number of "virtual resellers" continues to grow as a result. "They can put their focus on maintaining the relationship and servicing their customers and let us do all their back-office activity," she says.

Despite the perceived complexity of the new channel structure, it's actually much easier for the solution provider to manage, says Bob Anastasi, a senior managing director for Raymond James Financial, a St. Petersburg, Fla.-based financial services firm. "There are fewer distributors, fewer warehouses and fewer vendors overall," he says. "The supply chain has become simpler, and the customer receives better service as a result."

A New Decision Process

Another changing model is the way products are being purchased (see chart, page 76). The old product decision life cycle began with early adopters who saw the need for a solution. Next, they would contact their solution providers and get the products in-house. Today's process, however, is affected by bottom-line sensitivity and more sophisticated business-technology users.

The role of the early corporate adopter has also evolved from a lone staffer experimenting with new products to a more sophisticated group of business analysts that is far more knowledgeable about products and the interplay of technology with its business processes. To some extent, these new kinds of early adopters need to be co-opted as part of the reseller's sales staff.

"Customers are becoming savvier and require a higher level of knowledge and expertise from their integrators of choice," says Aleksandres Mednis, a product manager and engineer for reseller NRI Data, Morrisville, Pa.

The idea is to have someone within an organization team with the solution provider, in terms of generating excitement for a product as well as demonstrating its value, notes Bobby Orbach, an independent consultant in New York. That can go a long way in helping the solution provider sell to other divisions within the company.

Changes in the corporate decision process are separating the channel into two worlds, according to George Brown, CEO of Aston Group, a Vancouver, British Columbia-based process-consulting reseller. The split is between professionally managed businesses and those with smaller owners/operators. The former, he says, are better able to compete, not only because they have the money, but also because they are better prepared to keep track of early adopters and are more aware of the business uses of technology within larger end-user

organizations.

One way smaller solution providers can gain leverage, however, is to provide more prepackaged solutions to their customers. The nature of the channel has shifted from a product-centric model to one that focuses on value and the additional services solution providers can offer, including installation

and support.

"From our perspective, having a complete packaged solution allows us to demonstrate our value and extend our presence in an account," says Sandy Potter, director of business development at Optimus Solutions, where he also manages the Atlanta-based integrator's vendor and distributor relationships.

"If you cannot provide a total solution that includes all of the design, equipment and installation of a solution from beginning to end and leave a happy, functional customer in your wake, you are not doing your job as a solution provider," NRI Data's Mednis adds. "The channel has seen a big shift from end-users' buying decisions being driven strictly by consultants' recommendations to a more educated [one with end users helping in the technology-selection process. Thus, training and establishing an infrastructure to support the industry's best-of-breed solutions has become significantly more important."

A Partner-Centric Model

The third new model for the channel involves more complex relationships among the vendors themselves and with their solution providers, and capitalizing on those relationships to widen the vendors' coverage (see chart, page 78). Exclusive distribution deals have been replaced with suppliers' cutting deals with a wider variety of vendors. In some cases, they're even promoting relationships among vendors that could be considered direct competitors to better leverage their own sales and support staffs. More than ever, vendors are relying on their solution providers to open new markets, enhance their product offerings with new platforms and widen their own sales force by combining with their partners' existing sales teams to sell their own solutions.

The best way solution providers can take advantage of this new model is by looking carefully at their existing vendor partners to discover ways they can leverage the vendors' sales and marketing talents. That's what FatWire Software, a Mineola, N.Y.-based Web-content-management solution provider, has done. Each of its partners works with FatWire in different ways to acquire new customers, widen support for new technologies and cement better relationships with its own customer base.

Tim Walters, director of market research for FatWire, has seen his company evolve its channel model quite successfully. "We absolutely have to leverage our strategic partners for our channel," he says. "We can't go it alone, especially because our product,content-management software for complex Web sites,touches so many different pieces of the enterprise software infrastructure."

FatWire works with industry leaders on the database and Web-server sides. For example, it makes use of both Oracle and DB2 technologies and a variety of Web-server and application-server technologies. A BEA systems engineer can recommend FatWire's technology to its clients, or can recommend one of FatWire's competitors,whichever is the more appropriate solution for the client.

"On the spot, the systems engineer can make his customer happier by hooking up with us and enhancing his own product offering," Walters says. "And we have begun to use KPMG to leverage our way into the financial-services markets,this is a good way to acquire some vertical-market expertise in an area that we couldn't really penetrate on our own."

Granted, FatWire has had to accept coexisting alongside its competitors, but the strategy seems to be working. The company is growing rapidly and was able to raise several million dollars in additional venture capital to fuel its expansion, even during the tight markets of 2001.

These three channel models,a complex structure connecting suppliers and users, a more sophisticated corporate-decision process and better use of partners,are part of a natural evolution of change as businesses continue to use technology. Solution providers that can adapt to the new conditions, capitalize on the changes and understand those new models will stand a better chance of succeeding in the channel of the future.