VARs’ Reliance On Distributors Grows

On Nov. 14, VARBusiness will sit down at Fall Comdex with the top executives of 14 leading distribution companies. Although this annual Distribution Roundtable event is closed to the public, we will be reporting live from Las Vegas and also publish a comprehensive package of research, analysis and interviews in the Dec. 8 issue.

In advance of the Roundtable, VARBusiness conducted in-depth research that looks at VARs' experiences with distributors. The results show increasing participation in the servicecentric Web economy and a greater reliance on distributors.

For example, in 1996 and 1997, more than 70 percent of respondents described themselves as total solution VARs. The share slipped to 54 percent in 1998 and 41 percent this year. Meanwhile, the proportion of VARs focusing on Web integration or application service provider (ASP) business models--both recent innovations--totaled 11 percent in 1999, up from 4 percent last year.

Surveyed VARs also told us that the two-tier distribution model is alive and well: Seventy percent currently source their products from wholesale suppliers, up 13 percentage points from 1998. Over the period, the share turning to other conventional sources, (including superstores and retailers), mail order/direct or other VARs also declined. One surprise: Just 4 percent purchase through e-tailers such as Buy.com.

VARs are walking the talk about e-commerce that they give their customers. Indeed, this year 26 percent place distributor orders over the Internet,double the share in 1998,while the proportion relying on the telephone slid 21 percentage points to 56 percent; the associated shares for fax, EDI and CD-ROM/dial-up were unchanged from the previous year. The preference for Internet ordering, however, may be limited by the need to reach out and touch someone: More than 60 percent cited the inability to negotiate pricing or make personal contact as a leading reason for not doing more online ordering.

While the annual dollar volume of software purchased from distributors has stabilized at $50,000, the percentage purchased via electronic software distribution plummeted to 19 percent from 31 percent. However, the ASP outlook appears bright: 20 percent said that they expect customers to purchase less software and rent more in the coming year.