Distribution Shifts Gears

Dutkowsky: When you look at the industry for the last 40 years, most innovation starts with small companies. IBM and HP are the intellectual foundries. They build the piece parts. IBM holds patents for storage, but EMC took it and built it better. Sun [Microsystems] took some of those components and built better [products]. Oracle was a little company when they built a database product. Now those guys buy little companies. They let the little guy innovate and then snap them up.

Spierkel: Interesting products lead to interesting opportunities. Big companies kicking it right now [include] Google. They're an innovator. Apple has been a phenomenal innovator—a good marketer and a good, good innovator. That's making some of the other players stand up and take notice. Now you see Cisco buying people, HP is buying software companies. There's a lot of innovation going on in mobility software, and that's what other vendors are looking [to buy].

Vendor Consolidation
The industry's bellwethers—Microsoft, IBM, Hewlett-Packard and Cisco—have combined for dozens of acquisitions over the past few years. But has the channel benefited from that consolidation? One plus one doesn't always equal two, the executives said.

Bell: It really depends. Generally, from my perspective we usually don't win. If Company A and Company B merge, and we were very big with both, do you gain? Rarely. If you pick up one [new vendor in the deal], you gain something.

Spierkel: It's a mixed bag. In the first year, you're basically getting the organizations to work [together]. You might see flatness or a reduction because of some overlap of customers. Over two or three years, you'll see the switch flip and then you see things start to happen. For example, Linksys going into Cisco to make low-end products fit better into the communications stack that Cisco has. There might be disruption or lag time, but if a company is good, it can work.

There's No Business Like Small Business
The SMB space remains hot, but are manufacturers—and the channel, in turn—effectively reaching the small-to-midsize business customers? The executives said improvements can be made to make that market more efficient.

Dutkowsky: Turn the clock back 10 years and everyone was talking about SMB. Now they're really talking about it. Have [vendors] figured it out with a set of SMB-enabled products? No. They're working on it, but they're not there yet. Have we come up with an optimal channel deployment model for SMB? No, but we're working on it.

Hamada: First, you have to acknowledge we don't have all the pieces. Who's cracked the code? Nobody has it perfect. But there is better alignment, better compensation models. If you get the same return on one $1 million order than for 10 $100,000 orders, which will you do? The $1 million order, of course. Some vendors have started to recognize that and put rewards and incentives in place for SMBs. But it's an up-front investment for them.

Back To The Future
Solution providers are facing many of the same issues the distributors are facing. CMP Channel asked the executives to sum up what VARs should be doing to prepare for the future.

Dutkowsky: I would say to the VAR, 'Get close to your customer. Spend time with them, understand the challenges they have. Don't worry about managing a plethora of technology coming from 25,000 vendors. We'll do that for you. If you spend time with customers, you will be more profitable and margins will go up. If you try to manage all the stuff with vendors, you will be less efficient. We built that infrastructure; count on us to deliver that.'

Hamada: I would invite customers to challenge us on your pain points, and your customers' pain points. We've been through radical change. With the Access [Distribution] acquisition, we have a whole new anchor line. Associated with that come some wonderful emerging technologies, F5 for example. We are getting better at cross-selling vs. [selling in] silos. Test us. Challenge us to make sure you're aware what's happening in the market. We hear things today like excitement around convergence, IT security. We're making our plans go forward; there's no better feedback than what we hear from customers. If we don't have it, we may say, 'OK, we've heard this from a dozen people. We need to take a look at it.'

Bell: Look at our resources. It's beyond price and delivery. We have much more to add. You might be hardware value-added or software value-added—we can help in the marketing side. We really can contribute, and we have a lot of depth in value-added technical resources for the use.

Spierkel: The comments I hear from VARs are, 'I own the customer.' Partners don't have a feel for what we're trying to do. There's nothing wrong with that. It's how you go about asking the question. There's a lot of things we do to add value. [Distribution] wouldn't be a $100 billion business if we didn't provide a lot of service capabilities to the partners. We know how all the pieces work together. We can provide a lot of capabilities there. That's where we add a lot of value.