Is The End Near For Closed Distribution?

Avnet's John Paget predicted that the end of the closed distribution model as it exists today is coming, and will be replaced with a hybrid model that emphasizes partnering with solution providers to market to customers.

Paget, president of Avnet Technology Solutions, made the remark during his keynote at the Phoenix-based distributor's annual partner summit, held this week in Scottsdale, Ariz.

Under the closed distribution model, some vendors force solution providers to choose an exclusive distribution partner for specific particular products. Solution providers typically must sign a contract with a distributor on a yearly basis with few opportunities to change distributors outside the yearly contract time.

Paget, president of Avnet Technology Solutions, said during his keynote that the closed distribution model is peculiar to the U.S.

"In Europe, by law, it's an open source distribution model," he said. "The closed distribution model is in the past. It's merging into what we call the solutions distribution model."

That solutions distribution model includes a mix of intellectual property, product sets, financing, and application marketing, Paget said. "With solutions marketing, we market to the end-user community to generate pull for vendor partners for you," he told the solution providers. "I don't think it's really important for us to market to you. You know who we are."

Jeff Bawol, senior vice president and general manager for enterprise software and storage solutions at Avnet Technology Solutions, said that Paget is looking at the distribution model from a global point of view.

Next: Hybrid Distribution Systems On The Horizon

"North America is the only area of the world with closed distribution," Bawol said. "In the rest of the world, open distribution is the norm."

As time goes on, the market will see more and more of a hybrid distribution model, Bawol said.

"We're already seeing it with some vendors like EMC, which has different distribution models depending on its different product lines," he said. "Hewlett-Packard is doing that, too. We're trying to prepare so that as more and more vendors move towards a hybrid model, our people have the money and programs to do so as well."

One solution provider who heard Paget's comments but who asked to remain anonymous, said there is a definite move by vendors to send their lower-end products through distribution using the open sourcing model, with higher-end products going through close distribution to help keep an eye on margins.

A move towards a hybrid distribution model would probably stress distributors because their solution providers would start shopping for lower price, the solution provider said. "But for resellers, it may be better for their relationships with their distributors," the solution provider said.

Don James, CEO of Bear Data, a San Francisco-based Sun Microsystems and Cisco solution provider, said he likes the idea of a distributor talking about moving away from the closed distribution model.

"Open source distribution creates competition," James said. "It makes distributors work harder for our business. We'd like to see distributors have an open model, just like the model my and my competitors face when competing for our end-user customers."