Arrow Electronics Looks At SaaS, Networking Offerings

Solution providers aren't the only ones looking for new revenue streams in this recession. Distributors are too, and their job also entails making sure that VARs have the right solutions for this market. Andy Bryant, president of Arrow Electronics' Global Enterprise Computing Solutions group, recently outlined for Channelweb.com editors his management strategy during the economic downturn, new areas where the distributor is looking and where solution providers should also play. Following are excerpts from that conversation.

What are your customers seeing in the marketplace?

We're managing through unprecedented times. The retraction in IT spending started in the fourth quarter. Last year it really was a tale of two markets. Through the September quarter, things were pretty good. But starting in October through December, we began to see 'a significant caution in the wind' is the way to put it. As we closed out the quarter, we did have a year-end budget flush. The bad news is that it did not match prior year revenue streams. One of the things we did see is mission-critical and high-end enterprise [products] may have fared better than commodity products. I say that because what I'm seeing is, if an end user has a large IT project with a quick ROI, or one that is already committed, that continued to roll. But discretionary purchases quickly stopped. 'Do we need printers, PCs, more handheld devices?' The answer is, 'We could probably do without those for a while.'

Where do you see the market now?

Demand is very hard to predict right now. Visibility remains very limited. We're managing 30 days at a time. We're trying not to make predictions and come up with things we can't really see. We're happy that we're able to offer partners a stable financing program. We haven't stopped creating marketing programs for our midmarket push. This year, that is going to be a critical issue for the channel.

Has the size of deals changed?

We still see some sizable deals. There always will be some, in health care, finance. The banking industry surprises everyone. It is in a turmoil in general, but all these mergers and combinations are creating large-scale integrations that will require IT.

As major vendors like IBM say they are focusing on smaller deal sizes, what does that mean for you?

The midmarket is still big for us. We have our Mpower program. We've come out with a shopping cart, where a VAR can get his marketing campaigns online. Things can go quicker. The midmarket is more expensive to call on for a distributor, a VAR and a supplier. But if you create a solution, with an average size of $50,000 to $100,000, and focus it on security, storage management, virtualization, you can create profits for that reseller if you can create volume. A lot of resellers are in the midmarket and the vendors still need help from Arrow to get into that space.

You mention that you don't have visibility beyond 30 days, but your VARs' typical sales cycle can last more than six months. Is that pipeline now being pushed out further, or is it just gone, which is why you don't have any visibility?

There's still a pipeline that goes out six to nine months. Resellers are still touching end users and still talking about potential projects. What's changed is the confidence on whether or not past 90 days it's going to happen. It's like we're all saying, 'Do we know what will happen 90 days from now?' A lot of resellers are more conservative now within 90 days. They have these projects that could happen in June, but what if the financial crisis doesn't ease? What if access to capital continues to be difficult within 90 days?

Your VARs' average sale also tends to be a complex, expensive project, which requires a capital expense on behalf of the end user. Do you see more projects being leased or purchased as an operating expense?

Our transactions continue to be a blend of purchase and lease. Leasing and the financial way VARs are doing transactions has come to the forefront. The sales cycle is led more by financing than technology right now. There's a lot more calling on CFOs and directors of finance to make sure they're willing to spend the capital, or whether they want to take it off the balance sheet and lease. We're doing a lot to help that. We continue to private label [financing]. We work with our suppliers on their captive financing. You see things like the first 90 days of a lease no payment, or skip payment until 120 days.

Are VARs more optimistic or pessimistic on the year?

A lot of VARs are still optimistic on the year. I don't hear all the resellers talking doom and gloom. A lot of people have projects, including us. We're rolling out Oracle ERP. We brought our IBM business up on it. The Sun [Microsystems] business was brought up about a year ago. There's a project that's been in the works for over a year. It will complete in August and the entire North American ECS business will run on the Oracle platform. That project doesn't stop. There will be some spending around it. A lot of large enterprises are in the middle of rollouts. That won't stop.

Next: Taking Costs Out Of The Channel