Arrow Electronics Looks At SaaS, Networking Offerings

A lot of studies have been done about whether you are a leader or a laggard. The really good companies, when they see a downturn, they immediately cut 5 to 10 percent of costs. Other companies wait to see where they're going to make their cuts. I'll say we're a good company. We did get out in front. We participated in headcount reduction. That was painful. We tried to cut variable costs to save jobs. But in distribution, 60 percent of your cost is people. The other 40 percent is things we do to provide services to VARs. The boring side of it is we are taking every little spend for now and pushing it out. We're not going to slow down meeting with resellers to create demand. But we are not having meetings that are not specific and pointed. Our suppliers are doing the same thing.

What are you doing around services?

We announced Joe Burke to head up our services initiative worldwide. We have professional services, engineering, managed services, education. Our managed services focus continues to be around vertical stacks we take to market: storage, enterprise infrastructure, security, virtualization.

Managed services is coming from startups -- they almost look like [Software-as-a-Service] companies. They're trying to build a channel and asking, 'How do I get your resellers to sell my managed service?' For VARs, it's an annuity stream and they can leverage more hardware and get more closely tied into the end user. The challenge is, what's the sales cycle and does service match their strategy?

What sorts of SaaS companies and offerings are you looking at?

Security, e-mail, spam offerings. If you're a reseller out selling security, you should be able to say, 'Let's talk about e-mail.'

Several years ago, Arrow and other distributors made a big push into ISV applications. Is Arrow getting into SaaS as the next iteration of that ISV strategy?

A lot of the ISV partnering didn't have an annuity stream. It was, 'Partner with me and you'll enjoy the hardware sales.' This is different in that the SaaS company is willing to let the VAR sell the service, participate in the annuity stream. The big opportunity for the VAR and the distributors will be in solving the issue of who can operationalize this business process, the invoicing of it. You're invoicing the end user on a monthly basis. If they have 50 people, you need to bill that every month and that includes adds, moves and changes.

Does Arrow have any initiatives around social networking?

I think it will be a big part of our listening and it's another vector. We just put Arrow on Twitter. We're starting to get a lot of comments, but it's embryonic. You have to have that realtime feedback, listen to the voice of the customer and the supplier. You may not always hear what you want to hear, but that's OK.

Talk about your vendor mix. Do you have too many or too few vendors right now?

At Arrow, we have a fairly limited line card to start. Our top 10 [vendors] roll up to a very high percentage of our total revenue. What I'm looking at is the phrase, 'Everything over IP.' It's fairly consistent out there that storage is moving to IP. When you look at what's going to converge, networking and storage are heading for convergence. Networking is a key area we're trying to expand around. We're talking with the largest guys, the smallest players. There's the whole virtualization piece in between. The one area we really want to add expertise in is enterprise networking. It's for the stand-alone opportunity, but also for strategically what we believe is convergence in that market. We have a really good mix. We're doing well over $1 billion in software. Storage has become a huge part of our revenue stream. Services. We've really got our mix where we want it.

In hindsight, why didn't you get in on networking earlier?

Some of it was channel evolution. We weren't at the forefront of it. The whole networking boom through the dot-com era we missed. Since then, we've looked at what part is truly enterprise. We're quietly selling a lot of enterprise networking equipment through OEM relationships today with [Hewlett-Packard] and others."

Cisco is obviously the networking giant and it doesn't have a distributor in the U.S. focused solely on enterprise solutions. Is your goal to get them?

We're all asking questions. We are a high-end storage supplier. We're extremely good in virtualization capability. Our VARs are calling on the data center today. That's the biggest reason that perhaps a supplier like Cisco could say maybe we could reach that opportunity faster [through Arrow]. For now, in the OEM area, we are selling a fair amount of product.