Distribution Executives Forge Tighter Links

SERVICES VS. PRODUCT REVENUE
How much of a distributor's revenue actually comes from services, and how much could it become? The seven GTDC members said 30 percent of total revenue isn't out of the question, but defining services isn't as cut and dried as product revenue.

ANNA McDERMOTT: You could be talking marketing services; you could be talking managed services; you could be talking software as a service. One of those services we do is pick, pack and ship product.

Now, we have been paid historically in discounts off of title transfer, but that's changing and evolving, too. Vendors are trying to drive to a pay for value. They've started to understand the value opportunity that lies within their distribution partnerships and they want to pay for that value, and that's an increase in rebates, based on specific initiatives, etc., and in specific services. JIM ILLSON: This year we subtitled our annual report, "From Design to Deployment." The point was, we actually mapped out a report in which we offer a continuum that goes from design on the front end to deploying and maintaining on the back end, and there are four or five stages in there. Only one of those is what you would think of as being a traditional distribution route and shipment. Our goal in terms of helping people focus on storage solutions is really to look at how we can add value to what happens and how we can generate a revenue stream for ourselves, but also to add value to our partners by bundling our services into what we do. I see that percentage increasing.

PAGET: I do think the vendors believe that [we are services companies]. I think they struggle more with how to monetize that than we struggle on how to monetize that. What we provide them is a repeatable process, that is sustainable, that they have some confidence in, that builds a rapport and a respectability in a marketplace they want to go into. The actual product itself is not what they do business [with us] for because there are too many places you can get the product. They continue to do business with us because we provide them value that's greater—our value is certainly greater than what it would cost them to build that same kind of capability.

CUEN: I even think professional services is another example where everybody has either too much bench or not enough—usually too much. So, there's another opportunity for leveraging bench strength that could be augmented by a distributor or by the partner network that they have as well. Everybody's looking at what I would say is duplication or redundancy within the channel because I don't want to have everything. If I have a trusted partner, I can go to them and be able to do a managed service play. If I need a storage deployment, I can go to my trusted distributor to get help on that because it's out in Louisiana and I don't have anybody there.

GREG SPIERKEL: [Services] is going to be a bigger part of everybody's businesses. I think the more you can do to develop a revenue stream outside product attach or software attach, the more interesting it's going to be for all of us. Frankly, there's no clear way. There are pieces of the puzzle, but they're evolving. The interesting part is how do we create that value and continue to differentiate ourselves vs. other alternatives? So, from that point of view, I'm expecting over the next five years—you have to take a longer perspective—that service will be a bigger part of our business in the pure service sense. But, today, our service revenue really is our margin, our markup.

'VENDOR' CAPITALISTS
Part of being successful is making sure that your customers have the right solutions to sell. That means distributors are constantly evaluating new vendors and new technologies to bring to solution providers. In many cases, dedicated teams are responsible for not only finding best-of-breed products, but for figuring out where they play in a multitude of solutions and then convincing the vendors to sell through the channel.

LAMNECK: The successful company is the one that's really focused on their competency and figuring out a way to get somebody else to do [the other things]. Some of these new vendors are coming to us in the early stages. They really want a partner, and so you get a limited or exclusive distribution, and you build a lot of their pipes so they don't have to duplicate that. A good example of that is XenSource, where they're saying we want to build this around you and they're asking will this work?

McDERMOTT: We get the voice of our partners who are on the leading edge of things and uncovering business opportunities or business problems that need to be solved, but a large percentage of our partner base look to us to help them make decisions about what new markets and technologies to invest in. Then they look to us to help support them. We also have some very technical partners that will say here are the business problems that aren't being solved right now, and here are the technologies we think can do that.

PETE COLEMAN: We have an emerging technologies team that looks at opportunities. VARs are looking for opportunities to grow their own businesses, and they depend on us to be the counselor back to them, then they say how sure are you on this bet? Can you bring a profitable line to us? Are you sure that you can support it? And what's the return going to be on the working capital?

These people don't have an awful lot of capital. They want to make sure there's no impact on inventory, a good return so they can collect the money quickly and pay their suppliers slowly, which would be us, and the same thing goes for us, too.