Tech Data CEO: Software Revolution Is Coming

It's been a couple years since Tech Data CEO Bob Dutkowsky addressed solution providers at a TechSelect conference in Las Vegas. Dutkowsky was back this week to update the distributors' message to VARs. CRN's Scott Campbell met with Dutkowsky before his address to discuss where the distributor is making its bets for 2011 and how VARs should follow. The following are excerpts from the conversation:

What's your message to the VARs here at TechSelect as 2010 winds down?

I went back and looked at what I said when I spoke at TechSelect the last time it was in Vegas a couple years ago. The pitch was about the slowdown that was coming at that time. My conversation was about the power of leadership and I gave them 5 key thoughts about what makes effective leaders. I had the feeling as we were going into the tank as an industry that we'd all have to step up and lead. At the time, we said we were committed to helping them to that. Great companies are made in tough times. We committed that when the economy recovered, Tech Data would be better. We were not going to retrench but take the time to improve.

All our metrics show we have performed very well on their behalf, in terms of revenue growth, platform expansion, technical services and support. In virtually every measure of how we gauge relationships with vendor and partners, we're stronger.

Heading into 2011, what are the key focus areas for Tech Data?

Clearly there are some forces in play changing the way technology will be deployed and valued over time. Industry standardization is one example. We're moving away from proprietary platforms. The greening of the data center is another example. There is pressure for power and cooling solutions. The move towards the prosumer. Historically the professional side of technology has led the way, now it's really the consumer side, and it's coming together. Devices have to be professional and consumer-oriented. There's a wave around mobility and the important role software will play in the future.

TD is really a company that is transitioning. We are a wonderfully solid broadline platform that executes extremely well. We look at those sea changes and have built specialty distributors under the big umbrella. Those specialties are the data center, mobility, consumer electronics, the integrated supply chain offerings and software.

When you say specialty distributors, you're talking about the Advanced Infrastructure Solutions division for the data center?

Yes. Go back to the data center. Worldwide we will do more than $5 billion this year. That's Arrow [Electronics]/Avnet-like in terms of revenue. That's not chartware. That's skilled professionals, dedicated resources and a solutions-oriented approach to take those products to market.

Our mobility business, it's not just cell phones. It's tablets, networking infrastructure, netbooks, GPS technology. But the heart of it is the smartphone today. Our smartphone business is rapidly approaching $1 billion in Europe.

Next: More Products, Deals On Tap

Soon we'll announce tablet products from other vendors where they are sold around solutions and where solutions are built. We have talked about consumer electronics before. We just completed our acquisition of Triad in Europe. That's really three companies: a $300 million broadline distributor; it's the largest mobility distributor in Europe in its geography and it's about $300 million in consumer. We wanted Triad because it complements our broadline business, enhances our mobility and gives us a big footprint in the CE space.

One of our big vendors in the Americas has asked us to take over 1,500 retail customers for them, companies that used to buy direct. We're investing heavily that space. Not because CE is interesting, but because prosumer is happening. We have products and technologies that are going to merge.

The whole integrated supply chain opportunity is a narrow focus for us. We believe we can solve supply chain problems for our partners. We have strategic dialogue around supply chain challenges. It's a very interesting value add to our vendor customers.

As far as software goes, the least efficient distribution engine in the industry is the distribution of software. We don't sell shrink-wrapped software anymore, we process licenses. There's lots of opportunity for the automation of that process. We are going to change the game of software distribution. That's very important. Software is a very efficient use of capital. In hardware, your capital could be tied up in a skid load of computers. You have to sell them before you get money back to reinvest. We buy and license software in a second. More software business is good for the bottom line economics of an IT distributor.

You mentioned that the data center business is more than $5 billion this year. How much revenue do all five of these "specialties" account for?

I don't know that I can give you that, but software is about 20 percent of our business. If we can make that more efficient and grow it, that's a good thing. We'll come out with some things around software and over time that will more into how distribution works in a cloud environment. My view of the cloud is that there will be private and public clouds. The private cloud is where all the opportunity is. There will be big public clouds where that technology pieces fit together.

Do you think customers will start out utilizing public cloud solutions and then evolve into private cloud solutions?

It's going to go both ways. The business gives you an application and you put it into the cloud. Tech Data does its payroll with ADP. That's a cloud app. It also brings opportunities to bring things back in house. At the end of the day, it's going to be a continuum of moving apps back and forth. That's been going on for 20 years. This isn't as revolutionary as people think. Where the revolution is taking place is rapidly standing up a server and application. That's been done with virtualization and the networking infrastructure that sits behind the backbone of a data center. That's where the breakthrough technology is.

Next: The Distributor's Role . So where do distributors play in all this?

We're VMware's biggest distributor. Without virtualization, you can't make the cloud environment work successfully. We're the arms supplier to the cloud. We don't have to be a cloud provider. I don't think you'll see the day where Tech Data has a public cloud. Rather, the reseller will use Microsoft's cloud or IBM's cloud or HP's cloud or Cisco's cloud. Where they will need the help is with the billing and the provisioning of all that. The VAR needs help picking and choosing from broad offerings to take to customers. Well, isn't that what we've been doing with 30 years with Tech Data? Should I sell HP or Compaq, Cisco or ProCurve? Our value proposition won't change.

Getting back to software, in the revolution you see, will you be doing more with ISVs, particular vertically-focused applications, than you have in the past?

There's a whole other community out there for ISVs. There are vertical solutions for government or health care or for smart phones. There's horizontal apps, things that will work with Oracle applications. There are literally thousands of ISV and they are all looking for a more efficient route to market. They may have a great product but they don't know how to sell it. It's a two-tier opportunity. We talk to our VARs in a vertical fashion. We can say here's a set of solutions for health care, for government, for 10-man law firms. We have access to that application side as well. It's back to new customers, new technologies. the more we bring into our business, we add value to the ISV and to the VAR.

Why does a VAR care about Tech Data? They can make one phone call and get a broad array of solutions. If we can add vertical solutions, we'll add even more value. We have VARs that focus on state and local government. They don’t' care about manufacturing applications. Or we have VARs that sell to wholesale distributors. They don't care about state and local government applications. The key is having a set of ISV applications that can solve problems, that VARs can bring groups of law firms