Distribution Execs: Partners Want Help Around Services Short-Term

Partner interest in distribution-driven services is typically restricted to emerging technologies or smaller, regional solution providers, according to distribution executives.

Distribution leaders at the 2015 Global Technology Distribution Council Summit in San Francisco told CRN that solution providers are willing to accept help around cloud and as-a-service delivery models, but only for the time being.

"The value of services is accentuated in times of tremendous and dramatic change and shifts, like now," said Rick Hamada, CEO of Phoenix-based Avnet, during a distributor CEO panel.

[Related: GTDC Chief: PC, Tablet Sales Woes Made For 'Miserable' 2015 Start For Distributors]

Even though the shift away from on-premise computing and proliferation of cloud options have created an opening, distribution leaders are trying to keep expectations in check.

Paul Bay, president of North America technology solutions for Ingram Micro, said during the panel that services could one day contribute more to Ingram Micro's profitability than products, but cannot imagine any circumstances under which the Santa Ana, Calif.-based distributor obtains more revenue from services than from products.

Likewise, Arrow measures the success of its services practice more from a gross profit aspect than from a revenue standpoint, though more robust services capabilities could help drive more sales of adjacent hardware or software products, said Andy Bryant, chief operating officer of the Centennial, Colo.-based distributor.

Bob Dutkowsky, CEO of Tech Data -- which acquired Phoenix-based Signature Technology Group (STG), No. 480 on the CRN 2015 Solution Provider 500, in June -- said STG's revenue contribution is a long ways away from making a difference to the Clearwater, Fla.-based distributor, which notched $6.6 billion of sales in its most recent quarter.

Nonetheless, STG is currently one of the most profitable things Tech Data is involved with, according to Dutkowsky. But as new platforms continue to become more pervasive, distributors expect partners to jump into the driver's seat and procure and deliver the services almost entirely on their own.

Data center VARs typically wish or aspire to handle services primarily on their own, though most are willing to leverage the variable-cost structure of distribution in the event a rapid deployment is needed, Andy Bryant, chief operating officer of Centennial, Colo.-based Arrow Electronics, told CRN.

Yet, at the same time, Bryant said vendors are now asking the channel to handle everything from first call and help desk services to reselling supplier maintenance and renewal agreements. Though partners might need help at first from a distributor, they usually want to control the services delivery game themselves given the healthy margins it promises.

Similarly, end users with less than 100 seats often don't have dedicated technicians or an IT staff, meaning their solution provider partner quickly gets used to meeting all client needs on their own and is typically capable of configuring and deploying services without any outside help, Michael Schwab, co-president of Harrisburg, Pa.-based D&H Distributing, told CRN.

Most of D&H's partners, though, are still looking for help with cloud services and executing an as-a-service model. Plus they aren't shy about asking for a hand from distributors if the scale of a particular project is beyond their expertise, such as a VAR used to working with doctors' offices that receives a contract to automate functions across an entire hospital, Schwab said.

Many partners are initially hesitant to lean on distributors for help with delivering services as they feel they can do a better job in-house rather than by outsourcing to a third party, according to Kevin Murai, CEO of Fremont, Calif.-based Synnex.

"Our customers want to control the experience," Murai said. "They want to control everything."

Other partners, though, are looking for a guiding hand given the complexity currently associated with delivering cloud services from multiple vendors, Murai told CRN, noting that Synnex has been looking beyond the traditional supply-chain-oriented services to get more into the enablement piece.

But as cloud becomes more prevalent and Synnex strengthens its tools, Murai sees partners moving to more of a "self-service" model, whereby they use an online platform to provision disparate, multi-vendor services with a click of the mouse.

Tech Data, though, thinks very few solution providers are capable of providing on their own all of the services customers demand, with some partners needing help with configuration, for instance, while others want assistance with logistics, Tech Data's Dutkowsky said during the executive panel.

"One size fits no one, and that's really a good thing," Dutkowsky said. "The breadth of the opportunity is so large."

That's why Tech Data bought STG, though several partners at the time the acquisition was announced worried that STG could allow Tech Data to sell data-center services directly to end users without engaging a solution provider partner.

Kirk Robinson, senior vice president for commercial markets and global accounts at competitor Ingram Micro, also raised that issue while speaking with CRN on Wednesday, saying that the distributor stays away from any acquisitions that could result in partners' viewing Ingram Micro as a competitor.

"STG has a history of going direct to the end user," Robinson told CRN. "I don't think resellers are thrilled when a distributor picks up another reseller."

Dutkowsky, for his part, has said repeatedly since then that STG, under Tech Data, will be utilizing a "partner-led business model," telling CRN last month that adding STG has allowed partners to place more complete and competitive bids on customer projects.

Lynn Murphy, executive vice president of North America for WestconGroup, agreed with Dutkowsky, saying that almost all solution providers have some gaps in the services they're to provide. Murphy said the Tarrytown, N.Y.-based distributor can help with everything from education, asset tagging and life cycle management to configuration and supply chain services.

"No one partner, no one company can do it all," Murphy told CRN.

Avnet and ScanSource have noticed that interest in distributor-delivered services is frequently correlated with the size of the solution provider.

Patrick Zammit, global president of Avnet Technology Solutions, told CRN all of Avnet's big partners -- which account for more than half of the distributor's sales in North America -- have already developed their own service capabilities, with many moving from a VAR to a system integrator model.

Midmarket partners, though, cannot afford to finance all the requisite services on their own, Zammit said, meaning they will either have to get more specialized or leverage distribution to add additional services to their line card.

Similarly, ScanSource has found that most of its national partners have very sophisticated services capabilities and are able to provision services entirely on their own, according to Rich Long, U.S. and Canadian president of communications and catalyst for the Greenville, S.C.-based distributor.

Some large resellers with robust service capabilities still leverage ScanSource for assistance to help streamline their cost structure and allow their internal service team to focus on more pressing needs, Long said.

The regional players, though, turn to ScanSource for help with everything from integration services to getting point-of-sale terminals ready to provisioning and shipping IP phones on behalf of their partners, Long and Buck Baker, ScanSource's worldwide president of barcode and security, told CRN.

"We can pretty much help anywhere partners need us to help," Baker said.

PUBLISHED SEPT. 11, 2015