D&H Co-President Dan Schwab: AI, Windows 11, Security To Drive Business In 2024
‘New PCs drive much more network bandwidth within organizations. Sharing all that data drives an upgrade cycle in servers, the network, and storage. Think about the storage for the computations you're going to do, if you want to save that information. So now the entire front office becomes a back office conversation with partners,’ says D&H Co-President Dan Schwab.
D&H Places Its Bets On AI, Managed Security, PC Refresh, And The Feds
IT distributor D&H Distributing ended 2023 on a roll, with revenue rising to more than $6 billion and recording its 105th year of profitability. That helped the Harrisburg, Pa.-based company, which touts how its employees are all co-owners, maintain its place as the world’s third-largest IT distributor.
D&H is not planning on taking it easy any time soon, however. Dan Schwab, who with his brother Michael Schwab is a co-president of the company founded by their grandfather in 1918, told CRN that the company is focused on bringing such technologies as AI and managed services to its solution provider customers, most of whom are focused on the SMB market.
It is that SMB focus that has helped D&H differentiate itself from other IT distributors, even as it continues to grow its midmarket and enterprise business by investing in a wide range of leading edge technologies and markets, Schwab said.
AI, for instance, is now at the point where SMB-focused solution providers can have meaningful discussions, and generate meaningful business, with their clients, he said.
“Big companies have invested in AI for the last couple years,” he said. “You see them using it in their call centers, offering an intelligent chat bot that's really much better than it was years ago. We're trying to see how AI affects a law firm with 400 employees, or a sales organization with 200 employees, or a regional banking system? How can they leverage it? We're trying to take all these business cases and facilitate the training first for our partners, and then how they communicate with their end users.”
Schwab said D&H also expects its channel partner customers to see a big uptick in business from the Windows 10 to Windows 11 upgrade, and not only because of increased PC sales.
“New PCs drive much more network bandwidth within organizations,” he said. “Sharing all that data drives an upgrade cycle in servers, the network, and storage. Think about the storage for the computations you're going to do, if you want to save that information. So now the entire front office becomes a back office conversation with partners.”
However, Schwab said, D&H is not ignoring the needs of its larger partners, and is investing in those areas where they also see growth.
“We’ve become a desirable partner for upper midmarket and enterprise resellers, many of whom look for us to help complement their federal goals,” he said. “So we've invested in resources and programs to grow our federal business.”
Here’s more of Dan Schwab’s interview with CRN.
How is business at D&H?
We have a saying here: We decline to participate in the economic downturn. We were fortunate that we grew double digits in what was a really tough year, even though many manufacturers and distributors had quarters in 2023 with double-digit declines. Everyone was expecting the second half to be stronger. Everyone predicted a tough first half, and then a rebound, and it never materialized.
We're really optimistic and bullish for 2024 for two reasons. One is, we're up against much softer numbers. 2023 was still a year that people were digesting all their technology investments from the prior years, whether it be clients or infrastructure. Second, there's some macro trends we believe will be accelerators, shifting the wind from in our face to at our backs. It's figuring out with our partners where AI fits in their businesses. And managed security, where breaches have been accelerating. A lot of reports said they've never been higher. So continued investment in security and network protection along with managed security continues to grow.
Also, I think one of the foundational growth areas will be the Windows 10 end-of-service and the Windows 11 upgrade cycle with Microsoft Copilot. And as Microsoft is trying to move AI capabilities from the cloud to the client, we think 2024 will be the beginning of a macro upgrade cycle.
You said double-digit growth. Can you give us some numbers?
[D&H] surpassed $6 billion in 2023, with year-over-year revenue growth well over 10 percent.
And D&H still remains profitable?
Yes. We’ve been in business 105 years, and made money for 105 years. Our streak continues. I think that would be 420 consecutive quarters of profitability, if we were a public company.
Let's break down those three key trends that you talked about. First, what is D&H doing with AI and channel partners?
When cloud first came out, there was a lot of hype. And it took a couple of years until it really flowed. It started in the enterprise, then went to the consumer level, and eventually to the SMB and midmarket world. Same with as-a-service: It started with enterprise customers, then consumers could do it, and now it's hit mainstream. I think AI will see a much faster adoption.
In 2024, we’re investing with our customers and our vendors. With our vendors, it’s about where their technology is going to leverage AI. Not hypothetically, and not just ChatGPT. What specific business solutions? How does it take costs out, or help their end users scale? We've spent a lot of time turning the vendors’ messaging into business cases for our partners. At the same time, we're interviewing our reseller partners about what their end users are asking them. Big companies have invested in AI for the last couple years. You see them using it in their call centers, offering an intelligent chat bot that's really much better than it was years ago. We're trying to see how AI affects a law firm with 400 employees, or a sales organization with 200 employees, or a regional banking system? How can they leverage it? We're trying to take all these business cases and facilitate the training first for our partners, and then how they communicate with their end users.
Aren’t your distribution business peers also doing that?
I'm not trying to disparage anyone. I think we're trying to really simplify it. It's very much brass tacks: How is it going to help our partners help their end users? What does it mean to a small business? How can they apply it? So we're trying to simplify it in a much more pragmatic and digestible format. In the end, D&H really focuses on the enterprise, midmarket, and SMB, but we've known for and really are the SMB distributor. For that market, we have to do a lot more due diligence because customers don't have data scientists, they don't have the size of organization that a Fortune 1000 company has.
What are some of the AI technologies or applications D&H expects to bring to smaller channel partners?
One example is Microsoft Copilot. I almost consider it as ‘rolling thunder.’ Throughout the year, Microsoft will be rolling out different iterations of Copilot and Windows 11 that really unleash capabilities by different verticals, industries, and solutions. We're aligning closely with the vendors as they roll technologies out to then train and educate resellers. [For another example], there may be 50 different examples of printer manufacturers coming out with AI. You think, what do printers have to do with AI? They're doing it to help businesses narrow down how many printers they need, where they need them, what type of maintenance they need, all sorts of data-driven decisions to help manage costs more effectively.
You also mentioned managed security. How did that become such a big area of investment for D&H?
We're seeing that many of our SMB partners are becoming MSSPs (managed security service providers), and we help train them to help protect IT environments. Channel partners are really looking to help their end users understand what managed security is in a multi-tenant environment. So D&H has our own managed security services to support MSPs. We're working with all of our manufacturers to add more monthly licensing models for hardware and software-based solutions.
D&H was the first to market with two vendors in launching their hardware-software licensing model: Check Point Software and ESET. We've really pioneered working with them to create this. Obviously, everyone still continues to leverage the cloud marketplace. But we're also using our X-as-a-service program to bundle products and services into a monthly payment model.
For many organizations, one of the fastest growing cost centers is security. We're trying to help partners invest in helping their customers digest security how they want it. They want to have X-as-a-service with their hardware instead of having a major cost center or major capex for security. A lot of them are liking how we do hardware and software with a single monthly payment. And all of this goes with our AIM (assess, implement, and manage) methodology. We're giving them tools to assess the security of their end users and their vulnerabilities, implement the right technology, and then the reseller can manage it. A lot of times we will supplement that and help offer a managed solution. D&H is incredibly flexible.
What are your plans for 2024 in this area?
Everything has been accelerated. Our number of different types of trainings so far for Q1, January to March, is double what they were last year. I think it's 23 trainings versus nine last year. It's moving so fast. …
We're also increasing our line card. We've added more vendors to the cloud marketplace including Check Point and ESET, and there'll be others coming. We're trying to not just take a vendor to market. We're trying to help deliver IT in a way that makes it valuable to our reseller partners. Many vendors are just hardware-based, as an example. We're trying to build out their software-as-a-service solution. That's often a heavy lift. We work with manufacturers to revisit how they deploy their technologies and how they charge for it while also helping retrain resellers in new delivery mechanisms.
Again, what's D&H doing different? Security, when it comes to distribution, is a top focus for all your peers.
It's more evolutionary than revolutionary. It's not any one thing that we're doing. One example is, we've almost tripled the size of the D&H security team that helps train our partners. That's a big deal. We've invested in technical resources that are available at no cost. Remember, we offer free pre-sale and post-sale technical support for our customers. No other distributor does that for any sized customer. We're trying to really help them make sure they're as fluent and as up to date as possible.
You mentioned the big potential refresh that might come from the Windows 11 release. What does D&H see as the scale and impact of that refresh?
We think major technology changes is fertile ground for revisiting end user conversations. Go back to COVID in 2020. Many of the end users we all go to—the doctor's office, the kids’ schools—almost every segment went through a major 12-month upgrade cycle of all their clients, apps, monitors, cameras, everything. And historically, we’ve seen the life expectancy of a PC is three or four years. We're seeing the advent of Windows 11 will cause or create opportunities for more compute power on the client. Today, people are doing a lot of advanced computing up in the cloud. But building out the hyperscale is very, very expensive. So the manufacturers and top providers are starting to push more of that computing to the device, whether it's a phone, a PC, what have you. That means your computer needs to be a lot more robust. The upgrade cycle becomes a lot more important because you need AI-enabled chips that are much faster. You need technologies like Microsoft Copilot that can leverage IT embedded into the primary applications that many businesses use.
New PCs drive much more network bandwidth within organizations. Sharing all that data drives an upgrade cycle in servers, the network, and storage. Think about the storage for the computations you're going to do, if you want to save that information. So now the entire front office becomes a back office conversation with partners.
Most of the conversations with partners in the last year have been about security, right? ‘I'm trying to figure out how we secure your business.’ Or, ‘How do I monitor your environment?’ Or, ‘How do I talk about X-as-a-service?’ There have been new delivery mechanisms. But what new technology has come out in the last three years where you're like, ‘Oh, my gosh, we have to do that.’ There's been no new wireless network standard that's forced companies to upgrade. There's been no one thing that will raise all boats. We believe Windows 11 will do that.
How's D&H getting ready for that in 2024?
First, we're training everyone in our organization so they're fluent in it. Customers’ comfort level doesn’t come from reading a spec sheet or a press release. The average tenure of our inside sales reps is over a decade. So many of our partners look at us as much as a trusted advisor as they do a distributor. We have unique relationships, different from our peers in that we're so long-term focused. So the first thing we're doing is make sure our entire organization is fluent and comfortable with how the technology will help partners. We've rolled out AI tools internally. Whether it's RPA (robotic process automation) or machine learning, as we're leveraging those, we're making sure the organization is fluent in those so that the team can talk about it with real users. Again, I'll use the idea of ‘rolling thunder.’ Major OS upgrades are watershed moments when everyone upgrades. There's a huge upgrade cycle. All the notebooks switched overnight, right? But in this case, I think a lot of technology is being turned on over time as vendors unlock the capabilities of embedded AI and Windows 11 and by vertical. We're going to have conversations with our partners throughout the year to help them take advantage of it.
D&H is expanding its training centers, right?
Yeah, this is a big deal for us. We have had only one sales office and training center forever, based in Pennsylvania. That's where all the sales reps are. But in the last few weeks we've opened our second one in Florida. We already have over 100 people in the facility where we've been able to attract some really good talent. During COVID, we founded a center of excellence in Tampa with enough room for 200 people. Our vendors love the opportunity we now have with multiple offices so they can do floor days in one office one week, and next week do so in the other office. Having this redundancy and a second set of great resources in North America is a big deal from our standpoint. D&H is the third largest broadline distributor. Most of the other two distributors’ SMB partners are handled by people offshored in other countries. But we're an all-North America base. I think it's a key differentiator that's really valuable to our customers.
What else we need to know about D&H in 2024?
We're investing in the federal market. Historically, our partners are mainly in SMB and the lower midmarket, and sell into a lot of municipalities and state and local governments. As we've grown, we've become a desirable partner for upper midmarket and enterprise resellers, many of whom look for us to help complement their federal goals. So we've invested in resources and programs to grow our federal business. We're going to come at it from a different perspective than the other guys. We don't like to copy what others have done. As a private company, we can't be too far on the bleeding edge. We can’t open and spend tens of millions of dollars on a cloud business before the business materializes. This is not the public's money, or private equity money. It's our money. It’s our employees’ money. So we're really pragmatic about how we spend. When we do invest, we want to build a better mousetrap. And I think that's what we're trying to do with our federal partners to help them scale their business a little bit differently, and hopefully add a tremendous amount of value. It will launch in the first quarter.