Analysis: VAR Ownership Gives Disties Greater Value-Add

As he strolled along the streets of Rome, Bell Microsystems CEO Don Bell talked louder into his cellphone to be heard above the din of bustling pedestrians around him. Raising the volume wasn't a problem; Bell's excitement over the distributor's latest acquisition--a minority stake in storage-solution powerhouse ProSys Information Systems--came across loud and clear.

Bell sees no end to the strategic partnerships among vendors, distributors and VARs. Staying competitive, he says, means finding new business models and ways to enhance value for end users and partners.

"It's a different world from what it was a few years ago," Bell said in a phone interview with VARBusiness. "We're bringing more value-add to smaller VARs that have [limited] capabilities."

With its stake in VAR operations, Bell is unique, but it isn't alone. While the disty owns Total Tec, an Edison, N.J.-based storage solution provider, direct-market reselling giant CDW recently bought Berbee (No. 112 on the VARBusiness 500), giving it specialty resources in security, data centers, application development and collaboration systems. And Agilysys has earned more than $500 million from its reseller arm.

Does the expansion of distributors into sales and services signal a conflict with the solution providers they've traditionally served in a supporting role? Not necessarily, says Bell, who asserts that Bell Micro's acquisition of ProSys puts the distributor in a better position to partner with smaller solution providers and capture new opportunities.

"I think that says something about the special nature of our distribution. We're a storage specialist; we're not trying to be Ingram [Micro] or Tech Data. We go not wide but deep into the storage enterprise," Bell said. "We're not competing head-on with solution providers and going direct to customers. We keep the two companies separate. That way, we can bring value-add strength to partners, and we can invest more because you can spread it over your base."

The $41 million that Bell Micro is pumping into ProSys gives it a 48 percent share of the company; majority ownership remains with co-founder and CEO Michele Cleary. Also, ProSys Information Solutions will be spun off as a wholly owned subsidiary of Bell Micro that focuses on the SMB storage market. The spin-off will be operated by ProSys co-founder Bruce Keenan.

Norcross, Ga.-based ProSys, No. 96 on the VARBusiness 500 and No. 33 on the CRN Fast Growth list, gives Bell Micro a strong partner in the delivery of enterprise storage hardware and services in the Southeast United States. Combined with its existing reseller holding--Total Tec--the distributor now has more than $500 million in storage reselling that blankets the eastern seaboard.

"With those two entities [ProSys and ProSys Information Solutions] and Total Tec, we'll have a $1 billion business focused on this space--enterprise storage and servers, desktop deployment and managed services," says Jim Ellison, COO of Bell Micro, San Jose, Calif.

"We offer the same exact value-added services to all of our VARs and resellers," Bell said. "We're not saying that Total Tec and ProSys get any special systems. Anything we offer to ProSys or Total Tec, we'll offer to all the other resellers."

NEXT: How the disty-VAR model is working for Bell Micro in Europe.

Bell Micro has successfully experimented with this distributor-reseller model in Europe, where it has acquired or invested in a half-dozen British and German storage resellers.

In those markets, solution providers are expanding the distributor's reach into smaller markets and growing the overall distribution business, Bell said. Total Tec and ProSys form the foundation of a similar arrangement here in the United States.

Cleary, who founded ProSys a little more than a decade ago and built it into a $436 million business, is rapidly expanding from her Georgia base into other markets and is particularly focused on second-tier regions. The company recently opened its first offices in Arkansas and Kentucky. And Clearly has set her sights westward.

"We're competitors to CDW; we ship everywhere, but we don't have physical offices outside the southeast," Cleary says. "With this cash, we can start opening offices further north and west. We were looking for someone to help us with this."

Primarily a Hewlett-Packard partner, ProSys now has access to storage technology, products and resources from Hitachi and Fujitsu through its Bell Micro relationship.

So, what's the shape of things to come? Bell Micro will likely expand its reseller investments, either through partnerships or outright ownership. Other distributors are likely to follow suit as they search for greenfields of new revenue and enhance their value-added services to solution providers and resellers.