Arrow CEO Discusses Strategies For Acquisitions, The Cloud, Services

Arrow Electronics raised some eyebrows in the channel with its acquisition of Shared Technologies, a VAR 500 solution provider, earlier this month. Mike Long, CEO of the Melville, N.Y.-based distributor, recently spoke with CRN’s Scott Campbell about that deal as well as his big-picture of services and the cloud. Here are some excerpts from the conversation:

Let’s start with your Shared Technologies acquisition. Arrow always marketed a message that it did not own a solution provider business that competed with its customers. How does that change now that you’ve agreed to purchase Shared Technologies? What are you telling your VAR customers?

It’s wildly different than what our VARs are doing. In fact, there would probably be a classification difference as to is this a VAR or not. It’s really not. The main thing that Shared does, and how it differentiates itself, is that there are several hundred trucks running around doing services for customers where there’s big telephonic installs if you will. They remotely manage the communications systems for those big companies. Their names are a who’s who of Fortune 100 customers. First off, they don’t play in the same space that a traditional VAR plays in. They play mainly in manufacturers and doing services for those manufacturers in those accounts.

They do remote management. They have [network operating] centers. We have several hundred reseller customer partners and those services will become available through our resellers. The vast majority of our reseller base doesn’t [deal in telephony] nor do they have the wherewithal to invest in trucks to send technicians out to solve big problems.

Shared Technologies was [No. 158] on our VAR 500 list. Is it clearer to say they don’t do anything that other Arrow solution providers do?

I don’t think any VAR does what they do. Take a look at the management capabilities they have with the trucks, those types of things. It’s really a services business more than anything else.

How does the Shared acquisition fit in the big picture of where Arrow is headed and where you want to go?

This first piece of it is what’s going on in cloud computing and the convergence of telecom and IT around the network. This is a play to help quickly allow our resellers to get up and participate in services they’re not building for themselves. These services will be made available. While a reseller primarily has hardware and IT services, we can help them combine grow an annuity with their customer base.

Next: A Shared Vision

And because Shared doesn’t really sell traditional IT hardware, it won’t compete against VARs?

There’s no conflict with any of our VAR partners because they remain and will continue to be lead in that account. All we're doing is offering reseller those services.

How important is it for Arrow to branch into more services?

It’s really important to get into because the market is converging so quickly. One thing we’ve always done is give VARS the ability to expand marketplace and sell more. This is another step in that. This allows resellers to protect their business on IT but also open up the telecom market for them. They can now go out and add to their available market past what they have been doing before. It also allows them to participate fuller in the development of the cloud, external or internal, for any customer requiring that. It puts them squarely in the hunt again.

What do VARs need to do to start selling these services? I’m guessing that they at least need to be taught how to sell these services if nothing else.

It’s the same type of training we’ve been doing. I liken it to the IBM trainings we used to do in Indianapolis [at May Days] to help our resellers learn how to sell, where to sell, what their place is. We’ll make sure those parts are distributed through us. There will be some training to go along with this as move down the road here.

When will the services be available to VARs?

Basically as soon as possible. Everything can be done today in a one-off opportunity. But towards the end of the year we’ll put together mass opportunities for multiple resellers that want to get involved. The ability for the reseller base to hit that mid and smaller market is out there, which by the way suppliers so desperately are trying to get at with their IT gear.

Do you envision services eventually becoming as big a business as maybe even hardware for you?

We fully believe that collectively with our resellers we’ll be able to be the first distributor that can provide a true services content for our resellers and help them offset the expense level it takes to put together this type of program. Most manufacturers' services arrangements work for the manufacturer. This works directly for the VAR and their customers.

Next: Capturing More Data Center Business

Does that mean you’re looking to turn each VAR into an IBM Global Services of sorts?

IBM has its own services arrangement. They focus on a certain type of customer, certain level of implementation level for customers. That’s traditionally been the rub with resellers. They haven’t been able to participate fully in those markets. Every manufacturer has been the same. Our approach has been to bring those services directly to resellers, expanding their world. We’re doing it now on the telephony side.

What about services becoming a bigger part of the business, as more people look more toward virtualized environments and away from big RISC-based solutions to more blade-focused ones? Does Arrow need to worry about that?

You saw our sales up 21 percent in the last quarter, year over year. Our content of blade servers is also up. We’re not ceding any of the market. There are still complex installations of servers that still do produce economic profit needed to sell those. Sales of software and storage for us is way up.

The overall view from me is that the Sun [Microsystems] business is getting back and on track, if you will. We’ve been growing with HP and IBM. We don’t see those relationships slowing. But with the advent of the cloud, we need to protect and make sure our resellers have a full line card to sell so they don’t get disintermediated from the other side. We make sure our resellers are fully rounded, that they have all the hardware needed to do a complete cloud infrastructure for any company they’re dealing with.

In that case then, where are the gaps or holes to fill in your linecard that are needed to get you there?

On the software side, especially security software, we’re in great shape. On the virtualization side, we’re in very good shape. On the IT side, we’re really locked with IBM, HP and Sun in house. On the services side, there’s clearly more work that needs to be done to capture every part of the business, to capture every bit of the business in the data center.

There’s been talk that Oracle might look to take more Sun business direct, even through VARs, reducing their distribution business. Do you see that?

We don’t see that movement at all. We’ve seen expansion with them. We are engaged with them at higher levels than probably we’ve ever been. The Oracle team has global account reps working with us through the transition. We had a decent Sun quarter last quarter. Avnet said the same thing. I would say we’re not panicking and we don’t believe this won’t be a good partnership. We absolutely believe in it.

Next: Keep Up With Cloud Technology

The other big news is HP making its bid for 3Par, a 33 percent increase over Dell’s offer. I’m guessing since you don’t carry Dell that you’d like to see HP emerge there. Do you see a lot of opportunity for 3Par’s products with your customers?

We’re not engaged with Dell. Anything our partners can do to bring more to the market, more opportunities to them is good. We would definitely want to be engaged with that through our HP resellers with anything in the cloud today

What other things do you think VARs should be thinking about to protect their future?

It’s important that VARs make sure they understand everything about everything in the cloud, so they’re able to keep their businesses and not get disintermediated from forces they don’t see. If you think about the past, this is not a huge change from what we’ve seen. In the past you had primarily server guys. Then they started to move into storage. Then they started to move into software.

’I happen to think that they need to understand how IT is converging around telephony today and I believe they need to fully understand how companies are utilizing their networks to bring this all together. From that point of view, I think the more resellers understand their customer in the data center and around the cloud they’ll come out just fine. It’s the migration of the VARs needing to continue their journey and their growth around the cloud.