Tech Data: Apple iPad Sales Surge, But Windows 8 Will Compete

Bob Dutkowsky has been CEO of Tech Data for about six years, which makes him the longest-tenured CEO of all the multi-billion-dollar, publicly-traded distributors in the U.S. That's enough time to have seen several tech cycles come and go, which gives him a broad perspective on where the company -- and the channel -- are headed. He recently visited with CRN editors at UBM Channel's Framingham office to touch base on a number of different subjects including the iPhone and iPad phenomenon and whether or not Windows 8 can make a dent. Here are some excerpts from the conversation:

Tech Data has changed a lot under your tenure. Can you take us through some the changes, maybe starting with mobility?

We're living a transition as we speak. Three years ago, we didn't sell tablets. Two years ago, we sold $300 million in tablets. Last year, we sold $1 billion in tablets.

[Related: Video: Tech Data Thriving With Apple, iPads ]

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How much of that is due to Apple's iPad?

If a vendor or a customer accounts for greater than 10 percent of your business, you have to disclose it. For years, we disclosed HP like that, but for the first time ever, we announced Apple was greater than 10 percent [last quarter]. It was 12 percent. Now last year, we did $26.5 billion in sales, and $1 billion was tablets. That's not 10 percent, so that means we're also selling Macs and AirBooks. We don't sell the iPhone, so it really is the computing side of Apple, which has become a major piece of the Tech Data story.

As Apple's foothold in the tablet market only appears to grow stronger, is there room for competition?

We see a big opportunity. The world wants alternatives. The technology ecosystem is never comfortable when there's only one choice. No two users think the same about technology. What works for you might not work the same for me. The iPad is an exceptional product. It fits the consumer and business spaces. My three-and-a-half-year-old grandson knows how to turn it on, key in the password. He can't read or write but he knows every icon know and when he's tired of a game, he swipes it away.

This is where something like Windows 8 plays really well. There are plays where the iPad doesn't fit, business environments where another architecture could play better. Windows 8 is one pane of glass, meaning phone to content delivery device to PC, there's a consistent look of feel with touch [capability] across everything. CIOs can secure the whole environment. There are places where that fits, where an Intel-based PC [fits and where] iPad as a content device doesn't fit.

We think Windows 8 will be an exciting architecture. We have a massive partnership with Microsoft and all the guys building Windows 8 enabled platforms.

Back to Apple, Tech Data is missing the iPhone? Do you think you can convince Apple to let you carry that too?

We've been trying to get the iPhone, which as you know Apple deals directly to points of sale and has its own logistics capability.

How often do you get to make that pitch in front of Apple, to add the iPhone?

Every day.

NEXT: Mobility A Top Priority What do you need to do then to convince them?

Have you seen our joint venture with BrightStar? Our intention is to take smartphones to the VAR channel. You know think of channels of distribution [for smartphones], you think retail. The Best Buys websites can all sell a phone to a consumer. But if you're a business, you source your business solutions from a VAR. The typical VAR doesn't sell cell phones because they have to deal with a manufacturer and a carrier. It's too sloppy. With our TDMobility program here in the U.S., we built an infrastructure, the IT systems, the tools that enable and allow VARs to sell smart phones to their clients.

Let me walk through a scenario. I'm the VAR, and I have a customer, a 10-man law firm that buys Exchange, billing systems from me, the pro A/V in the lobby, but when it comes to buying phones, each lawyer strikes their own deal with Verizon or AT&T or whoever. Now, with TDMobility, [the VAR] can source 10 Samsung Galaxys from you. The VAR comes back to and says I want three of them on Verizon, two of them on T-Mobile, three of them on AT&T and these get this feature, [and] you get that. We customize the phone and ship it directly to the end user.

The VAR gets a one-page bill every month. I manage your cell phone business every month. The VAR doesn't have to run to [the carriers] to get all those subsidies. We guarantee the subsidies in 30 days. They get the value add, but most importantly, they get to control the environment for that customer.

I was talking recently with a [VAR] who has a law firm customer. The managing director dropped his phone in the swimming phone. He called the VAR. But, the VAR didn't sell him the phone. He said, "But I use my phone for email. You're my email guy. Fix my phone." The VAR went to Verizon and got him a phone. He didn't get paid anything for that. TDMobility is driving smart phones into the channel.

If you're AT&T, Verizon, you don't have the channel. They have SMB initiatives, so they need us. We had to build this enabling, billing infrastructure. As Apple sees that story, Apple gets excited. They don't know how to get to the channel. But like with AirBooks or MacBooks, who do they turn to? Distribution. We manage the channel. My feeling, someday when we get the iPhone, it will be after Apple has exhausted the reach of their existing distribution infrastructure and they want to get into the channel.

NEXT: Windows 8 Poised To Pounce? Mobility was a $1.8 billion business for Tech Data last year, but it's not the only big shift. About $7.5 billion came from data center technology, $3.5 billion was from consumer electronics and $4.6 billion was from software. How did that shift come about?

About five years ago, we started to diversify away from the desktop. For 35 years, all we had to do was answer phones. We grew up in the desktop space. It took a new set of core competencies. Tech Data grew up in the Intel world. From our point of view, the agenda in IT is set by the consumer. You hear the concept "prosumer," the professional consumer. We decided we would open our eyes to the consumer space. Don't forget five years ago they were Apple Computer. Now they're Apple. They're a CE company, not a computer company. We drove ourselves into those four areas. We're divesting out of things like printer cartridges and investing in things like data center.

We're moving away from less profitable products and moving toward more profitable. We have a very different revenue stream now, and as a result, you see 3 percent revenue growth, but operating income [growth] is 12 percent and net income [growth] is 14 percent.

What's your view of Microsoft Surface? Is that going to cause problems for your other tablet vendors and for you as a result when Windows 8 comes out?

All hardware vendors have built platforms. The day Windows 8 comes out, there will be all kinds of hardware alternatives in the market. Whether they use the channel or market today or tomorrow, there will be enough alternatives out there.

Do you think Windows 8 can be a big play in the tablet space? Microsoft really hasn't said much to garner a lot of hype around it.

Do you remember two years ago at CES? It was the Year of the Tablet. There were 40 Android tablets announced. We picked five of them. We didn't pick 40. Those five have created the 5 percent share that other guys [besides Apple] have. But, I think Windows 8 will be the first real competitor to be an alternative tablet solution. You have to let it play out in the marketplace. It's not Android. It's Windows. And, there are tens of millions of business users today that use Windows. A lot of those are going to look at a Windows tablet in a positive way.

Then when is Microsoft going to start talking about it?

It's coming. Trust me, it's coming. Microsoft has a very well-defined calendar of events. You'll see a lot of information around Windows 8 [tablets] starting next month.