Ingram Micro: The Value of Aggregation

VARBusiness: How is your mix of software and hardware changing?
Grainger: Over time, software has become a bigger component within the industry. Software is a big focus for us. We're Microsoft's largest distributor in the world. Hardware, on the other hand, is the slowest growing group in the industry, and we've seen that, too.

We not only do shrink-wrapped software but also software licensing with our Click2License program. We also have a contract with Microsoft where we fulfill on a fee per service basis all of their shrink-wrapped software to all of their retail stores in the U.S. and Canada.

VB Are distributors more important to smaller resellers than to larger ones?
Grainger: Distribution is important to all resellers. We're blessed with being in an industry with a large number of manufacturers with millions of products that have to be sold through millions of resellers to hundreds of millions of end users. This points to the value we provide to a reseller of any size. Because we're the largest customer in the world to our manufacturer partners, we have a great deal of influence with those manufacturers.

And we're positioned so that VARs can draw on us for many services they can't afford to handle themselves. For example, we have more than 150 trained people for both pre-sales and post-sales technical support. And we also have financial vehicles available only because of our size and our ability to work through multiple resellers.

VB: Are distributors more important to small manufacturers than to larger ones?
Grainger: Any manufacturer would say the tremendous growth opportunity is to be able to tap into the SMB market. That SMB market is serviced by VARs, and VARs clearly look to distributors as their source for products, services, and solutions. The other huge value we provide is that because we're dealing with so many resellers that have so many end users, we're able to aggregate demand in a very tangible fashion.

VB: How has the HP/Compaq merger affected distribution?
Grainger: I think they're continuing to try to understand the best way for them to get their product to market. What our VARs are looking for us to do is be an advocate for them. Manufacturers listen to what we say and appreciate the fact that we can bring that consensus viewpoint. I think the new HP values us very much in that regard because we don't just aggregate demand in terms of revenue but also the opinions of our customers. No matter who the manufacturer is, no matter how long it has been in business, there's not a more effective way to get into the SMB space than through a distributor. That will never change.

VB: Analysts tell me some manufacturers do not realize the importance of the channel.
Grainger: I think it's as important as ever. In a time like we recently had with the slowdown in demand, the pressure to outsource is huge. We're a huge beneficiary of that. When the market comes back, and we start having growth again, the pressure will be just as immense on those manufacturers to maximize profitable revenue opportunities, and they'll again look to distributors to be a huge portion of that revenue growth for them. You can't match the economics of distribution with a direct sales force. Whether we're in good times or bad times, there's a huge role for distributors to be the recipient of outsourcing, Our conversations with manufacturers all come back to the point that they value us extremely. IBM, for example, has actively re-engaged the channel the last few months because of the many years of experience, expertise, and true value the distributor provides.

VB: IBM recently gave Ingram the distribution rights to its x440 server. Do you have other plans to move up into midrange and specialized IT products?
Grainger: The PC part has been the main piece, but when we were awarded the distribution rights to the X440 server, it showed us moving up the chain. This came about because of meetings between Ingram and IBM where we demonstrated tangibly the value we can provide. It wasn't smoke and mirrors: it was fact. We are constantly looking how to add products to our portfolio and move up, because that's where VARs can take advantage of our specialized expertise. And [midrange products supplement our commercial products so VARs can look to us for one stop shopping.

VB: If I'm a VAR that specializes in networking, would I be better off sourcing from Ingram or from a specialty distributor like Westcon?
Grainger: Unlike niche or specialty distributors, Ingram Micro works with VARs to sell comprehensive solutions that include financing and value-added services to take the sale beyond just the basic product. For example, networking has consistently been one of our most important product categories, with Cisco being a key leader for us in this category. For networking, we have the depth to support VARs who develop complex high-end networking solutions and we provide the breadth of resources and training for customers looking to get into this lucrative market. Niche distributors can't provide the value of aggregation or the economies of scale with hundreds of products and services together with one single contact.