CRN Exclusive: Arrow President On New IoT Partner Program, Pursuing Tech Data-Avnet TS Solution Providers

With Change Comes Opportunity

Arrow Electronics said there is "uncertainty" among solution providers stemming from Tech Data's acquisition of Avnet Technology Solutions, revealing last month that the Centennial, Colo.-based distributor has closed on more than $350 million in annual business coming from competitors.

Sean Kerins, president of Arrow's Enterprise Computing Solutions (ECS) business, spoke exclusively with CRN about why solution providers are switching to Arrow, how aggressively the distributor has been pursuing legacy Avnet TS partners, and the benefits of a pure-play specialty distribution model.

Kerins also dished on Arrow's plans to roll out a new partner program focused on industrial IT and the Internet of Things, the distributor's track record in attracting new types of channel partners, and why the company has doubled down on infrastructure and enterprise software.

Read on to learn why Kerins believe Arrow will be successful in the changing distribution landscape.

What are some of the primary reasons partners have switched $350 million of business to Arrow?

The answers are many and varied, but there's a few generalizations I can make. Think about the solution provider world. They value predictability. They value service levels. They value operational efficiency and scale. And they value that kind of enablement that points them in the direction for growth. So if you're a partner that's come to enjoy a certain level of predictability from your distributor, and that distributor is now looking to land in the hands of a different company, a different business model, one probably managed through different financial metrics, at the very least you're uncertain about what that relationship will look like in the future.

How does uncertainty in the distribution landscape affect solution providers?

Any time you see changes in the distribution landscape if you're a solution provider, you have to wonder what will that mean to service levels in the future, what will that mean to the sales coverage I enjoy today, what will that mean to the pricing I predict and run my business around today. Will any of that change? All of that naturally leads you, in many cases, to consider alternatives. So that's what's driven, more reactively than proactively, our ability to engage lots of partners in that conversation. That is the uncertainty I'm referring to that is driving the movements I referred to in our earnings call.

What has that uncertainty meant specifically for Arrow?

While I can't speak to any one partner in particular, that uncertainty has driven dozens and dozens and dozens of conversations with our people in both the Americas and Europe specifically interested in our capabilities because they want similar or better enablement going forward. So we've been responsive to that, and I think it's understandable to a degree, and we'll continue to be responsive to that level of uncertainty going forward.

Is most of the new business Arrow has won a result of the Tech Data-Avnet TS combination?

I wouldn't actually break it down by distribution competitor. If you step away from that analysis, I think the headline is big moves in the distribution marketplace create uncertainty in the solution provider channel. Those that are focused on things like internal integration exercises may be at a disadvantage as compared to those that are focused externally on just enabling those solution providers to continue to grow successfully. We're sort of staying on our path, and I think we're benefiting from the uncertainty in general. But I would say that it's sort of across the board in the market, without breaking down what that looks like from a competitive perspective.

How aggressive have you been in pursuing legacy Avnet TS partners?

Over time, most solution providers and resellers have been pretty consistent and pretty stable with their distribution relationships. They don't make changes that frequently. There's a small piece of the spectrum that might do that opportunistically, but by and large, the successful ones are pretty consistent in their distribution relationships. This has been a much more reactive than proactive endeavor. The reason those conversations are occurring, given that these companies tend to be pretty predictable in that way, is because of the uncertainty. So it's been more about us being responsive to them versus the other way around.

What do you feel the value is of Arrow now being the only global pure-play specialty distributor?

The big question in many of their minds is the uncertainty I referred to. What happens when value meets volume? Does value continue to serve them in the way that they have come to enjoy? Or is the value-enabled model eroded because it's now basically sitting in the hands of a bigger and different business model? What it's done is really brought a better and sharper distinction to our model in the value space. We are now the only pure-play, value-based distributor of multinational scale. And as solution providers evaluate their routes to market, they have to start to think about one selling motion versus another.

Why do you think being the only multinational specialty distributor matters?

I still think that, in the world of IT, there's a vast market for things that are complex. I go back to IT that must be sold; it can't simply be bought. And when it needs to be sold, you need the kind of specialization that we can bring to bear either around suppliers, around categories, increasingly around solutions, and then certainly around the transition to the cloud. There are other distributors with other business models that are not in the position to specialize to that same degree, and I think our track record has demonstrated that we've been able to prove that it's a model that the market still values. In some ways, the track record speaks for itself.

Does Arrow have any IoT-related initiatives in the works?

You'll see us roll out a partner program dedicated to a new and different breed of channel partner that's looking to penetrate the market for industrial IT, and specifically IoT, in a big way. Think about how attractive it will be to them in that program to have access to a components business of significant size and scale across the globe. … We'll work with both [new and existing partners]. We've had plenty of our existing ECS partner relationships come forward looking for help and enablement as it relates to penetrating the IoT market. This program will be all about them, and it be all about net new partners that are steeped in what I call 'intelligent device and industrial IT skill sets.'

How are Arrow's capabilities differentiated from the Tech Data-Avnet TS combination?

I would clearly point to an end-to-end portfolio. We talk about line card capabilities including engineering and sales enablement basically from the sensor to the end to life or sunset of a technology. There is no other pure-play, value-based distributor that can stitch together a selling motion that starts with an intelligent device, takes it all the way to the data platform be that on-premise or off, and then ultimately has a viable solution for not just supporting that device during its active life, but also addressing its reverse logistics and end-of-life needs. I don't think you can show me anybody else that can play on an end-to-end basis addressing all of those customer and ecosystem needs at any scale.

What prompted Arrow to shift its focus from data center hardware to data center software?

We quoted, as part of our earnings release, that our overall global mix is 65 percent software-based solutions and just 35 percent hardware. And that's a good read on how far that transition has come because if you look at those numbers roughly a year to 18 months ago, we'd probably be more in the zone of 60/40 and 55/45. So we continue to make progress on our pivot to software-based solutions and value-added managed services.

When and how did Arrow start focusing more on software?

We started diversifying our portfolio both throughout the enterprise IT stack, starting with server, then getting into storage and networking and then eventually infrastructure software. Probably going back eight to 10 years ago, if you look at our acquisition history, it was all about claiming the enterprise IT space in a complete and specialized way. If you look at our line card today, we move up from bottom to top and now have a formidable infrastructure software portfolio that really helps us penetrate the market for security, the market for analytics, the market for mobility and the market for hybrid cloud in a more significant way. And all of those segments, and all of those demand trends, really require software in some form to drive value out of these highly complex IT environments.

What types of new solution provider customers are you seeing?

I also think that we're seeing more channel partners that represent new business models – be they managed service providers or be they born-in-the-cloud resellers – people more astute at positioning and selling and supporting managed services and cloud-based managed services. Those aren't partners that we did much with five years ago, but they're now very interested in working with us to further penetrate this great big install base that we've helped to build.

To what extent have your efforts focused on existing versus net new partners?

I would definitely say that we've historically helped our partners move into new segments. And helping partners grow is one of the things that solution providers evaluate distribution partners by. I would also say that as we've gone down this path, it helped us bring a lot of new and different solution providers to the Arrow party. Our customer base has grown dramatically over the past several years as our line card has grown and our capabilities have diversified. While we've helped some partners grow, we've also attracted a lot of net new because we're playing in so many additional spaces, yet all driven by similar and complex IT demand trends in the enterprise data center.

What's different for partners about being a predominantly software-based business?

We've seen many, many, many good solution providers diversify their business models to get into infrastructure software, to get into managed services-like support, for example. And those that have done so had similar vision and foresight that the market would continue to grow and morph, and they needed to reposition their capabilities. And they also had a certain level of appetite for investment and resources in technology and capabilities that would help them get into these spaces. And many times, we are part of those initiatives to help them move down new and different paths.

What, if any, role will hardware play for your partners going forward?

A complete solution still requires hardware, as nobody's figured out yet how to run software on software. What's important is that you're evolving your hardware portfolio to keep current with the technology trends. Things like stand-alone storage and server to converged and hyper-converged. Things like the transition from traditional spinning disk to flash, and so forth. All of those things are absolutely essential to the private and hybrid cloud model for the data center of the future, so I want to be clear that we're still in the hardware market, and the better solution providers we support are still in it as well.

How willing and eager are solution providers to transform their business?

We've been on this journey for several years. We had the foresight that suggested the market would continue to diversify and we would need a more complete solution arsenal. We led the diversification of our solution strategy proactively and through our acquisition strategy. And, in turn, we ended up bringing a lot of our traditional resellers into new market segments. One of the reasons that solution providers re-evaluate their distribution partnerships is that they're ultimately looking for things like ease of use, things like operational scale, things like our ability to simplify vendor complexity, things like our ability to tie together multivendor piece parts of complete solutions.

What has that transformation looked like for Arrow partners?

I think that we ended up moving lots of our traditional partners from our early days into new and diverse segments. Those that worked with us originally on the server basis, we helped them get into the storage market in a big way. Many of those same partners then came with us into the market for virtualization, and then to the market for security. And now we're into the market for private cloud and the private to hybrid cloud transition. … We have certainly learned a lot from them along the way because they're in front of customers every day and they help inform our decisions about line card, our decisions about enablement requirements and support services that we continue to re-evaluate and bring to market.

How much engagement is there between Arrow's computing and components business outside IoT?

I'll give you a simple example – the president of Arrow's electronic components business, Andy King, is right next door to me. We're able to knock on each other's walls pretty much a dozen times a day when we're both in town. We spend a whole lot of time together looking at how we can better serve our collective suppliers and customers by harnessing the various capabilities and line card portfolio that we each bring to the table. There's a reason we sit right next door to each other.

What has that meant for your business?

That's manifested itself in things like cross-selling initiatives and sales referral programs and even an IoT foundry, which is a very cross-functional, cross-[business-unit] virtual team that's focused exclusively on the demand opportunities that we see centered on IoT so that we can quickly connect the dots internally when it comes to multi-business-unit engagement. So there's a lot of good things happening organically, there's some things happening structurally, and we'll continue to bring the right pieces of the portfolio together as it makes sense for the market. We're letting the market and our customers tell us what's the right way to serve this demand trend as it plays out, and we will continue to align best to support them.

How is having both a computing and components business a differentiator in IoT?

Imagine you're a solution provider who specializes in industrial automation or operational technology, and you had to choose a distributor to help you further penetrate and serve the market for IoT as it continues to ramp and take shape. Who would you rather be aligned with: someone who specializes in only one particular piece of the complete solution, or someone who's got not just visibility into what an end-to-end solution looks like, but actual engagement with customers and suppliers across that whole spectrum? And so, internally, we're fostering referral relationships, cross-selling initiatives, the kind of bundled and red-marked solutions that enable our people to tell a more complete story as it pertains to IoT.

How do the computing and components salespeople work together around IoT?

Imagine that I have access to hundreds of Arrow salespeople who are focused on the marketplace for electronic components, and imagine that they're serving tens of thousands of customers, be they OEMs, be they CMs, be they ODM, be they enterprise customers who are all, in important ways, taking advantage of what IoT means to their business models. And now imagine that I've got relationships between that ECS sales force and that components sales force that allows us to more quickly connect the dots when it comes to attaching a cloud data platform, when it comes to introducing a security solution set, which is a key consideration for IoT buildouts.

What about from an analytics perspective?

Imagine being able to introduce a story with real capabilities and real partners that are steeped in analytics, that can then help that same sales team address the question of, 'Gee, what do you intend to do with all this data once you generate all those ones and zeroes?' Imagine how difficult that would be to do on sort of a third-party basis. It's hard enough as this whole initiative takes shape. We think the fact that we have all those capabilities in-house just makes us that much better positioned to identify opportunities more quickly and then respond more sequentially. We're getting better and better at that every day.

What are the biggest greenfields in terms of growing IoT wallet share?

We are already on the path of the kinds of changes necessary to really penetrate the IoT market most effectively. Our digital investments and digital platform capabilities are just one example. The referrals and cross-sell arrangements I talked about are another. The buildout of the cloud portfolio is no longer just aimed at the traditional routes to market for us in ECS, but now present themselves in other forms across the Arrow portfolio. So I think we're already well down the path. I think there will still be more investment to come, and more changes to make. We're well positioned to ascertain what those requirements are really going to look like as we continue to learn more about this marketplace.

How much of Arrow's cross-segment capabilities are focused around IoT?

Yes, that speaks to IoT, but it speaks to many more opportunities beyond IoT. Imagine that every intelligent device that we help build through our integration business, or we help sell into through our components business, we can now support on a platform basis in the aftermarket. Imagine that every piece of technology that we help a partner sell on-premise, we can now attach a cloud-based subscription to augment that solution off-premise, be that around backup and recovery, or business continuity or even threat detection as a service. Imagine we can offer our channel partners basically a value recovery solution as a service so that as and where they're helping their customers displace old technology for new, we can also address the disposition of old technology as part of the same sale. And the list goes on.

How have partners adjusted to major technology changes?

Historically, the traditional 'reseller' term suggested companies that just resold products. I think the term 'solution provider' is much more appropriate for where we all sit today in the marketplace because IT solutions in these enterprise environments are very complex. Being able to understand customer requirements and then stitch together the right piece parts of a complete solution is not an easy chore. These are sales campaigns that take months, not weeks, and sometimes quarters, not months. Being able to enable them throughout can be challenging as these campaigns take a variety of twists and turns is one of the hallmarks of what I think has been our consistent capability throughout this journey. But as a result, solution providers that participate in multivendor markets are drawn to our capabilities.

Where do you feel you are in that software transition process?

I think our track record tells a pretty good story in that regard. I think we've put ourselves in a pretty unique position. We've got just years of experience and a substantial install base in the marketplace in the medium to large enterprise environment. And that environment is all about complexity. And where IT is complex, you need a selling motion that enables solutions to be sold versus things that can be simply bought. … We've made great progress. I think we've at least kept pace with the market, if not exceeding it in some cases. And I would say that we have certainly set ourselves apart from the competition.

How does Arrow's specialty prowess play out in the marketplace?

We are not overly confident by any stretch. Every new customer relationship that we earn, every new solution provider conversation that comes our way as a result of this uncertainty is really just a chance for us to prove our capabilities and is really an obligation for us to demonstrate that our service levels and our enablement capabilities are going to meet their needs. But I think solution providers value the kinds of things I talked about earlier, including the right formula to keep them on growth paths. And I think we've got a unique perspective on what those growth paths look like as we continue to look into the future.

Is a pure-play specialty model superior to having broadline and specialty under one roof?

I'm more interested in our strategy and what it takes for us to continue to execute. I'm convinced there's a large market for value-based, complex, IT solutions, and we're going to stay focused on that sold-versus-bought space. I can't really speak to other distributor decisions as to whether it makes sense to blend value and volume. We've chosen to stay in the value lane, and we're committed to that, which probably tells you what you need to know about whether we'd go down a similar path.

How do you feel you stack up against Tech Data and Avnet TS from a pricing perspective?

In general, we don't compete on price. We compete on capabilities and value. I don't get into price-per-Gigabyte kind of assessments and comparisons. What I do focus on with our suppliers and our channel partner customers is how we can enable them to be successful, and that ultimately is what sets a value model apart from a broadline play. And so the pricing question in this context probably isn't valid.