The market force of digitalization has brought with it an incredible amount and variety of changes to almost all industries, revolutionizing operations and processes throughout. The IT channel industry is no different, and one of the changes wrought by digitalization is the new-found enablement of customers through direct-fulfillment models.
The distribution channel industry has traditionally been inextricably linked to the intermediaries within – vendors make their products available to distributors, who then pass said products on to resellers who ultimately make the products available to their end-user customers.
Digitisation however, is beginning to fundamentally alter this traditional mechanism by enabling the end-user customer to transact directly with vendors, removing the distributor and reseller links in the chain above. And although maybe not currently applicable to all vendor products, the growing number of vendors making their product electronically available to customers via a direct marketing model, is taking a chunk out of traditional channel intermediaries’ revenue.
With the push to everything cloud, it’s looking increasingly grim too. As vendors continue to base their product ranges on cloud, more and more products are going to be available directly to end-user customers via electronic software download (ESD). And while distributors and resellers are feeling the pain, vendors and end-user customers are enjoying the benefits of not having to share margin with the other channel players, as well as a faster and more direct transmission mechanism.
The impact of digitalization on the industry is not only evident when it comes to the product distribution process. Customers are more empowered with information than ever before. The information age has given rise to a wealth of information available online, from internet learning portals to white papers, PDFs, forums, webinars and podcasts, there is now a multitude of both free and paid-for product, vendor and industry information available to end-user consumers at all times and the click of a button. And with the advent of new digital marketing channels like social media, there are also more ways for vendors to market to end-users than ever before. End-users are by now well-versed in social media, and comfortable in online retail and e-commerce environments.
This has the effect of turning the customer into, if not quite an expert, then at least someone who is fairly informed about the product, any complementary or competitive products, and the environment in which the product exists. Along with vendors now trying to market the product as simply and clearly as possible to end-users, the overall effect is one of an informed end-user customer who is not so reliant on the traditional reseller for product knowledge, and who feels comfortable in dealing with and buying from the vendor directly.
So what to do for distributors and resellers being left out in the cold by this new direct distribution model?
One way in which distributors and resellers have adapted is by aggregating cloud services into a single sign-on portal for their customers, via a relatively recent business model known as a cloud service brokerage (CSB). As the multitude of available cloud products expands, it quickly becomes a labourious process for users to keep tabs on all of them. In fact, the IT industry has coined a phrase for this: cloud sprawl. By bringing all the distributor or reseller’s cloud vendors under one roof and giving users the ability to manage all their cloud services via one portal, end-users are spared the hassle and labour of needing to log into and manage each individual vendor cloud service.
Distributors and resellers can also upskill and act as trusted experts and intermediaries in specialized product configurations.
Distributors and resellers can also upskill and act as trusted experts and intermediaries in specialized product configurations. With vendor products and services becoming ever more complex, despite increasing end-user knowledge, there still exists a market for technical expertise, particularly if it comes from a previously established and well-trusted business partner. It’s why we are starting to see within the industry, a shift from moving hardware product to software service provisioning, particularly amongst smaller market entrants who lack the size and economies of scale to get involved in traditional hardware distribution.
As with many things in life, business survival ultimately comes down to a willingness to adapt. While there is no doubt that digitalization has wrought large-scale changes on the channel, let’s not forget that it has also created new opportunities and spaces for enterprising channel intermediaries in which to operate and explore. It’s no surprise that those which are most willing to adapt in order to do so, are also those most likely to survive and thrive in the long run.