As anyone who lived through 2016 will attest, there’s no doubt that the world is changing faster than ever before. Not only are tech changes reshaping our societies and cultures, but there is major uncertainty resulting from major geo-political events such as the Brexit vote and Trump ascending to the presidency.
Despite remaining seemingly immune to change for many years, the IT distribution channel is now finally starting to see the effects of changes which have already been shaking things up in the rest of the IT space for quite some time.
Firstly, the channel is not exempt from macro-environmental forces such as a financial hangover from the last recession, political changes and global uncertainty. There are over-arching legal changes, such as the Protection of Personal Information (PoPI) Act, and social and demographic changes too.
Then there are specific channel pressures, often brought by changes in technology, such as:
Probably the most pervasive technology to infiltrate the channel, cloud technology is bringing sweeping changes – from the product being distributed to the end-user customer, to the actual distribution mechanisms themselves. Probably more than any other factor, cloud is forcing vendors, distributors and resellers to adapt, innovate and change the way that they structure their businesses.
With the evolution of new technologies, specialized new players are emerging and increasing competition amongst existing companies within the IT channel. As established channel players move into new business areas, they encounter new start-ups which were never on the channel scene before. With old business paradigms becoming obsolete, the competition in new business areas is hotting up.
No need to expand on this one – all traditional distributors within the channel are aware that channel margins are no longer what they used to be, and that margins are coming under pressure from all sides. Under economic pressure themselves, vendors are expecting more financially from the channel, whilst downstream customers are squeezing their suppliers and unwilling to compromise on margins like never before.
Increased Barriers to Entry
New technologies and distribution methods are evolving, but also becoming more complex. Whereas in the past, a simple tried-and-trusted lift & shift strategy sufficed, nowadays new services, mobility and analytics expertise come with higher technology, skills and investment requirements. Whilst this may seem good news for established channel players, it also means that evolution to new business models will be similarly tricky, whilst those entrants that do manage to penetrate the barriers to entry are more formidable competitors.
To be fair, the IT channel has not been renowned for being on the cutting edge of marketing, traditionally relying on events-based marketing to get customers through the door. This is changing though. In today’s time-pressured society and business environment, customers no longer have the time to attend business events which can take up a vast portion of their day. Customers want logical, concise and easily digestible information readily available at the click of a button, attributes which are natural strengths of digital marketing.
Direct Vendor Engagement
In the past, it was simple. Vendors would use channel reach to put their products in the hands of their ultimate end-user target market. Now however, the advent of digital and cloud has enabled vendors (and by proxy end-users) like never before. Electronic delivery mechanisms and e-commerce environments enable end-users to do business directly with vendors, to the benefit of both parties and to the disadvantage of traditional distributors and resellers.
These various factors are changing the game for distributors and resellers. No longer able to rely on legacy systems and outdated ways of doing business, they have been forced to adapt their methods and deliver new value in perhaps previously unforeseen ways.
Becoming Trusted Advisors in New Technology
For all the talk about automation, digitalization and disintermediation, resellers and distributors are often in the position of having built up secure and trusted relationships with their customers. In an increasingly digital world, the value of these human relationships and goodwill built up over years of mutual business should not be underestimated. If prepared to master new technologies and become experts themselves, resellers are in an excellent position to advise and pass on this expertise to their customers, whilst being the automatic ‘go-to’ partners due to previous business relationship history.
Learn Skills and Adapt to New Processes
It seems obvious that in an evolving environment, companies must be prepared to learn new skills in order to adapt, but many companies can be surprisingly resistant to this. Traditional channel players can fall into various mindset traps, such as “this is what we’re good at; this is the way we’ve always done it; we own this sector of the market; that technology is just a fad” and even “we’re too big to be hurt by this”. We all know how that ends. Resellers need to keep a close eye on channel trends, continuously look for ways to leverage their existing strengths in new ways, and employ and train staff accordingly.
Channel players are in an ideal position to add expertise to standard vendor product offerings. The ability to draw on years of experience dealing with particular factors within specific channel environments makes them ideally placed to customize product offerings, tailor them to fit particular circumstances, and offer expertise and advice to their customers in similar positions.
Taking Care of Administration and ‘Irritation’ Issues
In new and unfamiliar environments (and even in familiar ones), customers need to focus more than ever on core business issues, and have little inclination for dealing with administrative issues which take up valuable time and human resources. Distributors and resellers can use this as another customer value-add opportunity and take on this burden themselves.
In addition to the above challenges, channel players are also now needing to adapt their revenue models. The recent shift in vendor products from hardware to cloud services and ESD offerings means that distributors and resellers are seeing their revenue models shift from CapEx to OpEx, generating different scenarios when it comes to capital investment and cash flow situations, and forcing them to adopt contingency plans whilst devising new long-term strategic and financial methods.
End-user knowledge is also at a higher level now than ever before, due to the ever-increasing amount of knowledge (both free and paid) available online. This can eat into distributors and resellers’ ability to be viewed as experts and specialists, prompting customers to question the value-add of resellers and heightening their propensity to go direct should the option become available.
If the channel was initially slow to change and evolve, that’s certainly not the case any longer. Vendors, distributors and resellers are now scrambling to modify their existing business models, create new ones and reposition themselves in the eyes of their customers. Whilst change is painful, it is also very necessary. In an environment as competitive as the increasingly cloud-dominated IT channel, standing still spells doom.