CONTEXT, a company which describes itself as ‘complete IT market tracking solutions across the whole supply chain’ recently conducted its ChannelWatch survey, which profiles the views, activities and intentions of a representative sample of 7500 resellers operating across Europe, Russia, Turkey, Australia, New Zealand and Brazil.
The survey found that IT channel consolidation has increased, forcing distributors to focus on optimisation and leading resellers to worry about pricing and procurement costs.
According to CONTEXT, over 30 major distributor merger and acquisition deals have taken place in Western Europe in the past 18 months, as companies “increasingly seek out the sustainability, plus scale and margin improvement offered by IoT, refurbishment, attractive services margins and cloud adoption”.
In addition, many distributors have ceased trading altogether across the globe, while those that survive are being forced to move away from box-dropping and towards holistic strategies focused on services and solutions.
“Where margins used to reach double figures, half a percentage point now matters and this increases the importance of controlling costs, having well-oiled logistics, and looking for new, higher-margin opportunities” the report claims. It also notes increasing reseller churn, “especially associated with transitioning business models linked to cloud adoption.”
As evidenced by the report, it’s clear that the channel is undergoing various shifts, as distributors and resellers come to terms with a rapidly changing technological environment and the challenges which come with it.
By now, 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.
The advent of digital and cloud has also 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.
A previous blog post offered some suggestions as to how distributors could adapt to these factors, but a quick rundown includes becoming trusted technology advisors to their partners, adding expertise to standard vendor product offerings and taking care of administration and irritation issues.
What’s clear is that the IT channel environment is definitely evolving as the impacts of ever-increasing digitalization rapidly spread throughout the industry. We’re likely to see further mergers and acquisitions, conglomerations and distributor closures as the channel continues to develop and mature within its new digital environment. Those corporations that survive and thrive in the new world will have read the writing on the wall, and adapted accordingly.