Hail the age of Distribution 2.0

Some distributors have been traditionally pigeon-holed into two areas: niche and broadline.

With niche players, resellers can source specific products with high levels of services, but by no means cover all their customers’ needs.

With broadline, resellers expect a broader range and tighter logistical operation, but with a reduced personal touch.

This is obviously a generalisation and by no means indicative of all Australian distributors.

However, it does form a platform for an insight into the direction of local distribution.

If you ask many distributors which could be labelled niche, if they are just that, you will often be greeted with an explanation on how they offer niche support with an ever-broadening set of products.

The broadline guys are saying much the same in reverse.

So are we entering the age of Distribution 2.0?

A time where resellers can use a distributor as a one-stop broadline partner with niche support and expertise? The distributors certainly think so.

We’re both actually.

“Altech has been successfully doing both [niche and broadline] for much of the past 10 years,” said Antony Sheen, managing director of Altech.

“Both approaches are common, depending on the size of the distributor. To go broad-based you either need to have a considerable infrastructure already in place to build on or very deep pockets and the acceptance that profits will not flow for some time into the future.

"Going niche is often as a result of a particular product opportunity and can be more evolutionary due to the better margins that usually accompany such a move.”

Sheen said in recent years we have seen the distribution channel “polarising”, with the big distributors focusing more on cost reductions and slicker logistics and less on the products and vendors. This has resulted in smaller distributors having eroded margins and forced some of them out or into niche opportunities.

“Since the very beginning Altech has tried to maintain a strong product and vendor focus, high level of customer service with dedicated account managers and local warehousing, while building up strategic niche opportunities. This strategy seems to have worked as we continue to grow at more than 30 percent annually, with no slowdown on the horizon,” claimed Sheen.

He said the biggest advantage for small distributors going niche is to stay in business and profit, which over the past few years is an achievement in its own right, given the dubious pricing strategies of some of the big players on the market.

“For Altech, a balance of broad-based and niche products in our catalogue is the right recipe for continued growth, however we stand by products being profitable in their own right and do not use profitable products to subsidise products strategically sold at a loss, which some larger people seem to have as their core modus operandi,” added Sheen.
Aidan Fitzgerald, general manager of IT sales at Cellnet, said: “We are something between [niche and broadline]. Our focus is to remain as we are and provide increased value around the vendor portfolio we have, alongside adding complementary vendors that will produce solution offerings.”

Fitzgerald said niche distributors still have what could be labelled a broadline of offerings in specific areas.

“A more niche player is always going to have an advantage over the bigger players due to the focus they can give their vendors. We only carry 20-something vendors, so we can do better with those vendors, rather than a pure volume player,” added Fitzgerald.
Peter Agamalis, senior channel manager of Impact Systems Technology, said: “We are both [niche and broadline]. Why? Because we exercise niche products and we have stock of broadline products as well.

“The obvious advantages to niche are that you can have products pretty much to yourself and enjoy sales and margins with minimal competition, though with this comes the responsibility of proving the vendor a sales track record to be maintained as the exclusive partner. As for a broadline business model, you typically have safeguards whereby stock comes from the distributor, you can take liberty of stock whenever required and you can also obtain the benefits of the vendor’s programs at the same time,” said Agamalis.

Altech, Cellnet and Impact weren’t the only firms avoiding the pure niche or broadline tag. Distribution Central and WhiteGold Solutions have even invented their own terms for how they sit in the distribution landscape. Distribution Central claims it is operating a “distribution in depth” model, while WhiteGold is coining the phrase “Unified Value Distribution”.

“We built our business four years ago based on a completely different view of the antiquated “time and place” or broadline versus value-add or niche model, and the arguments, pitches and dilemmas [around the two models],” said Nick Verykios, marketing director of Distribution Central. “The argument is still being thrown around because distributors have legacy investment and thinking in their systems that relate to one or the other [of the two models]. The vendor and reseller community has evolved way beyond these traditional definitions and respective models.”

Verykios believes a dual model between niche and broadline has worked for Distribution Central and is a model which throws the niche versus broadline argument into the “vaults of history”.

“Niche versus broadline is a rhetorical argument. You need to be both. In short, you need to add value everywhere. And if you are a so called “value-add” distributor, you need to add extreme value in the traditional “time and place” or logistics realms of the service portfolio you are offering. That is the model that has given us this success,” said Verykios.

Explaining its “distribution in depth” model, Verykios said it shows a movement from either broadline or value-add to a new model where technology solutions are represented by distribution and these technologies are delivered to the channel through three distinct service portfolios: transaction optimisation, market development services and knowledge-driven services.

Transaction optimisation was historically the domain of broad-based distributors focus, explained Verykios. But every distributor must add extreme value by offering configuration, annuity and licensing engines including web services to resellers and vendors.

He said market development services are important as everyone needs to create tailored channel programs for their vendors now, specific to each vendor. “You can’t broadline the value and you can’t focus on just one vendor. Mass customisation of vendor programs is essential to localise them and make them relevant to our market,” said Verykios.

The final “distribution in depth” aspect of knowledge-driven services are professional services a distributor invests in to generate skills that a reseller can augment into their own skill.

“The distributor engages at a level that suits the customer, not the other way around,” said Verykios. “We have executed on this by moving the broadline services into Distribution Central, and maintaining the value inherent in specialisation such as sales, marketing and engineering into various independent business units.”

Dominic Whitehand, managing director of WhiteGold Solutions, said: “What we are terming is Unified Value Distribution, where you are bringing together the value of a number of technology areas, but you are still retaining true value, rather than becoming broadline only. You have got to have the skills, you have got to be able to support it well, understand what you are selling and be knowledgable on the products for people to take you seriously.”

Whitehand said the distribution market has seen a rapid change due to numerous developments in technology which has been released in recent years.

“There is a lot of converging and technology unifying, and that means a lot of the technology areas are coming into singular products which can cover a number of different aspects,” he said. “Instead of just picking storage or security [to distribute], everything is changing and a lot of new vendors are coming on the market. The key is to pick out the good vendors. Everyone saw the converged networks coming, but getting the right products is key to being a modern distributor, whether you are broadline or niche.”

However, Whitehand insisted that distribution has become more specific and niche in general, but broadline is still prominent, especially though various mergers and acquisitions forming fewer larger players.

“The real solution provider distributors, who are niche and really know their products inside out, have done well. The key is that you do have to diversify. If you are a niche distributor in one area only, you either need to be in the top two in the country or you need to diversify out to become niche in more than one area,” said Whitehand. “The advantage of niche is that reseller will get far better support from people who have probably had direct experience of implementing the product. Support and service is better and quicker with niche distributors.”

With broadline, resellers are usual going to get products to the right place, at the right time for the right price, according to Whitehand. They might get pricing advantages with broadline, particularly for some consumer products as broadline distributors consolidate shipments, giving them lower shipment costs and can then bring their prices down.

“You get a broad range of products, but at the expense of their staff being about to fully support those products to an in-depth level,” said Whitehand. “People are starting to understand the real value of the niche distribution model, but there is no way they are only going to stick with niche alone due to the multiple technologies in the market. So the industry is looking for distributors who have what they want across most of the hot categories like the obvious ones such as networking, storage, security and Unified Communications.”

Whitehand said the industry wants distributors who can provide most of what they need in those technology areas, but provide both pre- and post-sales support, plus implementation and professional services. “The distributors that position themselves to do that are going to succeed,” he added.

Case in point

To fully highlight the transition towards Distribution 2.0, it is worth noting the direction of two players that have clearly fallen into the two traditional distribution categories. Ingram Micro is Australia’s distribution giant, with huge turnover, staff figures and an unmatched vendor stable in terms of breadth. On the other end of the spectrum, a good niche example is Tegatech, a firm which claims to be Australia’s only tablet PC and ultra-mobile PC specific distributor.

Headquartered in Sydney, Ingram Micro Australia has offices in Melbourne, Brisbane, Adelaide, Perth and Canberra and distribution centres in Sydney, Perth and Melbourne. Speaking globally, Ingram serves 100 countries and claims to be the only global IT distributor with operations in Asia. In short, it is a distribution monster.

Stuart Ellis, general manager of the Ingram Micro Solutions Group, said: “With both resellers and vendors we position ourselves as having multifaceted capabilities. Our core business, which is no secret to anybody, is broadline around time and place and supplies chain efficiencies. However, we have also developed a niche and specialised model to ensure
that we can compete in other segments of the market. We do this by focusing on certain market segments with our business units.

“We base our overall business on the strength of our product portfolio in that we have a broad range of offerings in many different market segments. We then complement that portfolio with specialisation such as technical and business development and leverage that back to what we are strong at doing which is supply chain efficiencies.”

Ingram’s Solutions Group was officially formed in July 2006, with the firm planning the division for two years prior.

Ellis explained that Ingram’s 2004 merger with Tech Pacific was a “very nice marriage” which enabled the firm to build the dual niche and broadline capabilities it uses today.

“While a lot of distributors have picked niche areas, they are starting to diversify. You are seeing guys who have been in one particular market segment now popping up with a strange [vendor] appointment,” said Ellis. “We have been very clear on our strategy. Our Solutions portfolio is now making up 20-25 percent of Ingram’s overall revenue stream. The business units we have built around virtualisation, security, Unified Communications and business applications are well established, we are getting good traction with them, and we have a lot of specialisation within those units with consultancy services, pre-sales and technical support.”

Ellis claimed Ingram is highly specific in terms of which vendors are rolled into the business units and any vendor additions have to be in line with the strategy of the unit.

“For example in our virtualisation practice we have a very strong OEM position with IBM and HP for VMware. We also have a strong licensing play with VMware, but we have broadened our capabilities in the virtual environment with vendors such as PlateSpin and Symantec, CA and Microsoft’s virtualisation offerings. Avocent is another recent addition to the virtualisation portfolio. Our strategy is to complement our broadline business with specialisation,” said Ellis. “There is a dilution in this niche piece in that
a lot of distributors are looking outside of their core capabilities.”

Ellis said Ingram’s approach has enabled it to offer more value to resellers of all sizes by providing a more complete multi-vendor offering to the channel.

“Our core business is in the SMB and mid-market, that is where the vendors want us to play. What has driven us into those markets is the complexity of technology these markets are now demanding. As we have seen security, virtualisation, blade technology and storage area networks pushed down into the SMB and mid-market, somebody with good capability has got to service that. It is all about a consultancy sell around technology which is relatively complex,” added Ellis.

“I call that the commoditisation of complexity.

We got on that wave fairly early, set up with the vendors early, got the right people into our business, to ensure we deliver the appropriate skills set for the partners.”

Tegatech on the other hand is based in Balgowlah Heights, Sydney, with a specific focus on tablet PCs and interactive kiosks. A far cry from global machine of Ingram, but the firm does not feel that diminishes its ability to serve certain sections of the reseller community.

“Vertical and niche markets are our stomping ground, that is where Tegatech lives and breathes,” said Hugo Ortega, principal at Tegatech Australia. “It appears that over the years being focused on vertical opportunities has helped us support resellers with specific needs and target solutions to optimise profits for our organisation and theirs.”

Ortega said Tegatech has paid attention to hardware trends and tried to act early to optimise profits for resellers. This is a business model Ortega feels appeals to its database of resellers and one it will continue to adopt.

“Niche is an opportunity to work with clever people targeting industry specific needs. By being involved closely with these resellers, Tegatech has finetuned hardware solutions, and specifically set out to fix its logistical infrastructure to support niche markets.
Tegatech is interested in broader opportunities but still feels niche markets are better suited to Tegatech’s core strengths in mobility,” added Ortega.

It is some refreshing messaging from Tegatech, providing its niche continues to pay dividends. It is also proof that some niche players are still happy to continue burrowing away within their traditional alcoves.

Are we entering the age of Distribution 2.0? It’s unlikely we need yet another umbrella term in the IT industry, but the fact remains that the slightly lazy and hugely broad pigeonholing of niche or broadline is over. Niche players are stretching their vendor stable, while broadline players are expanding their services.

However, it is worth noting this is all good for the reseller community. If distributors are upping their game in terms of both offerings and services, it will be resellers who ultimately benefit. So resellers can sit back and watch as the distributors scramble to improve their performance and hope Distribution 2.0 signals an age of improved reseller profitability, too.