Specialise – or go bust

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Resellers and distributors who fail to specialise may risk tumbling into a 'bankruptcy gap' created by the polarisation of the Australian IT channel, it was revealed at CRN's Channel Roundtable.

Chris Herbert, research director at channel research company Inform, a Roundtable attendee, says effective specialisation may be crucial to ensure survival of individual members in an increasingly hard-hit Aussie channel.

'In ten to 12 years, the channel has become a massively complex hybrid beast which is now tending to polarise,' he says. Resellers and distributors that could not clearly define their place in the future channel – that were caught in the middle of a currently over-crowded, Byzantine system – were likely to fail.

An example was direct marketers. The number of direct marketers, including online traders, contracted 32 percent from 2001 to 2002. 'They tried to be all things to all people … No-one is going to buy a $10,000 server off the Web,' Herbert says.

As the channel was hit by increasing pressure, certain types of resellers were migrating to become primarily either volume players or value players – opposing ends of the market – to survive. However, the 'bankruptcy gap' refers to the amount of revenue derived from services.

'What we [Inform] are saying is that there exists quite a substantial gap between a volume and value player in the amount of revenue derived from services, some 30 percent. What we are saying is that those resellers caught in this gap must seriously look at their business model,' Herbert says.

'The market is now a user's market, containing sophisticated and tech-savvy buyers. With this comes the prerequisite of service,' he says.

About 30 percent of the revenue of the average corporate dealer was now coming from services and that would necessarily increase as the gap widened. Despite widespread doom and gloom, certain segments of the market, such as notebooks and business software, are undoubtedly continuing to grow strongly year-on-year. Substantial opportunities existed for those with a clear objective and business proposition. 'Who says the market's flat?' Herbert queries.

Savvy resellers and distributors needed to find their own little part of the market which for them could ferret out that little extra piece of profitability. Companies could also become niche by improving internal efficiencies, for example by training staff to add value to the customer or vendor relationship. 'Look at Dell. They found a niche and they do it very well. Toshiba also does it well … It is my contention that vendors can ultimately differentiate themselves from their competitors through channel strategies,' Herbert says. The channel could and should address itself to this, making itself more indispensable in the process.

Joe Arcuri, national sales manager at BCA IT agrees. 'I think the answer is in selling the solution rather than the technology, in becoming more niche. I think there are still too many channel partners out there trying to be everything to everybody.'

Arcuri notes some new players, by doing the right marketing, were doing exceptionally well compared with some very established players.

'You need to focus on a niche market and have a strong business case,' he says. 'A lot of system integrators, all of a sudden they're in there trying to sell the customer application development or something other than what was in the brief.'

Peter Thatcher, senior consultant at Channel Enablers, says the IT industry was driven by cycle of hype followed by disillusion. 'After that you begin to see a real return,' he says.

But because of the over-inflated claims for technology made from within the industry, resellers must focus on putting a real ROI proposition on the table, particularly when courting SMBs. Yet that required specialist knowledge, Thatcher says.

Nick Verykios, MD at LAN Systems, says the channel could learn much from the way financial planners operated. 'Look at the way they specialise. They're very targeted and won't waste time on people not in their market. They ask two or three questions, and know whether they want to spend time with you. They're very hard,' he says.

Resellers needed to identify their market entry point and ensure a close connection with the primary contractor. Rather than focus on a niche as such, resellers needed to focus on their market entry proposition, he says.

'You can also go out of business as a specialist, and a generalist can be the most profitable in an industry. Too many people believe their own bullshit. What you want to continually question is your own business model,' Verykios says.

He cited the example of a US reseller that decided to close down despite having a 'very positive' balance sheet. 'Their business model expired. If they had stayed open, they would have lost their money. So many people just sit there [until it all goes wrong],' Verykios says.

Bruce McCurdy, CEO at Clariti, agreed with Verykios. 'We always talk about Clariti bakeries. In five or ten years' time, we may not be in IT anymore. We could be in any business,' he says.

Colin Williamson, MD at Comaxes, says SMBs were still demanding generalists, in part because smaller businesses develop slowly. 'Where there are clearly defined projects, I think you can specialise. But from year to year, people still want somebody to hold their hands,' he says.

To some extent, it was the perception of the market that ruled how a reseller could make his or her money, Williamson says. A generalised organisation could have specialities without that affecting the overall perception of the organisation's capability, but a specialist organisation was perceived as just that, and would be expected to derive its revenue from that.

Paul O'Connor, director of partner sales at Sun Microsystems, says some members of the channel were inclined to take the niche idea too far, running after whatever seemed to be the most profitable market at the time. Such an approach could conceivably produce short-term profits but was likely to work against long-term survival. 'They see a market and go after that. Then they see another market and go after that. It's “strategy du jour” really,' he says.

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