Reseller News

​Educating from the epicentre - Why distributors are the pulse checkers of the channel

This exclusive Reseller News Roundtable examined the pivotal role of distribution in understanding the health of the channel in New Zealand.
Stuart Speers (Enterprise IT); Stuart Alexander (Origin IT); Colin Williams (Lucidity); Pablo Garcia-Curtis (SoftSource); Greg Sharp (Base-2); James Henderson (Reseller News); Kyle Taege (Dicker Data); Kelly Raines (Acquire); Mike Clancy (OSS); Mark Raos (Datacom); Phil Johnson (CommArc) and George De Bono (rhipe)

Stuart Speers (Enterprise IT); Stuart Alexander (Origin IT); Colin Williams (Lucidity); Pablo Garcia-Curtis (SoftSource); Greg Sharp (Base-2); James Henderson (Reseller News); Kyle Taege (Dicker Data); Kelly Raines (Acquire); Mike Clancy (OSS); Mark Raos (Datacom); Phil Johnson (CommArc) and George De Bono (rhipe)

As the channel changes and industry voices deepen, the need for clarity and insight heightens.

Market misconceptions talk of an “under pressure” distribution space, with competitors in that fateful “race for relevance” across New Zealand.

Amidst the cliched assumptions however, distribution is once again showing its strength, as a force to be listened to, rather than questioned.

Traditionally, the role was born out of a need for vendors and resellers to find one another, acting as a bridge between the testing lab and the marketplace.

Yet despite new technologies and business approaches shaking the channel to its very core, distributors remain tied to the epicentre - providing the voice of reason amidst a seismic industry shift.

In looking across both sides of the vendor and partner fences, the middle concept of the three-tier chain remains centrally placed to understand the metrics of two differing worlds, as the continual pulse checkers of the local channel.

“Distribution absolutely has a role to play, but the question is, what is that role?” Softsource director, Pablo Garcia-Curtis, said. “The businesses within the channel have dramatically changed during the past 5-10 years, which requires a new level of value from distribution.

“We understand the logistics aspect of distribution but in this new world, what is the value add? Distributors are the glue in the market and we require that level of thought leadership and new opportunities to help change the conversation for our customers.”

In the pursuit of providing a differentiated service to customers amidst a crowded marketplace, resellers are looking to distribution to advise and guide, partnering with those taking a proactive role in instigating change.

“Distribution is becoming more relevant because they’re being proactive around solving problems and dealing with taking costs away from the reseller,” Datacom client director, Mark Raos, added.

“Our enterprise customers are demanding more from us as a provider across products and technologies and I'm impressed with the energy and thought leadership distribution continues to provide.”

The pivotal role of distribution in understanding the health of the channel continues to grow in importance from a Kiwi context, as resellers battle to stay up-to-date with emerging technologies, new releases and product refreshes.

“It’s the depth of knowledge that is key,” Enterprise IT CEO, Stuart Speers, said. “Take Amazon Web Services [AWS] as a key example, given the rate of growth they are experiencing there is no way we can keep pace of what is going on in the market.

Mark Raos (Datacom) and Pablo Garcia-Curtis (SoftSource)
Mark Raos (Datacom) and Pablo Garcia-Curtis (SoftSource)

“Through distribution we receive deeper levels of knowledge and insight which helps keep our team abreast of what is new in the market and what value we can then bring to the customer.”

Whether it be cloud, artificial intelligence or cognitive computing, emerging technologies are flooding the market en masse, creating a channel jam-packed with services and solutions, congestion that has caused a bottle-neck for partners as a result.

“There’s so many products in the market today that distributors can help bring a level of focus to that noise,” Lucidity general manager, Colin Williams, said. “We’re constantly being bombarded by hundreds of different products to use or sell so it’s crucial to have a distributor capable of cutting through that hype.”

As partners seek new levels of expertise and local insight, distribution is diversifying at a rapid rate, fusing traditional practices with forward-thinking strategies around enablement and education.

“It’s a constant challenge because the market is always evolving,” Dicker Data networking business manager, Kyle Taege, added. “Our key role is around the education part and how we can add value in new ways, while maximising profit for our resellers.”

Market relevance

According to CommArc Consulting CEO, Phil Johnson, the distribution model in New Zealand has changed significantly over time, with the current cycle “one of the most challenging” to impact the channel for decades.

“My business is built largely on referral, we don’t advertise or market so we’re relying on building solutions for the customer,” he explained. “Our relationship with distributors are filled with integrity and honesty. There’s been a real step up in the distribution space and the industry is adding a lot more value than it used to.

“I see them as essential partners as we’re not a huge company which means we need to have specific gaps filled by distribution.”

Much like the battered, bruised and bewildered heavyweight boxer, distribution has taken a pounding in recent years.

Floored by challenging market conditions, the centrepiece of the supply chain has forever lifted itself from the channel canvas, representing the staying power of an undisputed champion.

But going the distance takes more than merely grit and determination, rather an underlying level of quality that even in the hardest times, demonstrates that form is temporary, and class is forever.

Boxing analogies aside however, distribution is an industry that continues to stand the test of time, with an overriding ability to survive and thrive in equal measure.

“As a distributor, how do we remain relevant?” rhipe general manager of A/NZ sales, George De Bono, asked. “How do we continue to differentiate and add value?

George De Bono (rhipe)
George De Bono (rhipe)

“Yes our vendors have strategies, but it’s about packaging solutions and satisfying the partner. As an industry we don’t have enough of those conversations, we enter dialogue with vendors and resellers when something is about to hit the fan but that is the wrong time to have that discussion.”

Representing longevity in the Kiwi channel, for many years, and for many of the world’s leading technology vendors, distribution has been a principal route to market.

Typically accounting for the majority of revenues, distributors remain heavily relied upon to provide extensive market reach and coverage.

In New Zealand, the value of this role grows exponentially across different geographies and industries, where local knowledge is power and reseller access and influence is coveted.

“From the distributor side I would say the service partners and resellers that were clear on their own strategy, could then be clear on how to extract value from a distributor,” Origin IT COO, Stuart Alexander, advised.

“My challenge to the channel is understand your business and understand how you can extract more.

“Leverage distribution to the hilt and you will see great value from it because if you don’t, and somebody else is, then that’s a challenge because distributors have an incredible influence on deal outcomes.”

According to Alexander, and in drawing on industry experience, distributors have a window into the market that partners underestimate, ensuring that they will continue to remain relevant in the years ahead.

“The market is filled with opportunities to grab,” he said. “But as a reseller how are you extracting that value? What do you understand about the value they offer? And what is your strategy?

Market dynamics

Increased investments in devices and software, alongside a boost in IT and communications services will result in technology spending in New Zealand reaching almost $11.6 billion in 2017, representing an increase of 2.7 per cent from 2016.

Chiefly, the rise will be prompted by printers, PCs and tablets making a come back in the local market, reversing a negative trend for the devices segment previously.

As reported by Reseller News, in addition, businesses will increase investments in software and IT and communications services from now until 2018, with data centre spending stalling due to slow server uptake.

But while IT spending is increasing, the buying patterns are changing, subsequently altering the dynamics of the market and creating a new need to leverage distribution.

“If you look at the market from a hardware perspective, the deal size is coming down,” Taege observed. “The large chunky deals are not the same anymore and that’s partly because the industry is shifting to a consumption model.”

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Today, IT departments across the country are required to bring relevance to the organisation, while promoting technology initiatives that support strategic business objectives.

In short, IT now needs to initiate value-based discussions related to the services that technology provides because through taking a service-oriented and consultative position, the CIO can keep up with the ever-changing nature of the market.

But to do this, IT must evolve and become more adaptive.

“In looking back at my distribution experience, the amount you get for the amount you pay is far greater today, and there’s a lot less of the multi-million dollar deals,” Alexander observed. “Five years ago, we were regularly doing large deals, but not as many exist in distribution anymore.

“You can get a lot of compute for a small amount of money now and that’s impacting the market.”

Impacting small, mid and enterprise markets across New Zealand, changing deal sizes create new challenges for resellers around pricing and billing, as the channel transitions to new business models and strategies.

Yet despite the shift, for those operating at the big end of town, value can still be found in securing chunky contracts with enterprise.

“They are less frequent but they are still there,” Raos said. “It’s a longer sales cycle but we’re still seeing them in the enterprise space, although the digestion period is now a factor.”

According to Garcia-Curtis, for resellers in New Zealand “a deal is a deal”, irrespective of how it is structured or delivered.

“The customer still requires an outcome,” he said. “But the large deals and great opportunities are still there. We’ll always have long cycles and we’ll need to change with the customer demands.

“And those demands are changing because it’s not a complete refresh anymore, there’s consulting elements, looking at the business and working with them from nine months to three years at a strategic level.”

In light of increased cloud adoption across New Zealand, customers are now seeking outcomes rather than products, outcomes that are delivered predominantly as a service.

Consequently, such customer change has resulted in a power shift within the channel, as partners take on greater importance in the end-user buying cycle.

James Henderson (Reseller News); Stuart Alexander (Origin IT) and Greg Sharp (Base-2)
James Henderson (Reseller News); Stuart Alexander (Origin IT) and Greg Sharp (Base-2)

“Vendors need to understand that managed service providers [MSPs] are directing the customers,” Alexander said. “It’s service level agreements, it’s outcome driven and the customer just wants to pass the problem off to the partner.

“Some of our customers don’t even ask what brand we put into a deal, they only know when they sign the contract.”

Representing a significant change in customer behaviour in New Zealand, the shift to solution selling ultimately places the power in the hands of the partner, as the trusted advisor tasked with making technology decisions on behalf of the end-user.

While enterprise particularly retains an appetite for well-known and seemingly “trusted” brands, the tier-2 market is experiencing a surge in services-based work, with customers care free when it comes to vendor selection.

“It’s more of a solution driven market today,” Taege said. “Some vendors believe they can enter the tier-2 space especially and lead with a product but that’s no longer the case.”

For Johnson, the channel is now faced with two types of customer.

“The one that has skills and expertise internally often seeks a specific direction when it comes to technology,” he observed. “But if not, they play safe and go with established brands and wouldn’t consider any other option.”

Vendor alliances

Traditionally, resellers across New Zealand displayed vendor logos as a badge of honour, an indicator of expertise and skill spanning a wide variety of technologies.

Today however, such statements are few and far between, as partners understand the importance of consolidating vendor portfolios and products, focusing on specialised plays to provide a deepened level of service to the customer.

“We operate purely as an MSP and we’re in the buying market,” Base 2 managing director, Greg Sharp, said. “We have consolidated a lot of our vendors and products that we’re taking to market because of training.

“It’s out of control and expensive. But it’s not just placing staff on training courses because they aren’t always costly, it’s more the time out of the business. There’s a need to consolidate but also to then diversify so you don’t miss the boat, which is an ongoing challenge for the channel.”

Consolidation naturally places the Kiwi channel at a crossroads, as resellers evaluate the pros and cons of a multitude of vendor products in the market.

“It’s not about doing more with less, it’s about doing things smarter,” Open Systems Specialists general manager of services sales, Mike Clancy, said.

“Gone are the days when you have an expanded team or the knowledge base to achieve expertise across a range of technologies.”

Kyle Taege (Dicker Data)
Kyle Taege (Dicker Data)

Speaking from a distribution perspective, De Bono observed that partners nationwide are consolidating what they are taking to market, as they find new ways to remain relevant in the trusted advisor role.

“What can partners use to be different in the market?” he asked. “How many programs should partners be dealing in? We’re seeing the number shrink rather than grow and it’s not because they are going to our competitors, it’s because they are consolidating with fewer vendors in what they are offering so they can drive increased stickiness to their customers.”

In short, the key for resellers is to maintain a certain level of trust with premier customers.

“Our customers are wanting more but they also buy from people they like, it’s a simple fact,” Acquire director, Kelly Raines, added. “That goes from vendor to distribution also which is why we’re seeing consolidation in the market.

"It’s around stickiness and building relationships - it’s up to the reseller to create the best experience possible with the customer otherwise they will leave.”

Through building a cloud platform to take to market under the CommArc banner, Johnson said customers are now taking decisions in house, shying away from spending money on consulting services as a result.

“For years the industry has lived on selling fear, uncertainty and doubt, it’s been the classic combination,” he acknowledged. “It’s a volatile market today and customers are now making decisions internally around where they put their information and who they put it with.”

At CommArc, Johnson said the business runs a strict process around vendor and distributor partnering, judged by an ongoing score based on relevance and importance.

“We drive everything with a relevance score,” he said. “We score our partners in terms of their relevance to us and we provide an amount of time that relates to that because we can’t afford to take our guys out of the field.

"But we do have trusted partners and they will always get our time because they understand our business."

According to Johnson, the channel continues to remain challenged by large vendors selling “fake news headlines” to partners, with agendas unclear and strategies complex.

“Essentially, resellers must decide which vendor to back,” Alexander added. “You can’t back them all, you might say you can but ultimately you get caught out when it comes to support. In our business, unless we can support it, there’s no point selling it.”

For Alexander, vendors remain driven by internal marketing plans issued at a global level, plans that carry no relevance to the reseller or the wider New Zealand industry.

“Vendors don’t understand the influence that the partner is having on the customer buying decisions,” he said. “Vendors have lots of marketing initiatives but they are rarely relevant to the reseller because it’s not always how we go to market in the channel.

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“Particularly as an MSP, when we onboard a new customer they have usually been with someone for 2-3 years and the technology is usually old which means we usually need to refresh it all.

“As a customer they are going to buy what we support because they just want a service outcome.”

Distributor alliances

But as partners consolidate portfolios, vendors also continue to put faith in multiple distribution models in New Zealand, a strategy which can place strain on the channel from a competitive standpoint.

“Vendors have every right to appoint other distributors in market because the mindset is that if they bring another distributor to market then they are going to provide totally different market space,” De Bono added.

“But the reality is that they are driving a wedge in competition because vendors don’t think about the lift and shift aspect that happens when you bring another player into the market, they just think that this will increase opportunity.

“If vendors address the fact that a distributor isn’t addressing the market adequately and they have that conversation and work on a plan collaboratively to address those issues, it is more beneficial and will provide greater value faster. Because otherwise, all that happens is a price war and the channel doesn’t win.”

The common channel consensus is that vendors have a responsibility to recognise the size and shape of the New Zealand market, and therefore be realistic about go-to-market distribution strategies to ensure resellers don’t become blocked by price or complexity.

“Vendors knock on our door but we don’t always accept as they have to reach a certain level in the market,” Taege said.

“Some vendors look at the market and try to spread their portfolio across more distributors to achieve a better outcome but it’s a questionable approach to take in New Zealand.”

With intense pressure placed on vendors to hit rising sales targets each quarter, the numbers problem subsequently passes onto the channel and distribution, as large multi-national corporations with little to no knowledge of New Zealand attempt to exert influence from afar.

“Vendors are global companies that are quarterly driven and only care about numbers,” Johnson said. “They are not really seeking outcomes, rather numbers.”

Having operated across vendor, distributor and reseller roles, Alexander believes the conversation is not so much around appointing multiple players in a small market, rather the correct timing and extracting new levels of value for the channel.

Stuart Speers (Enterprise IT)
Stuart Speers (Enterprise IT)

“The right distributor at the right time is key,” he said. “There has to be some form of distributor routes to market but how far does the market go? Transparency will always be key for the channel.”

Partner requirements

In New Zealand, distribution is not only an inherently difficult business to get right, but a business that operates at break-neck pace.

And this alone epitomises the durable characteristics of distribution, whether large or small, and its collective ability to still innovate and excel, even during periods of sporadic success.

Despite it’s demanding role in the channel however, and it’s ongoing importance to vendors and partners, tough market conditions continue to question the future role of distribution.

Naturally, the usual myths still apply - distributors just take orders; cloud has removed the need for distributors and large resellers prefer to deal with vendors directly.

“In my eyes distribution has always been about an order taker, but now there’s a role to become an order maker,” Garcia-Curtis said.

“That’s one of the biggest challenges in New Zealand, the type of reps and the ability to train them up and have a very different conversation because we don’t see that happening too much in the market at this stage.

“But if that is what is coming, and if distributors are setting the bar, then I want to leverage distribution because we will all gain momentum in the market.

“Vendors know they can’t do this without the channel and they are starting to understand we need to work together rather than compete. I think there is change and maturity in the market but it’s an ongoing challenge.”

In 2017 and beyond, value can be found through distributors taking an early view of the market, assessing the key trends emerging and the biggest challenges ahead for resellers.

“Every week we have a business partner that comes in to talk about their technology and why it makes sense from a customer centric perspective,” Raos added.

“And a lot of it is being driven by the distributor which is useful because we have visibility across our partners and the technologies in the market. Distribution helps us assess where technology is resonating and where money can be made.

“Distributors have been effective in communicating what is going on locally and bringing new technologies to market in New Zealand, while creating the demand by educating the industry. That’s a positive step for the channel.”

Mike Clancy (OSS); James Henderson (Reseller News) and Stuart Alexander (Origin IT)
Mike Clancy (OSS); James Henderson (Reseller News) and Stuart Alexander (Origin IT)

As alluded by Raos, wherever technology goes, distributors follow in tandem, applying proven variable cost models and diverse product portfolios as well as services that shift with the changing tides of innovation.

“It’s about understanding that our business is changing,” Raines said. “Lots of distributors still see Acquire as a web-based retailer and that was 10 years but they have pigeon holed us.

“We have a vendor or distributor in our offices two or three times a day which means our sales managers sit in meetings all day.

"That’s an issue for us because we end up in a situation where everyone wants your mindshare but your sales team is hearing the same thing and they are not selling.”

It’s a role continually questioned, a role where value isn’t seemingly apparent and a role which forever has to fight for relevance.

Yet amid constant channel chatter, distribution continues to display strength and longevity, binding together a supply chain that is forever in a state of flux.

“How do I help your top line?” De Bono asked. “How do I help grow your business? How do I help remove cost from your business? And how do I help mitigate your risk?

“As a point of differentiation we’re executing on the Internet of Partners. We’re letting you focus very precisely on what you do really well, but were also providing an environment for you to leverage other partners that have other capabilities.

“In terms of risk mitigation, you’re not running the risk of your customer finding someone that has more capabilities that you offer.”

For Taege, Dicker Data continues to provide value around cloud consumption and deeper levels of education across the industry.

“There’s a huge gap in the market in that respect,” he added. “Many resellers continue to struggle with resources and distribution is here to solve that problem. We will go with our resellers to their customers to advise, help and leverage opportunities, which is key for the channel.”

This roundtable was sponsored by Dicker Data and rhipe. Photos by Jay Creaghan.