Survival of IT distributors and resellers at the end of the old economy

81% of business buyers start the process with a web search. Brick & mortar stores becoming showrooms just for buyers to try the product then place an online order elsewhere. Server orders dropping as a result of public cloud services. Value Added Resellers (VARs) and distributors struggle to keep the good old business running in the cloud era and seek temporary solutions, such as activating cloud subscriptions or simplifying invoicing in countries where legislations lag behind. What’s the future for distributors and resellers? Where can they deliver value in this new world?

Meeting resellers disappointed by the margins on online services, I’m asking myself the question of how valuably their resources are used today? Still, the largest distis and resellers push for the big private cloud orders for obvious reasons, to cash in a lot of expensive hardware and software licenses. Many customers don’t realise that their private cloud investment may not be necessary – they could be more profitable and more dynamic in a public cloud environment. Market dynamics obviously have an effect on private cloud adoption, however according to a recent study, evolution finds its ways: 50% of the Fortune 500 companies are using Microsoft’s public cloud today. Considering the other large cloud vendors – Google, Amazon, RackSpace – soon come the time when public cloud and online services will dominate the market. 2 years ago with a few colleagues, we had our bets on the products that will never make it to the cloud. ERPs were first in line. Today, ERP vendors are the most active in porting their offerings into online or SaaS (I personally work with 5 of them). In parallel, huge forces from cloud vendors push public cloud security standards, audits, accreditations, case studies just to make customers feel cozy in their new public cloud space. Public cloud today is more secure than most of the private data centres on earth and the bar of standards of cloud security is still raising. What happens in 1-2 years’ time when as a result of all this hard work, public clouds will be perceived to be as secure as customers’ own data centres? Then, a business has to make an ERP procurement decision just to realise that the ERP market leaders are already offering SaaS / hardware-free plans? Who will chose on-premise solutions? What will distis and re-sellers do then?

Is this the end of the old economy?

Yes … No need to worry though. ERPs won’t be set up overnight and business decision makers won’t draw infrastructure and architecture diagrams. Re-sellers of the future will do that.

  • Re-sellers will be the trusted advisors and business partners (essentially – CIOs in some extent) to end customers, enabling them to be more agile, competitive and cost-efficient using technology and online services/SaaS. They will be the first point of contact in case something goes wrong.
  • Distributors will empower re-sellers with cutting-edge offerings, services and marketplaces that only work efficiently in economies of scale. They will support re-sellers and customer escalations.

“The essence of distribution is relationship management and troubleshooting,” Geoffrey Moore says. “They are truly connective tissue” in our economy.

Re-sellers and distributors who don’t work on their future-proof SaaS/online/cloud value proposition right now will end up like the car makers who don’t invest into hybrid/electric cars today. Toyota invested a fortune into R&D to come up with the Prius. Their profit margin on the Prius didn’t justify the investment for a while. However, they knew what they were doing. What will it feel like making petrol cars when a gallon will cost $50? No experience making hybrids/electric engines while competitors run them for 10 years already? Would you like to be in that situation? Toyota chose not to and some re-sellers and distis are also thinking along these lines.

Are you a distributor or re-seller, would like to discuss your transition and opened for external perspectives? Fill in your name, email and thoughts below and I’ll get back to you.

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Linkedin David Szabo, Intrapreneur at Microsoft, startup-addict and LEGO SERIOUSPLAY facilitator. Follow me on Twitter!

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5 Responses to Survival of IT distributors and resellers at the end of the old economy

  1. Pingback: European Entrepreneurship Foundation » Blog » David Szabo » Survival of IT distributors and resellers at the end of the old economy

  2. Perfectly true. The problem is, offering cloud alternatives to classic solutions, vendors were not ready to redesign channel strategy for o a new business model, The real paradigm of cloud computing concept is changing business models for all workflows involving traditional disty model: vendor>disty/ dealer/ reseller > final client/ end user. Economy is no changing, keeping the same engine: innovation, cost reduction, efficiency…Only business process should be changed. In actual bss. models reseller will never promote the cloud alternatives because they are thinking in the next 5 years vendors will sell directly services to EU…

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