The Pressure Is On Server Resellers, Big Time
November 24, 2008 Timothy Prickett Morgan
While dominant IT suppliers IBM and Hewlett-Packard are still managing to hold their financials together despite the tense economic situation, they are doing this by and large because they have a vast channel of distributors and resellers into which they can pump their hardware and software.
Server resellers have a lot of pressure on them to absorb gear, but vendors often help with financing to these resellers on the front end of a deal to get the equipment out of their factories and then help again on the other side of the reseller to finance equipment at the end user site. (Of course, they make money on both ends of the deal, too, so don’t feel bad.) And the master resellers–Avnet and Arrow Electronics have a lot more control over what is going on in the channel than do the downstream partners. Still, if the downstream partners are not doing well, then the upstream distributors and IT vendors are only a quarter or two away from disaster.
Perhaps this is why the Enterprise Computing Solutions unit of Arrow, which peddles servers, storage, and related services, is trying to pump up its downstream resellers with a little free advice in these trying times. Here’s the advice, which will affect how partners will try to interface with end user customers and, presumably, how they bring sales and profits to their own organizations. These things are easy to say, but hard to do:
People being people, they tend to do the things they can do, and do relatively easily, and perhaps not the harder things that they might not be able to tackle effectively but which, if completed, could lead to greater success. I know that has been the case in the several publishing businesses that I have run. You do what you can, and wish you had the resources to do the things that you know you need to do, but you can’t. Welcome to Earth, a place that companies like Google don’t have to play in right now, but they will get their turn. Fear not. Just like IBM in the 1990s and Microsoft in the 2010s.
A company called Blueroads, which sells application software to help IT vendors better manage their channel partners, did a survey of channel partners in the fall, and found the obvious. Of those more than 1,000 vendor channel managers who focused on lead management and deal registration with their reseller partners, 62 percent of those polled said they had a revenue increase in 2008. But, this being Earth, about 80 percent of the channel investments by IT vendors dealt with tactical projects, such as partner training, partner portals, and collaboration tools–the kinds of things that better automate existing relationships between vendors and partners. But only 40 percent of the IT vendors surveyed who focused on these tactical issues said they have seen a sales bump so far this year. So the spending is in the wrong place, and it doesn’t generate money.
Some days, an agrarian culture with localized democracy, modern medicine, and the Internet sounds like a pretty good idea to me. . . .
Anyway, I would guess that server makers have been stuffing the channel like crazy in the third and fourth quarters, and we are going to see the distributors and downstream resellers start choking soon, giving the server makers heartburn in the first and second quarter of 2009. And by then, the bonuses will have been paid all around, and IT vendor top brass will be able to blame it all on the sluggish economy. The only problem is that resellers, most of whom are small businesses with slim margins, are going to take a lot of hits. Like losing money, losing deals, and firing employees. And that is a stupid way to run an economy–but capitalism is the best system we have, no matter how much it sucks at times like these.