The Cisco-D&H Pact Is The Biggest Story Of The Year

The dust has settled, but when we look back on the distribution deal between Cisco Systems and feisty SMB distributor D&H Distributing, it will likely be one of the year's biggest stories. The backdrop to the deal is what makes it so

Intriguing. It came as Cisco's top channel executive was preparing to take on a new overseas assignment and as D&H's prominence in the channel is rising along with its appetite to add major IT players to its portfolio of partners. D&H executives say the pact with Cisco, through which it will have access to its low-end networking gear, is as big a deal as the ones it inked with Intel and Microsoft a few years ago.

It's fascinating that Cisco added a distributor at a time when its largest distributor, Ingram Micro, decided to support rival Juniper Networks. The deal is a tacit admission by Cisco that its main distributors--Ingram Micro, Tech Data and Westcon--can't help it achieve the level of penetration it wants among small VARs. Or is it a reflection that the three aren't bringing in the new blood that Cisco believes it needs to grow? Perhaps it's a bit of both since the three distributors serve an entrenched clientele that caters to enterprise and midmarket customers.

Here's why I believe the D&H-Cisco pact will be remembered as the story of 2005: D&H is suddenly on the minds of Ingram Micro CEO Greg Spierkel and Tech Data CEO Steve Raymund. Both realize this is a wake-up call to their organizations in terms of their ability to address the SMB market. I wonder if either executive chatted with John DiLullo, Cisco's worldwide distribution vice president, after he made this assessment: "What probably made no sense 18 months ago now makes perfect sense. There's very [little] overlap between the customer segment of D&H and the reseller communities of other distributors."

Like Old Faithful, a million questions hit me after reading that. First, what has changed so much in the past 18 months? Was it Cisco's product line, which now includes a slew of SMB-related gear, or the makeup of the reseller community, as DiLullo put it. Perhaps D&H is more adept at finding smaller solution providers than those gargantuans of distribution. During D&H's annual gathering a few months back, VARBusiness conducted a roundtable with D&H customers, who said they are purchasing less or nothing from Ingram Micro and Tech Data because they believe D&H delivers a higher level of personal attention. Now, it's hard to fault $20 billion organizations for losing their ability to make every customer feel special, but they shouldn't forget the customers who got them to that level. After all, D&H did not win over Cisco because it could attract a few systems-builder types, but because of its ability to recruit and deliver thousands of VARs to Cisco.

One final note. While Cisco intends to tread carefully to not "cannibalize" the efforts of its other distributors, as VARBusiness senior editor Rob Wright wrote in his story, VARs are going to source Cisco gear from organizations that have the right mix of price and support. Don't be surprised if some of those traditionally loyal to Ingram Micro, Tech Data or Westcon suddenly start placing calls to Harrisburg, Pa., D&H's hometown.

Is Sun Microsystems on the comeback trail? Think about this recent statement made by Sun CEO Scott McNealy: "We believe we've done all we need to drive this company into growth mode." He said that on the company's call with analysts after Sun released its financial results for the fiscal fourth quarter ended June 30. Sun posted a profit of $121 million, or 4 cents a share, including a net tax benefit of $190 million. In the same quarter last year, Sun had a profit of $783 million, which included a $1.6 billion legal settlement with Microsoft. If Sun is headed for a comeback, it must certainly start growing its revenue, which decreased 4.3 percent in the quarter, while its full fiscal year revenue was off by 1 percent.

VARBUSINESS IS forging ahead with its pioneering Podcast work, which, under the direction of senior executive editor T.C. Doyle, has produced some great broadcasts. If you haven't already done so, log on to VARBusiness.com and try one out on an MP3 player or Apple iPod. Let me recommend the Podcast about the top-performers from the VARBusiness 500, along with analysis from our State of Software survey. We added Podcasts to our portfolio with you, the busy solution provider, in mind. But I hope you're not to busy to provide some feedback at [email protected]. Let me know your gut reaction about McNealy's comments as well; I'll run it in my next column.