Distributor CEOs Dish On Industry's Future

Distributors have been kept on their toes amid a shifting landscape in how solution providers do business and ever-evolving technologies.

The constant change begs the question of what the future holds for the future model of distribution. CRN posed that question to top executives at many of the major distributors solution providers use today.

All were in agreement on one thing: distribution is here to stay, despite a rapidly evolving industry. Top level executives from Tech Data, Synnex, ScanSource, Avnet, Arrow and D&H said the changing market means distribution will play an even bigger role in the channel moving forward.

[Related: Distributor CEOs: 2015 Will Be A Good Year For The Channel]

"I see distribution continuing to grow and becoming more instrumental," Tim Curran, CEO of the Global Technology Distribution Council (GTDC), said. "The conversation five years ago was this question of disintermediation. Is distribution going to survive? ... Nobody is saying that now. Now the question is will distribution be able to get us where we need to go? ... In that sense, we won that battle and I don't have any doubt that distribution will continue to grow and be a key player in the IT industry going forward."

Vendors know they need the channel for scale, Curran said, and they recognize that distributors are often the most efficient way to reach the channel. Some 350 new vendors have entered the distribution mix over the past three years, giving them access to more than 150,000 VARs across the country, according to GTDC.

As more and more devices hit the market, especially driven by the Internet of Things, there's greater need for distribution to help deliver products to VARs and end users, Tech Data CEO Bob Dutkowsky said.

"The opportunity is massive that sits in front of us," Dutkowsky said. "It's going to entail that we change. We have to keep up in these different technology trends that are going to happen. The strong are the ones that are going to survive."

That is particularly true for small business resellers, D&H co-President Dan Schwab said. As vendors are able to allocate fewer and fewer resources to training, the distributor is able to step in and help smaller resellers keep pace with a rapidly changing technology marketplace, he said.

"I believe distribution is more important than ever, especially in small business," Schwab said. "The reason why we've become even more important on education and training is because the technologies are becoming more varied and advanced. Because of that, our role as a trusted advisor is hard to duplicate and replicate."

While distributors' reach across the channel is expanding, so is their depth. The distributor of today is much more than a pick, pack and ship center, executives said.

The services, sales support, financing and more lead to a line card that might not look anything like what you'd expect from a distributor of the past, Synnex CEO Kevin Murai said. That model leads to some overlap between OEMs, distributors, VARs and end users, but Murai said he sees the ecosystem as "100 percent complementary." As the cloud continues to take hold in the industry, Murai said he sees an emerging need for systems integration-type services from distributors for small and midsize partners, similar to what bigger systems integrators provide for enterprise clients.

"That's the way I view the role. There's a lot of co-dependency between partners in the channel but because of where the distributor sits, you've got the aggregation point and the sales and services investment. I think we've moved more and more into the world of cloud and capability, a lot of capabilities [for distributors are] evolving into things we wouldn't have even thought of five years ago," Murai said.

Part of that evolution is driven by VARs themselves, Sean Kerins, president of Arrow’s global enterprise computing solutions segment, said. They are asking for more support and solutions, especially around cloud, and distributors have to step up and deliver, he said.

"The role we provide is still as vital today as it always has been. Historically, support has centered on physical distribution, but our suppliers and solution providers continue to remind us that our role will be increasingly necessary to their business as demand for software and services continues to grow," Kerins said.

NEXT: Distributors Push Into Solutions, Support And Education

While the nature of some of the solution elements are changing, Avnet's Hamada said these trends affect the mix and components of the overall solution, but the fundamental functions of distribution remain the same: to bring scale and reach to vendors.

"There are fundamental values derived out of being an aggregator that provides a reach to the market, which is very valuable to many of the technology innovators that we have a privilege of representing," Hamada said.

D&H's Schwab said that the role as an aggregator, tied together with the education and connection to channel partners, will help distribution stay viable against disintermediation from large cloud aggregators such as Amazon Web Services and Google. While he said D&H's focus on small business resellers might make that "metamorphosis" less pronounced, Schwab said even in a cloud world he sees distribution sticking around for the long haul.

"I think the future of distribution will be very similar to what it is today, but it will be evolved," D&H's Schwab said.

Schwab said he sees a big role for distribution in the education and training of resellers. That role becomes especially important as manufacturers come out with new and innovative solutions and resellers need the know-how to bring them to market. For example, he said D&H launched a training series around the opportunities in end of support for XP. He said the distributor is already pushing forward with similar initiatives around Server 2003 support expiration.

"D&H is always looking around the corner and we're big believers in evolution, not revolution. Some of the distributors have tried to almost bring a revolution as a networking operation center for VARs, and that's not D&H's DNA. We're much more interested in evolution and what's around the corner and how we can help our VARs," Schwab said.

Another big area of investment is helping VARs make the transition from a transaction to a recurring revenue-based model, ScanSource's Baur said. That transformation is difficult from many different angles, he said, and unfortunately doesn't have any easy answers. However, he sees that distribution has a big role to play in helping facilitate that transition. He said he sees a lot of distributors, including ScanSource, investing significantly in that area.

"I think it's the responsibility of the vendors and the distributors. ... One of the things that is the biggest issue is who is going to and how are we going to help the VAR change their model from transaction-based to a model where ... revenue is split out over time. That's going to be hard," Baur said.

The challenge in helping reseller partners make the move to recurring revenue is distributors have to be careful to not "over swing the pendulum," D&H's Schwab said. There will always be a need for devices and product, he said.

"I think that it is a gradual process and the selling of products, of point products and solutions, will not go away ... We look at trying to add the recurring revenue to their arsenal to complement their current business versus others talk about you have to replace your current business with recurring revenue. I think that would be a little the sky is falling [type of approach]," Schwab said.

NEXT: What Will We Call The Distributor Of The Future?

Given the changing nature of the business, Synnex's Murai said the company has already moved away from the term distributor, preferring the term "technology solutions" for its distribution practice.

"I don't even think it's an appropriate term today," Murai said.

Avnet's Hamada said the title isn't out of data yet as distributors still act as supply chain managers for products of others instead of creating their own and don't directly touch end users.

"Distribution still works in the sense that thus far we are not [intellectual property] companies. We are not the inventors directly of the technology. Our routes to market are through VARs, integrators, ISVs, et cetera," Hamada said.

While all the distributors were taking different approaches to the market, all agreed it's an exciting time to be a distributor in the IT industry.

"At the end of the day, philosophically it's exciting. All of the change is exciting and those who are going to win put energy into the growth opportunity it brings," Synnex's Murai said.

Hamada agreed, saying the position of distributors in the market makes it a particularly great spot to be, for those able to take advantage.

"It's a great position to be in. We get the privilege of being in the midst of all of this activity and getting to head the perspectives of the future and arguably the leading portfolio of technology companies today as part of our strategic planning process as well. I get a big smile," Hamada said. "There's a very exciting and fundamental transformation going on right now in the industry that does create incremental opportunity overall. I think we're in a very unique spot and period right now which offers us some special opportunities to make sure we're moving fast enough to take advantage of it."

PUBLISHED SEPT. 19, 2014