5 Questions With D&H Distributing Co-President Michael Schwab

D&H Distributing co-president Michael Schwab talks about the surprising turn in device sales, the growth in cloud, and where the tech distributor is headed in 2020.

‘No Shortage Of Opportunity’

This past year saw D&H Distributing hit a number of milestones. In addition to opening up the company’s new 250,000-square-foot headquarters on a 50-acre campus just a few miles from its long-time home in Harrisburg, Pa., it announced that it hit $4 billion in sales, and it revamped its cloud platform in a partnership with European-based distributor ALSO.

Last year, the company – which is a privately held, employee co-owned business – announced that it achieved 20 percent growth among its core SMB customers in 2019.

“When I think about the business today, I'm as excited about where the business is headed, as if we were talking 10 years ago,” said D&H Distributing’s Co-CEO Michael Schwab. “It's been a great decade for the IT community, for the reseller business. Obviously, it is evolving, but there is no shortage of opportunity in our future.”

Schwab said in 2019, device sales outperformed expectations, building on a refresh cycle buoyed by Windows 7 end-of-life, and in defiance of tariff threats. For 2020, he said he expects D&H to lean in to providing more services to partners.

“The reality is there is a lot of value add that is required to take Cisco technology, and HP technology, and Dell, and Lenovo, and migrate some aspects to the cloud, but deploy on premise server technology otherwise, to manage remote devices, and do all this in a secure manner,” he said. “That is something where the resellers expertise shines consistently.”

Can you give a little more color around that 20 percent growth in SMB? How was that achieved?

I think it's because we treat those customers as well as maybe some of the other distributors might treat their largest customers. I say that because whether it's downstream credit, competitive prices, technical resources, we make sure that those customers have what they need to be successful in business.

It’s not something that we either take for granted or waiver in our commitment to. It has been part of our core competency. I've been there at D&H now 29 years and you know, it's been part of our conversations over that time period. That's important to the reseller community as well. They recognize that D&H has and will continue to be here to support them.

So as product and technology evolve, things get a little more complicated, security becomes higher on the radar for their resellers and their end users, cloud becomes more relevant, as things evolve, we continue to be a strong destination for both hardware and software solutions for that customer profile.

D&H had a cloud platform rollout earlier this year partnering with ALSO. How is the cloud division performing?

So when we look at our cloud business, we weren’t first to market, but we believe we were best to market, again for our SMB customer base. I say that because cloud is a model where it's not a natural sales motion for a lot of our customers, who had not had an MSP practice in the past.
So if they weren't used to recurring revenue, if they had not filled out a billing system and a compensation system for their sales organization that represented monthly billings, then it wasn't an obvious transition to move to a cloud platform, because inevitably they were happy with the model as it existed in the past for them.

The reality is, they absolutely need to make sure that they are relevant in the cloud. What's happened is that with the ALSO platform, we've been able to build out a model that, I would say, gives them an easy transition to them to migrate to cloud solutions. And I would say that Office 365 is sort of the lead product to get them interested and understand the model. There were very few D&H customers that only sold software. So the fact that now we can take our ALSO platform and combine it with a device as a service to create a model which we call “x as a service” or “anything as a service” around the ALSO platform, that is very compelling. Their ears perk up when they hear that as an opportunity as well. So it's not just cloud. It's everything that they can monetize as a recurring revenue stream.
We grew 100 percent, year over year in our cloud business in ‘19 and we're looking to do that again in ‘20. Strong growth. We’re deploying resources there, investing in technology, investing in cloud sellers, so there’s a lot of goodness going on with the cloud sales motion.

What surprised you, in terms of performance, about 2019?

The consumption of devices. I was pleasantly surprised by how relevant our devices business was this year. It could have been the Windows 7 end of support initiative drove a lot of awareness that there were devices in the market that were long in the tooth, and had the chance to be upgraded. The reality is that when you look across the portfolio from HP, Dell, Lenovo, Acer, Asus, they have very compelling products in the mix. So even though we experience some shortages throughout the year with Intel, we had some threats of tariffs, the reality of the device business was extremely successful this year.

Then I would also say that the server business was another positive surprise. I think that is reflective of the fact that maybe there was a moment, an inflection point, where we thought ‘Well everyone's just going to go to Microsoft Azure, or AWS, and the on-premise server business would dissipate. But our server business was robust and maybe the outcome is more of a hybrid solution.
Maybe there are some solutions that are cloud ready and that makes sense to migrate there, but the reality is a lot of people value their proprietary data and want control and see improvements in server technology that allows them to deploy on-premise servers at a very compelling price, and performance. So that was a good surprise.

When you talk about your cloud business, and you talk about hybrid environments, how do you look at growing those two units that would seem to be competing with each other? If cloud is growing does that mean your server business goes down or vice versa?

I look at them as probably more cooperative in nature than competitive, at least in the SMB environment. And I say that because there is room and reason for both. If you talk to our cloud experts they would be able to articulate what are best practices for cloud deployments, and if you talk to our Intel and HP server solution specialists, they would be able to articulate what a reseller should be evangelizing in terms of their end users, as far as why you would want on premise solutions when it comes to server deployment.

I think on the surface, you might look and say, one would be cannibalizing the other, I think the combination creates a very robust solution, is what I've observed this past year.

Looking ahead to 2020, what areas do you see growing? Any areas people may not be expecting?

I think our value add is becoming even more evolutionary where – and we’ve built out, at our new headquarters, resources to help provide this content – how do you choose product A, B, C, and D? And then once you choose it, how do you deploy it most effectively and then add to it as things evolve, and business grow, and new technologies become available in the market?

Whether it’s a multi-media studio with web content that we’re going to be providing, whether its our presale tech support, our solutions lab for us to configure products and technologies. I think its becoming more complicated, not less complicated when it comes to the choices and opportunities for best-in-class IT solutions.

If you chatted with me again in mid-2020, I would say we’re full steam ahead in providing that content and those solutions ... When I think about reseller community is they have great resources and expertise in many areas, but inevitably if we can help support their business by offering third-party solutions and services that are relevant to their endusers, we help them succeed in business. Ultimately that’s our goal. To see their business grow, which in turn helps us, helps the manufacturers, helps the whole ecosystem.