In Defense of Distribution’s Future

Many people openly question the viability of distribution in a future market dominated by services and recurring-revenue models. Services will dominate, but we’ll always have product to move, and distribution is already evolving to avoid the death so frequently predicted.

By Larry Walsh

The market is evolving into services and recurring revenue as the primary go-to-market models.

  • Cloud service providers will deliver the infrastructure, applications, storage, compute, and security to run businesses.
  • Telecom service providers will provide the connectivity and bandwidth for accessing cloud services and communicating with internal and external parties.
  • Software providers will write the applications that, in turn, ride the applications that live in the cloud.
  • Hardware vendors will sell devices on term contracts that include software and maintenance support.
  • Systems integrators will tie together and customize the disparate systems and provide support.
  • Managed services providers will maintain the systems.

Vendors and partners will base their businesses on subscription or recurring-revenue models, ensuring they have predictable, persistent sources of income.

So, what’s the role of distribution?

It’s a question that comes up frequently at channel conferences across the industry – particularly when distributors aren’t in the room.

At its recent annual meeting, the Global Technology Distribution Council, a group that advocates on distribution’s behalf, acknowledged this open question with a string of statistics that show how sales through distribution continue to grow at healthy rates and show no signs of retreat.

Critics will be quick to point out that the last buggy-whip makers probably had some positive numbers too. (I’ll come back to this later.)

The reason the fate of distribution comes up in so many conversations is that many vendors perceive it as an anachronism – as a remnant of the legacy channel, a layer of unnecessary cost and complexity that’s more suited for the era of box-pushing than it is for the era of clouds and services.

If vendors host the infrastructure and applications, can sell to and communicate with partners directly, and support customers through the cloud or other virtual channels, what need is there for intermediaries with warehouses?

To answer why the tech industry does and will continue to need distribution, try this. Go up to anyone who doubts the need for distribution, be they at the office, a conference, the airport, or your local Starbucks. Ask them to explain how cloud computing and services models will not just disrupt distribution but negate its purpose and value. Then take away their PC, smartphone, or tablet and ask them to access the cloud. It’ll be like taking a toy from a toddler.

Distribution is, in fact, evolving with the rest of the technology industry. The major and minor distributors are fully aware that the market is evolving to services and recurring-revenue models. Ingram Micro, Tech Data, Synnex, Arrow, D&H Distributing, West Coast, Dicker Data, and many other distributors have invested heavily over the past decade in developing programs and platforms for enabling, delivering, and supporting partner-led cloud and services sales.

Even if distributors weren’t building out services programs, they’d still serve a need. Distributors provide the resources and capabilities for moving product. They provide the capacity for managing the complex process of product customization. Nobody does RMA processing better than distributors. And, of course, distributors act as the channel’s bank, providing financing for partners and customers to purchase products.

Product procurement aside, distributors do and will continue to provide access to partners and markets that vendors can’t reach on their own. Distributors offer management and oversight to tens of thousands of partners around the world. They provide access to pools of partners that vendors can’t easily tap independently. And distributors are the fulfillment engine for vendors in parts of the world where it’s not economical to support direct-sales or local indirect-sales teams.

Distribution will evolve further as the industry moves deeper into the cloud era and service-based models. Logistics companies like FedEx, UPS, and DHL will likely expand their services to include some of the flavors of traditional distribution. Next-generation cloud distributors such as Pax8 will likely continue to invent new ways for distributors to engage in services. And traditional distributors will expand their offerings and capabilities to leverage their history, expertise, and technical capacity to service vendors, partners, and customers in a cloud- and service-based future.

Now, let’s revisit my passing comment about buggy-whip makers. Those skeptical of distribution’s future point to what happened in the buggy-whip market: Disruption by the auto industry led to consolidation, and the remaining buggy-whip makers thrived with less competition – until none were left. Yes, consolidation will happen in the distribution market as well. More than 600 distributors worldwide support the tech industry, so consolidation is inevitable. But even with consolidation and attrition, more than a few distributors will remain to provide the support for products and services the industry needs.

Here’s the bottom line: Reports of distribution’s pending death are greatly exaggerated. It’s more likely distribution will evolve to retain the best of what it offers vendors and partners today, and to take on new qualities that will support the industry well into the future.

Larry Walsh, The 2112 Group

Larry Walsh is the founder, CEO and chief analyst of The 2112 Group. Follow him on social media channels: Twitter, Facebook, LinkedIn.