The past couple of years have been among the most daunting the local IT distribution channel has faced – as close to a ‘bust’ period as it could get in the constant ‘boom or bust’ cycle that has existed since its inception.
The commoditisation of almost all sectors of the channel’s traditional business – mainly hardware and software – has eroded margins to miniscule levels. And a yo-yoing rand/dollar exchange rate hasn’t helped. This scenario has been further compounded by the confusion around the emergence of new technologies and trends such as cloud computing, big data, the Internet of Things (IoT) and, now, the ‘digital transformation’.
It is clear that distributors and resellers alike will have to follow in the footsteps of their vendor partners and quickly adapt to this sea-change sweeping the IT industry. And, despite there still being some life in run-rate business, new business models, remuneration packages and sales pitches will be the order of the day in the coming months and years.
There are some doomsayers gloomily predicting the death of the channel, but as its resilient members have always proved through the decades, where there is a bust cycle, it’s inevitably followed by a boom period. And with patience, a little of the fortitude it is renowned for, education and the upgrading of skills, this may just be the case for the South African channel.
There is probably no more apt a quote that the South African channel could currently adopt than the legendary one from Mark Twain on hearing about his obituary: “The reports of my death have been greatly exaggerated.” For, despite some detractors sounding an early death-knell, not only are distributors and resellers quickly adapting to the global wave of new technology trends, they are also still enjoying success in some of their more traditional business.
Gary Pickford, MD of Tarsus Distribution, says that the so-called threat to the channel posed by cloud computing a few years back is a prime example of the local channel’s adaptability.
“The cloud is still both a challenge and an opportunity for the channel – but the predictions of doom that were prevalent for the last two years have largely died down,” Pickford says, adding that more traditional channel business is also showing improvement. “In fact, traditional ‘run-rate’ business seems to be enjoying a comeback, although resellers are cautioned that this might not last in the long-term.”
Pickford points out that distribution still accounts for 80% of The Tarsus Group’s business, although solutions and cloud are showing impressive growth.
“We are seeing significant growth in cloud, and are budgeting for hyper-growth,” he says. “But we are also seeing that there is still a lot of life in the traditional distribution space.”
However, this doesn’t mean that resellers should simply carry on as they always have, and ignore digital transformation and the changes it will bring about in the market over the next few years.
“They need to ensure that they start moving their business models, but there is still life in traditional distribution,” he explains.
“So if you ask me, is the channel in trouble? The answer is yes; but do I think it is in crisis? The answer is no.”
The upsurge in run-rate business offers resellers a reprieve, and gives them time to build a parallel business that will be a going concern by the time the new business models become mainstream, says Pickford.
“My advice to resellers is this: if you want to build an annuity business, start building it now; if you want to have a solutions business, build one.
“But don’t try to take your existing business and morph it into the new business. Understand what you want to do, and then start another business or another division, with different staff and – very important – different remuneration models.”
Staff remuneration is one of the main reasons that the new business needs to be separate from the old one, Pickford says. “The way we have paid sales people hasn’t changed in the last 30 years: it has always been a percentage of sales or gross profit. We know that influences their behaviour and leads to them pursuing large, bulky deals.
“Using the traditional commission model, an annuity deal could translate into commission of R6.00 – and that’s not going to motivate the existing sales staff.”
With a new business or division, however, new rules of engagement and remuneration can be set up from day one, while the run-rate business can continue to operate successfully as well.
Tarsus is “eating its own dogfood”, as the popular saying goes. Tarsus Distribution, which still accounts for the vast majority of the group’s revenue, is run separately from the enterprise and cloud operating businesses.
Going forward, however, it would be naïve for resellers to believe they can continue as they are indefinitely, Pickford warns. Cloud is still a massive challenge that resellers will have to come to grips with, where the service they will offer customers is completely different from the service today; and where competition could come from unexpected directions.
There’s a school of thought that says resellers could become irrelevant in the cloud world, but Pickford believes there will be new opportunities in helping customers to understand their needs, and select and integrate the solutions that will match those needs.
“Understanding customers’ needs and translating them into solutions is what’s missing in the cloud space,” he says. “The software vendors are very good at bringing cloud solutions and innovations to market every day. But the person who can tailor those solutions to the end users’ needs it still lacking.”
This means that smaller VARs should aim to start upskilling their staff to meet the growing needs of mid-market customers. Pickford points out that 34 000 South Africa companies fall into the mid-market category, so it’s a market worth addressing.
“Each of these companies requires a unique solution,” Pickford says. “And each of them is having to face their own challenge of digital transformation.”
Acer’s country manager, Paul Collins, is under no illusions about the need for change within the reseller channel with new technology innovations bringing new challenges.
Like most industries, both locally and globally, the digital age is challenging traditional business operation methods and forcing people to think about the bigger picture of the future, he believes.
And in the technology environment, this bigger picture is being metaphorically painted by the birth of “digital disruptors” and the latest trend in technology development, the Internet of Things (IoT).
“Traditional reseller models in the local technology environment focus on the ‘bricks and mortar’ of technology – the actual machines, projectors, mobile devices and accessories,” Collins says. “Although there will most definitely still be a need for these products, they will ultimately form part of a solutions-based model. And, in order for resellers to stay relevant, they’re going to need to adopt this thinking method too.”
The ecosystem that is IoT focuses not only on the application usage itself, but how this usage becomes a catalyst to operational and behavioural change.
Collins cites Discovery’s Vitality programme as an example. The fact that the company is able to use clients’ actual behavioural data to influence their medical premiums is indicative of how the device becomes the vehicle and not necessarily the solution.
“This is a really exciting time for our industry,” Collins says. “Not only are we at the coalface of this dynamic shift in the way people do anything and everything but, because of our legacy, we can be part of the evolution – provided we understand what and how the evolution will influence what we do, and we become innovators in the way we drive this evolution forward.
“The days of simply selling a device are numbered – we will have to start thinking about how the entire solution will integrate with the user and the desired habitual change – in a personal and professional environment,” Collins adds.
Is the biggest danger to the channel from future technologies, though, or could they be facing a much closer and more real challenge in the form of unbridled competition muddying the market and leading to a further shortage of critical skills?
Andy Robb, chief technology officer of Duxbury Networking, believes this is a more direct issue, and one that the industry should be focusing on.
“It might seem like a contradiction, but one of the channel’s most important strengths can also been seen as one of its greatest weaknesses,” Robb says. “I’m referring to the unimpeded ease with which international vendors are able to bring new products and technologies to the South African marketplace.”
On the one hand, this practice is beneficial because it speeds up the introduction of new technologies and fuels competition which often results in lower prices to end users.
“However, with a plethora of new manufacturers and products vying for market share, there is the ever-present danger that these vendors and their local representatives will be ill-prepared when it comes to providing adequate levels of service and technical support for their offerings,” Rob says.
“For example, the skills and resources needed to maintain and service new product sets are often lacking, particularly when measured against the benchmarks of the established brands and recognised distributors,” he says.
The result, Robb adds, is that end users who opt for these new brands and technologies – which can be attractively presented and competitively priced – could end up being “burned” down the line when they are let down by ineffectual back-up and less-than-adequate support infrastructures.
“One of the characteristics of the local channel landscape is the proliferation of overseas vendors who do not have local offices or recognised connections to the major distributors,” Robb points out. “Instead, an army of ‘agents’ has arisen to represent them.
“The relationship between these agents, many of whom are micro and small enterprises, and their vendor principals is often fickle, held in place by the promise of high sales numbers and shattered when goals are not achieved.
“As a result, the agents’ investment in – and commitment to – the local marketplace is often questionable,” he says.
This means that when the customer looks for support or a follow-up order, they might find the agent has moved on.
“As much as we encourage start-up companies and hope for their success in the channel, oftentimes these players just muddy the waters because they chop and change between partners, products and technologies to the detriment of their customers,” Robb says.
It all comes down to skills at the end of the day, he adds. The companies that make the investment in skills will be able to have adequate stock in the warehouse and technical support infrastructures to back their offerings across the largest geographical footprint.
“Speaking of skills, it is widely accepted that there is a dearth of technical expertise in the channel,” Robb says. “The pool of knowledge and talent has remained stagnant for some time. I believe many channel players are focusing their efforts on growing sales and streamlining sales processes, rather than looking towards the future and the need to support their products in the field.
“I suggest that the channel is top-heavy in terms of commercial sales staff as opposed to technical support specialists,” Robb says.
Another who sees skills as a vital component for the future success of the reseller channel is Fred Mitchell, division manager: software solutions at Drive Control.
Mitchell says that many vendors have shifted their focus towards volume commercial markets and that this presents a great opportunity for resellers willing to align their business accordingly. But he is also quick to stress that this means resellers have to make an investment in skills, while partnering with a valued added distributor that will provide resellers with the tools they require to succeed in this highly competitive marketplace.
From a security solution perspective, businesses continue to be plagued with massive security issues which again provides an opportunity for resellers to capture this marketplace – investing in skills growth and the right partners.
“All these changes in focus means that the channel is faced with a massive opportunity – we’re going through a reinvigoration of sorts which will undoubtedly separate the wheat from the chaff,” Mitchell says.
Currency fluctuations have also had an impact on the channel, Mitchell adds. “From a distribution perspective, customers became more demanding with pricing, expecting more value from their investment,” he says. “In addition, businesses held on longer to their assets in 2016; prolonging turnaround on products and investment in new technology.
“This impacted the entire channel and the rollout and adoption of the new technologies and solutions lifecycle.”
An unstable political environment has been a feature of South African life for the past couple of years, and this is set to continue in 2017, he feels.
“This negatively impacts our currency and business,” Mitchell says. “Worldwide, we’re also experiencing instability which is impacting emerging markets such as South Africa.”