Dark clouds loom over dominion of distribution

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Robert Van Mann’s Distribution Diary

For many years, disties have been the guardians of the Client/ Server throne. They were powerful brokers operating from large castles in trading estates across the shires and were strategically placed between the suppliers and the end user customers.

They had vast armies of resellers tithed in credit bondage and they ensured that their armies were well trained and well supplied. They fought for the Cap Ex and Op Ex budgets of the Client Server Kingdom.

Well-oiled logistical operations ensured that their armies were supplied with machinery when end users need them and bulk buying ensured that their armies had competitive advantage and good prices to take to the market to entice purses from budget holders.

Vast sales commissions were awarded out of the profit of the kit proffered and treasuries at the disties had expertly operated accounts receivable and credit operations. The end user had a fairly straightforward chitty to pay for goods and services rendered. And after deciphering the legal small print,even Ts &Cs made some sort of sense. And the only annuity was a bit of break fix. Halcyon days.

But with every empire there comes a time when a new power threatens the old guard. And this power has been a cloud on the horizon for distribution for quite some time.

Starting with the growth of the ASP, many resellers saw that the need for credit bondage with disties and logistical operations was fading and started to look at the provision of services. Some were even starting to dabble in the dark arts of datacentre co-location.

In this brave new world, the reseller now has the opportunity to become a free agent and sell and host services to the end user, breaking free from the dominion of distribution.

Although it may seem daunting for some VARs, that are so addicted to the servitude of accounts receivable that they might not make the transition, many have broken free by sweating the assets and living off the war chests of cash plundered in the Client Server days.

With this cash reserve they have looked to underwrite the transition to an annuity model; partner with other resellers and/ or acquire others to offer end users a full range of services such as unified comms and hosted voice. Why now do they need their distie masters?

Disties have no doubt seen these threats of losing the allegiance of their reseller armies and are also worried about their suppliers too. What if they go directly to the end customer with a 365 solution? What value do they add if they don’t command the shock troops, manage the logistics and manage the credit?

Although the writing has been on the wall for some time,   they have perhaps not moved quickly enough to secure their once all powerful throne. Some say they will ultimately lose their powerbase.

Of course they are currently huddled in sweaty rooms worrying about hosted voice and the conspiracy of consumptive billing engines. Of course they are worried about new emergent threats in the market like Virgin Media Business and Salesforce. And of course some have been clandestine deals with MSPs to provide managed services themselves. But this rear-guard action may not be enough to save them in the long run.

This is because there are yet more questions to consider such as the impact the provision of free hardware as part of Cloud contracts similar to the mobile phone market orr virtual hardware provision via IaaS provision as part of MSP contracts. Such moves could potentially make a huge impact into the size of the hardware market.

What also happens when the super-efficient Far Eastern manufacturers start looking to provide hosting provision and datacentres of their own as a back end to their products?

Keep watching the skies!


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