Distributors’ Demise: Likely Outcome or Exaggerated Conclusion?

Display of Tombstones at D&H Distributing in Harrisburg, PA, represents all the distributors they have seen go out of business over the years

For over 30 years, I’ve been working with IT distributors and have witnessed first-hand the tremendous changes they have gone through.

When I first started calling on distributors, they did just that — “distributed”. Their entire business model was built around breaking up bulk orders and shipping products out in a pick, pack and ship model. Some broke out of the box and offered a few services such as basic financing and others tried to sell bundles or adjacent products in an attempt to become one-stop shops.

Enter Digital Transformation

Looking back, there have been a number of technological developments that have fundamentally changed how businesses operate and while we like to talk about digital transformation as something new, digital technologies have been impacting (and transforming) businesses for my entire career.

Today, digital technology is part of every company and touches every single industry sector. Businesses that fail to transform their businesses to take advantages of new technologies risk being left behind.

When is the last time you called a taxi? Or used a travel agent to book a flight?

Many people thought several technology developments would lead to the demise of distributors, including Client/Server architecture, the Internet, Mobility, Cloud, As-A-Service, etc. One thing became increasingly clear; the pick, pack and ship model of yesterday wouldn’t work much longer.

The Amazon Factor

Like many industries, the “Amazonification” effect has hit the distribution channel. Businesses are no longer focused on the simple availability of parts. Digital commerce opened a world market for parts and products so that anybody on the planet can easily shop for (and find) the lowest price. Distributors couldn’t depend solely on the strength of a customer relationship to ensure they kept coming back time after time. It also caused their margins to erode impacting profitability.

This was also one reason industry pundits started to talk openly about the market forces that would cause the death of distributors, and for some, it did.

Anybody remember Micro D, Softsel or Compuserve?

D&H Distributing in Harrisburg, PA has a wonderful display of Tombstones representing all the distributors they have seen go out of business over the years!

But, to channel Mark Twain, reports of the death of the distribution model have been greatly exaggerated. Savvy distributors adapted, evolved and have become even more indispensable as I.T. partners for business.

“Along with providing an outlet for sales of increasingly complex technology, the B2B commercial channel also offers the industry critical access to the opportunities in the highly fragmented small-to-medium business market,” analyst and NPD Director Michael Diamond said a few years ago, but the statement remains true today.

Stepping Up to Add Value

Here’s what happened to the distributors people thought were “touch and go” and dependent on life support to survive:

Businesses trying to cope with the vast and rapid changes brought about by digital transformation realized they were missing critical skills and expertise. They started turning to their trusted distribution partners for help. These distributors were savvy enough to adjust their business model, deploy their resources and create a new series of services to support companies struggling to implement these new and transformative technologies.

The key differentiator between the distributors who became healthy businesses partners and those who aren’t with us anymore is “Services”. Those who transitioned from a pick, pack, and ship mentality to offer value-added capabilities are the ones that are not only surviving but thriving with a higher margin business model than was possible under the distribution model of the past.

A great example is the Cloud Services that almost every major distributor provides today. They analyzed the landscape, saw that dealing with multiple Cloud vendors and managing hundreds of seats was creating confusion for MSPs and stepped into the breach to minimize the complexity between Vendor and Reseller. It’s a play they’ve run successfully several times before and will be a key pillar of future viability.

Distribution-provided sought-after services help to take cost out of the model, for both Vendors and MSPs, and is another reason why the IT Distribution Channel isn’t going anywhere soon!

Tomorrow’s Solutions Today

Distributors are stepping into the digital transformation gap and helping companies as they adapt to the digital and data-centric era we live in, delivering cradle-to-grave value-added capabilities, services and cost-savings that today’s businesses need.

It’s a whole new world for distributors amid an ever-changing landscape in North America and that new world is full of opportunity. We’ve seen a tremendous evolution over the last 10 years, and there’s much more change to come, as Cloud Services, 5G, Artificial Intelligence and Autonomous technologies take hold!

In the coming months, I’ll dive into some of the challenges facing the distribution sector, the solutions that partners are looking for, and the ways that savvy distributors are stepping up to the plate!

Published on Categories Business Collaboration, IT Leadership, IT ManagementTags , , ,
David Allen

About David Allen

David Allen, Director of Platform & Distribution Sales for Intel US region, led North American Distribution for Intel since 1998, and gained responsibility for Latin American Distribution in 2016. Employed with Intel since April, 1993, David celebrated his 25-year anniversary with the company in 2018. In 2011 he received a Lifetime Achievement Award from Intel Americas recognizing his commitment and results over the preceding 18 years. Prior to joining Intel, he held sales and management positions with Aldus, Apple and Microsoft in the Toronto area. David is actively involved in the IT industry, currently sitting on the executive advisory board of First Robotics Canada, and he is a past member of the Board of Directors for the Canadian Channel Chiefs Council. From 2017-2019, he was recognized by CRN as one of the Top Channel Chiefs in North America. David is a graduate of Ryerson University in Toronto, holding a Bachelor of Business Management degree, with a double major in Management and Marketing. He is also a graduate of Fanshawe College with a Diploma in Broadcast Journalism. David continues to reside in Newmarket, Ontario, Canada with Christine, his wife of 35 years.