Shifting value of distribution in a cloud-based world

During the recession the key drivers shaping IT purchasing decisions were “reducing cost” and “reducing risk.” For example, on pure cost grounds deployment of a 1,000-seat Microsoft Exchange implementation in a cloud hosted environment may be a no brainer. However, such a change does not come risk free and few IT managers have been brave enough to place such mission-critical applications in the cloud. Ultimately, it will be this cost vs. risk analysis that will determine the degree and pace at which cloud computing will be adopted. So what’s in store for today’s distributors?

If we assume the definition of distribution is facilitating “one to many relationships” that expand reach into the market, then distributors fall into one of two categories: volume distributors and value distributors. The fundamentals of the volume model have not changed over the years. Essentially, it is still a fulfilment model where margin is made on availability and the efficiency of distributing product at the lowest cost. The impact of cloud computing on this model is likely to be minimal. This is because the technologies offered by distributors continue to change over time. What was yesterday the main stay technology of value added distributors, will tomorrow be commodity items shipped by volume distributors.
Value opportunity
In contrast, value distributors place their emphasis upon “enablement,” not just “delivery.” Their value is in business-enabling resellers to exploit the demand for new technologies and enter new, high-growth markets by providing: business planning; pre- and post-sales support; marketing; training and professional services. As a technology matures and becomes commoditised, their focus shifts to a new technology where the added value opportunity is highest.

Take for example the evolution of the data centre. In the 1990s, value was around understanding new server technology. This all changed when servers started to look more like PCs and commoditisation set in. Similarly, the advent of virtualisation in the noughties spawned huge value in demystifying this transformational technology and provided opportunities for distributors to offer certification, training and professional services as resellers scrambled for a piece of the virtualisation pie.
Today, some core virtualisation platforms are on the cusp of commoditisation and the emerging value is to be found around the specialist add-on technologies, such as virtualisation management, VDI and security, that have sprung up to support them. In the future, value from distributors will exist in supporting resellers and their end customers with unified data centres and ultimately cloud infrastructure and services.
Consultative model
The trick for value distributors is to be one step ahead, constantly seeking ways to monetise newly-emerging technologies and routes to market. It demands a consultative model. Just as volume distributors constantly ask themselves how to improve processes to achieve that “one to many” relationship as efficiently as possible, so value distributors ask themselves how to enable the many to see the benefits of the one?

The reality is that cloud services do not undermine the basic principles of distribution but they do necessitate the adoption of new models. For vendors, distributors and resellers alike, 2011 will be a transitional year as more applications are moved to the cloud. The onus is on the channel to create new strategies. If distributors and resellers fail to grasp the opportunity, they risk being lost under the wheels of the bandwagon.

This year IT managers will have more choices than ever before. Naturally, they will be wary of selecting the wrong technology or the wrong source of the applications they need. This uncertain landscape presents an opportunity for resellers to become that indispensable trusted adviser. Access to and knowledge of cloud-based solutions and services will enable them to help their customers evaluate the cost vs. risk analysis for their business.
Understandably resellers will look to distributors to assist them. Distributors must therefore have carefully articulated, presented and monetised solutions to put in their resellers’ kit bags. Not only that, they must help skill-up resellers and de-risk their entry into the market. Herein is the value opportunity – one too big to ignore.