GLOBAL TECHNOLOGY DISTRIBUTION COUNCILGTDC

Distribution Business Models in the Digital Era

About the Report Distribution Business Models in the Digital Era was developed through extensive analysis of current and emerging technology distributor business models, including in-depth interviews with industry analysts, solution providers and vendor partners. The CommCentric Research team explored more than a dozen ways distributors are evolving in the digital era – and ultimately narrowed the focus to six:

Cloud

Mobility

Vertical Market Specialization

Emerging Vendors

Security

Enterprise

These areas represent a cross section of distribution business models amidst tidal waves of change in entirely new or rapidly expanding markets. The advances detailed here range from support for technology-oriented breakthroughs, as with mobile solutions and cloud, to innovations in how distributors address vertical markets. You’ll learn how they nurture up-and-comers across all product segments on a global scale. Coverage also delves into higher-end channel value for midsize and large enterprises as well as specialized security solutions and related services for SMB markets.

Distributors take diverse approaches to these opportunities, and this report provides related perspective and insight while recognizing that many variations distinguish individual distribution companies and their specialized practices. Although the models referenced are typically based on consistent elements identified across multiple distributors, they are not intended to depict industry-wide practices in all instances.

www.commcentric.com(813) 876-0414info@commcentric.com www.gtdc.org

(813) 412-1148info@gtdc.org

GLOBAL TECHNOLOGY DISTRIBUTION COUNCILGTDC

2

Distribution Evolution Technology distributors have transformed through many decades of industry dynamics, breakthroughs and “doubters.” The evolution can be traced through a constant sea of change that gave rise to questions about how distributors would even navigate the challenges – let alone thrive through them.

Many industry analysts have wrongly concluded over the years that distributors would fall victim to everything from e-commerce to direct model sales and software licensing to telecommunications convergence. A quick glance back helps dispel these misconceptions…

1970s - 80s Dawning of PC Era

2010 – Now Digital Era Accelerates

2000s... MSPs, Mobility Advance

“Pick, pack and ship” largely defined technology distributors during the industry’s early stages of development. End users were essentially “chained to the desktop.”

Y2K/dot-bomb hangover shifts focus to “problem solving” as mobile solutions emerge, VARs adopt MSP models, and distributors advance service offerings.

Distributors continue to evolve in top categories ranging from virtualization, hyperconverged infrastructure and Big Data to device management, cloud and IoT.

1990s… Internet Grows Globally

Multivendor solutions become even more critical. Distributor financing programs fund channel growth. Wireless technology spreads rapidly as eCommerce models soar.

3 4

Advancing in the Cloud “The cloud marketplace tools from distributors need to enable unified bills, under the solution provider’s own brand to end customers. That is the digital equivalent to pick, pack and ship. It’s just done in a more timely virtual manner. The element of the bank is also there. Somebody has to pay the vendor up front for that year license. Who is bridging the funding? That’s an element that never gets discussed. Distributors are doing what they did before, but in a digital framework -- and in a more complex environment than ever before.”

— Pam Miller, Director, Partnering Research, Channels and Alliances Research, IDC

Distribution Cloud Services the Channel Engages Today

32%Technical training on core cloud offerings

Sales training on core cloud offerings

Market research to help us identify new cloud services buyers

Partner-to-partner collaboration with other cloud solution providers

Volume-based pricing on leading infrastructure as a service core offerings

Demand Generation Marketing services

36%49%

29%25%

25%

“A few years ago, if I was asked if distributors could bring value to the cloud, I’d have said, ‘Distributors are going to go out of business,’” explained Pete Zarras, president and CEO of CloudStrategies, a Cedar Knolls, N.J.-based cloud services provider. Today, Zarras, says companies like his “flat-out need distributors supporting their cloud success.” CloudStrategies was among CRN’s “Next-Gen 250” list of companies the trade publication deemed as “ahead of the curve when transforming their businesses to meet demands for emerging technologies.”

Source: The Channel Company survey of 180+ MSPs and CSPs

Unified Cloud Billing Through Distributors

(IDC Research)

Vendor A Vendor B Vendor C Vendor D Vendor E

EmailMonthly billPer mailbox1st of the month

Web securityMonthly billPer server8th of the month

Anti-virusMonthly billPer user15th of the month

Storage softwareQuarterly billPer server22nd of the month

Cloud storageMonthly billPer terabite30th of the month

Distributor Unified Billing System

PartnerPartnerPartnerPartner

CustomerCustomerCustomerCustomerCustomer

INVOICE

Email $400Security $300Antivirus $200Storage $400SUPPORT $400

$1700/monthDue Dec. 15

DISTYFACTS

Vetting solutions on behalf of cloud service providers

Providing multivendor advantage

Creating cloud marketplaces for

the channel

Introducing unique cloud

financing options

Delivering end-to-end hybrid cloud

enablement

59%Aggregate growth rate

of publicly traded GTDC members over

the past 10 years

Source: Zinski Research

Mobile Charges

Smart End-to-End Channel Moves Acker describes carriers as a key focus, “constituting the edge of the network, beyond hardware and software that’s put in solutions. End users are expecting full projects to be rolled out. It’s very important for a channel company to deliver hardware, software and their services, augmented by distribution, where they can also deliver a carrier-based solution so it works out of the box. The days of buying hardware/software solutions and connectivity as separate projects are ending.”

Progressive carriers know a sea change is occurring, according to Acker. “They understand the value of the channel ecosystem, beyond trying to sell specific devices. Carriers are interested in filling pipes and solutions stacks that are too complex to go it alone.

“They need solution providers and distributors to do that. We see carriers that get that and they want to partner with the channel. Five years ago, there was definitely

conflict. Today, we’re seeing that conflict subside.”

Adam Tindle, senior research associate at Raymond James & Associates, also sees distributor service engagement as “margin accretive” to their respective business models, with end-to-end offerings ranging from warranties, lifecycle services, repair and reverse logistics as part of the scope going forward.

Distributors are a hub to recruit, educate, evangelize, and bring in different hardware and software stacks for today’s mobilized businesses and users.

Distributors are already big multi-billion-dollar players in the global mobile computing solutions marketplace. It’s business they expect to continue gaining strength and momentum, particularly with related services as part of their overall portfolios.

5

Device Makers Telecom Partners

Device activationApplication loadingSecurity controlsMaintenance

“Mobility is largely about connecting more people in the field – and in more effective ways,” commented Tim Acker, vice president of mobility and connected solutions at SYNNEX. “It’s far more expansive from a distribution standpoint than mere devices. It includes carriers, wireless and wired lines, for example, and also extends into IoT-based solutions and bringing those solutions together with carriers and OEMs.”

Vertical markets have long been a major focus for distributors, with many building related practices in multiple segments over the past two decades. Some choose a narrow range, like consumer and retail segments, to deepen their specialization. Others commit to a broader array with dedicated teams that continually evolve corresponding portfolios and services based on where respective channel customers express the most need.

6

Vertical Market Specialization

“Distributors tend to add the most value in the overarching SMB market, where vertical expertise makes a tremendous difference” explained Raymond James’ Tindle. “End customers require comprehensive solutions and trusted partners to implement and support them. Vendors typically prefer to offload establishing

Distributors tend to add the most value in the overarching SMB market, where vertical expertise makes a tremendous difference. Adam Tindle

Senior Research Associate Raymond James & Associates

Powering Up the Channel

and servicing those channel relationships, which can be very demanding. Distributors are a logical choice for them and the solution provider communities they want to cost-effectively reach.”

Fueling the Focus

Public SectorDistributors are essential in government and education markets

Legal/FinanceDistribution knowledge and resources support channel expertise

From GSA Schedule support to new HIPPA-related demands, distributors are on the front lines as vertical markets morph or materialize. Distributor guidance, services and products are instrumental to successful channel businesses, which often center exclusively on vertical market solutions.

HealthcareRelated solutions have been long-term staples in distribution

Building on Big 3 History

Distributors haven’t limited their vertical business activity to these well-known markets. Today, they’re reaching a growing range of micro-industry segments.

Vertical businesses are evolving through distribution with new channel pain points to address in existing markets, plus the emergence of entirely new opportunities. Even IoT and mobility can be viewed as vertical practices.

Distributors might develop full mobility solutions for police officers to receive and transmit data from field terminals, for example. Again, it’s not just about end devices. It’s connectivity, storage ... everything that comes together to make the solution a reality.

Across the world, distributors have zeroed in on increasingly complex SMB security requirements, with business models that address both networking and physical on-premise demands. Cloud solutions obviously present some of the most difficult security challenges, and GTDC members are responding en masse.

ABC Data in Poland underscores security as a traditional advantage, becoming even more critical — and more consultative — with today’s innovations. “Customers are now much more cognizant of the importance of making the right choices about what data and tasks to move into the cloud, for example,” comments Paweł Ryniewicz, sales and marketing director of the company’s Value+ Department. “What we do goes deeper than ever. We enable informed risk management that also yields faster deployment as well as other inherent value for solution providers and their customers.”

Distributors such as Tarsus in South Africa are even advancing awareness and support in addressing security gaps associated with wearable technology. “We’re helping establish and drive proven solutions in all markets, from consumers and small and midsize businesses to large enterprises,” explained Martin Britz, CEO, Tarsus Emerging Markets.

7

Security Beyond Borders

Technology distributor business models typically address all aspects of the security marketplace.

Mobile devices pose yet another major threat — and opportunity — on the security front. As with cloud, distributors work jointly with vendor partners and channel companies to “plug the holes” and advance innovations. It’s a backbone of their portfolios, with tangible IP, real-world success and thought leadership that contributes to the industry’s overall response to current and emerging threats.

Efforts range from securing data centers to modernizing infrastructure across the board, including hybrid cloud environments set up for anywhere/anytime access.

“The combination of cloud and mobile solutions elevates the importance of security

to entirely new levels,” says Steve Robinson, global vice president and general manager of Arrow Cloud at Arrow Electronics. “Factor in the sensitivity associated with everything from customer data to employee HR records or competitive analytics processed and stored on cloud platforms — public, private or hybrid — and the consequences of a wrong step can expose an enterprise to extreme risk. Risk management applied to cloud environments is a distribution core competency the channel partners can leverage in engagements with their end-customers. It’s going to be among the many reasons for our success in the cloud.”

Loaded for Increased Long-Term Value

8

Enterprise AheadEven in a market as fragmented as Europe — where vendors are even more challenged to support the channel — the inherent value of distributors is often underestimated or underappreciated, commented Paolo Castellacci, president of Computer Gross Italia, an Empoli, Italy-based distributor.

“We provide training, education, financial and technical solutions. They need us for

all this support,” Castellacci said, noting that the key to enterprise market success relates to understanding and responding to very fluid market conditions. “It’s imperative to go deeper and enable more functionality and simplification at the same time. We need to invest in new brands as new technologies arise and converge, and focus on education. If we all do these things, we all will grow.”

Where Distributors Anticipate the Most Enterprise Services Growth

1 I Cloud (design, build and manage public/private/hybrid cloud solutions)

2 I Training/Education (vendor-accredited sessions for VARs/end users)

3 I Project Design/Management (architect/implement solutions)

4 I Migration (from legacy systems/solutions to new/upgraded technology)

5 I Solutions Lab/Center (dedicated facility to build, test, demo for customers)

6 I Asset Disposition/Recycling (lifecycle management)

Source: Inside the Enterprise distributor survey © April 2015

What’s Your Biggest Enterprise Opportunity? Multi-vendor solutions are the norm, and distributors view their ability to develop complex bundles as their biggest opportunity in the enterprise space.

1 Developing complex solutions bundles on behalf of multiple vendors

2 Helping solution providers migrate to cloud, virtualization, Big Data

3 Providing more enterprise-focused services

4 Delivering more vertical market solutions to enterprise customers

Source: Inside the Enterprise distributor survey © April 2015

“It’s critical to engage companies developing the latest innovative technologies. That’s where the opportunity lies, for us and for our solution provider partners,” commented Patty Gray, vice president of global partner management, Westcon-Comstor. “We are committed to helping vendors better understand the channel’s value and to enable them to scale their businesses globally.”

Global logistics, financial and credit risk mitigation, channel enablement and education are among the values distribution can bring to vendors looking to grow through the channel, according to Karl Meulema, senior vice president of global channels at Riverbed Technologies.

“Investments are increasingly paying off for distributors striving to truly develop their value-added businesses,” Meulema said. “Because of their understanding of the landscape, the best distributors create practices and solution- and vertical-focused marketplaces that enhance our enablement and go-to-market efforts.”

Emerging Vendors

Distributors identifying ideal partners for digital-era business directions

StrategicNurturing and training

vendors to optimize long-term channel success

StructuredRamp-up now includes faster paths to regional

and global growth

International

Growing GlobalGTDC members such as Westcon-Comstor are giving select vendors extensive support in ramping up business on a global scale. The approach includes all of the adjacent points referenced here – and more.

Continually vetting tech landscape for ideal products and solutions

Ensuring vendor partners have right structure for global channel programs

Supporting ramp-up in multiple countries/regions with cost-effective scalable processes

Enabling newcomers to leverage highly specialized practice groups to support success

Deep Value, Far Reaching

GLOBAL TECHNOLOGY DISTRIBUTION COUNCILGTDC

141 Baypoint Drive N.E.St. Petersburg, FL 33704 Phone: 813.412.1148Email: info@gtdc.orgWeb: www.gtdc.org Twitter: twitter.com/GTDC_org