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Another Layer

Hammer, Cloud Distribution and VIP are among the distributors enhancing, or even building their own, products. Jack Gilbert asks what's driving the trend.

There is a scene in the film Layer Cake where Michael Gambon's character, Eddie Temple, nonchalantly tells Daniel Craig's beleaguered character: "The art of good business is being a good middleman." To an untrained eye, distributors' role in the channel is just that, being a good middleman. But over the years their position has changed, and instead of simply passing on products from vendors to resellers, their remit is now much broader, with distributors today expected to provide a host of training, marketing support and technical services.

A number of disties have taken things a step further in recent months, launching OEM agreements with vendors to enhance technology and in some cases even creating their own products, with Hammer, VIP and Cloud Distribution among the players to get involved in this trend. Their agenda is to gain more control of the product cycle and to build additional margins and unique propositions for resellers. Some are forecasting only a rise in the trend.

Mixing the ingredients
Earlier this month Cloud Distribution became the latest distie to move into the OEM world, with the launch of its hyperserV - its own-brand hyperconverged offering made from DataCore Software's virtual SAN solution, and components from Microsoft and VMware. Bruce Hockin, director of storage solutions at Cloud Distribution, said the decision to launch hyperserV came from resellers asking for a complete solution that brings together hardware and software.

He said the state of the market means more channel players, including distributors, are likely to start coupling together different technologies. "The nature of the software-defined market predicts we will have to start doing more stuff like this. As manufacturers bring out software products that are decoupled from the hardware, they are going to ask the channel to seek out the hardware. "In many instances the vendor will pre-validate what the hardware is, come up with a specification and say ‘this will work'. But there are so many hardware providers out there and different types of solutions, resellers are going to need help and support in bringing those solutions to market.

"We need to pull the risk away from the reseller, so they can focus on selling. You can't run software without hardware, and how do you know that the hardware is fit for purpose? Distribution's role will be to bring these products together." Hockin (
pictured) did not think all distributors would start doing this, but said it presents a clear opportunity for certain players. "I don't think all distributors have the capacity and the vision to do it," he said. "Some certainly have, but it's about desire and opportunity. They might see it as a lot of hard work for less return because they don't have the competencies, so they might not do it. But that creates a door for someone else."

Manufacturing products is also a way to maintain the significance of distributors, according to Hockin. "As technology moves to more of a software-orientated architecture, this is an area where distribution can remain relevant," he said. While some say this gives distributors the chance to demonstrate value, others could see it as their stepping on the toes of vendors. But Hockin said Cloud Distribution's hyperserV was actually encouraged by the vendor world, as many are reluctant to get involved in hardware. "With hyperserV we are fundamentally becoming the manufacturer and we are creating the solutions from scratch," he said. "That is a whole new level, but the good news is that DataCore [Cloud Distribution's vendor partner] are really supporting it, and actively encouraging us to take it to market in this way. "Vendors are creating the need for distribution to do it, because they don't want to. Go and speak to DataCore; under no circumstances do they want to touch the hardware."

Cloud Distribution is not the only distributor this month to launch its own product: VIP also came out with its own make of tablets under its Vortex brand. Rich Marsden, director at VIP, said bringing out an original product makes for a simpler go-to-market strategy with more control for the distributor. "From a distribution perspective, we retain control of the brand, with the marketing and product placement. We can take the product to market, confident that we can deliver what we are committing to for our partners. "You control the cycle from start to finish; from the quality of the product, to the customers you sell to, the activities, the promotions, everything. I don't think it's for every distributor, and I don't think it's for every product set, but for a product such as a tablet, particularly in Q4 and Q2, for the education market, it is a product worth taking on." Gaining additional margins in a much-changed channel was also a clear incentive for Marsden.

Under the Hammer
Gerard Marlow, general manager at distributor Hammer, also said the trend of disties undertaking OEM agreements is a reflection of wider changes to technology and the channel. Hammer has OEM agreements with Dell, Intel and Super Micro. With these agreements, Hammer takes products and modifies them, adding components and other vendors' technology to change the solution and make it more suitable to certain verticals. The benefits of these agreements have been hailed by the distributor, as Hammer claimed its OEM agreement with Dell led to 100 deal registrations only three months after the deal was signed last year.

Like Hockin, Marlow said this OEM push came about because of the changing nature of the industry, with end customers no longer locked in to one vendor for the different parts of solutions. Previously, customers would be tied to big vendors such as EMC, and forced to buy the hardware, software and services from that one vendor, because the likes of EMC would not allow the parts to be separated, Marlow said. But now newer vendors have come along and offer software that is independent and can be coupled with hardware from different vendors.

"Customers now have the ability to say ‘I have the option in terms of sourcing hardware, software and services separately.' They don't have to be locked in to one supplier for all three aspects. The customers can come to us and say we want this software but we want it with a Dell or an Intel platform. It's that decoupling that has really changed the market." In today's channel everyone is looking for something different, and Marlow said having this ability to provide resellers with bespoke solutions is a clear differentiator and one that leads to more margins and long-term supply agreements.

Marlow said he expects other distributors to launch their own OEM plans but said that Hammer is ahead of the curve. "I think we have been able to adapt and take advantage of the market change more quickly than the others because we have had our own integration facility for about 15 years, and have acted as a system integrator and a distributor for many years," he said. "Because we have had that ability for many years, we have been able to leverage that infrastructure and expertise to quickly capitalise and extend our capacity. I think others will follow, but it will take time to skil up and invest."

Marlow added those distributors that don't look at OEMs may find their market position hindered. "The market is changing and if typical distributors don't move with these changes and start to do this, they will find the available market they address will be compromised," he said. So while Gambon's lesson of succeeding in business by being a good middleman remains valid, the days of distributors simply passing on products in the channel are over and it's fair to say the layers on the cake are beginning to become less well-defined.

Source: CRN
Published Date: 25/10/2015

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