Tuesday, December 14, 2004
Channel Trend: Consolidation Reshaping Channel
Consolidation is the biggest trend in the channel in 2005. With no killer apps on the market, even a recovering economy will not slow the consolidation of channel partners. Even in emerging markets, declining margins on core products will be the primary issues between vendors and partners.
Although it happens every day in the channel, it is not news until it hits the big boys. IBM's decision to sell the PC, laptop and notebook business to Lenovo (nee Legend) is just the most visible part of the iceberg. I was in Brazil leading an Executive Conversation workshop for a major networking company when the news came out. Just the day before, we had examined the financial statement of IBM. The account rep had commented that IBM ad a real issue with hardware margins and that this was a core business issue for the executives at IBM. When the Lenovo news broke the following day, the whole class was amazed at how well financials for companies identified the main business issues. IBM sold its PC business because it had to increase performance on corporate margins.
Conflict between previously content channel segments will rise. Margin driven consolidation will impact not only the partners, but also the distributors and vendors. Already large OEM, retail and mail order customers are growing rapidly at Tech Data and other distributors to the dismay of second tier partners who lament the further erosion of margin and differentiation.
"How can the traditional integrator survive?" I hear from both partners and vendors. The answer is that many of yesterday's partners will not survive. Further, some of the ones that do survive in the short term will be marginal performers. Think about the examples of IBM and Dell. If IBM gets out of the PC business with its huge economies of scale, what hope is there for an undifferentiated VAR? If Dell is buying from Tech Data at better prices and selling on a Wallmart like cost driven business model, what margin is left for the system builder?
Consolidation is inevitable. The question is how will vendors change their channel strategies and programs to ensure continued channel performance?
The Channel Pro
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Consolidation is the biggest trend in the channel in 2005. With no killer apps on the market, even a recovering economy will not slow the consolidation of channel partners. Even in emerging markets, declining margins on core products will be the primary issues between vendors and partners.
Although it happens every day in the channel, it is not news until it hits the big boys. IBM's decision to sell the PC, laptop and notebook business to Lenovo (nee Legend) is just the most visible part of the iceberg. I was in Brazil leading an Executive Conversation workshop for a major networking company when the news came out. Just the day before, we had examined the financial statement of IBM. The account rep had commented that IBM ad a real issue with hardware margins and that this was a core business issue for the executives at IBM. When the Lenovo news broke the following day, the whole class was amazed at how well financials for companies identified the main business issues. IBM sold its PC business because it had to increase performance on corporate margins.
Conflict between previously content channel segments will rise. Margin driven consolidation will impact not only the partners, but also the distributors and vendors. Already large OEM, retail and mail order customers are growing rapidly at Tech Data and other distributors to the dismay of second tier partners who lament the further erosion of margin and differentiation.
"How can the traditional integrator survive?" I hear from both partners and vendors. The answer is that many of yesterday's partners will not survive. Further, some of the ones that do survive in the short term will be marginal performers. Think about the examples of IBM and Dell. If IBM gets out of the PC business with its huge economies of scale, what hope is there for an undifferentiated VAR? If Dell is buying from Tech Data at better prices and selling on a Wallmart like cost driven business model, what margin is left for the system builder?
Consolidation is inevitable. The question is how will vendors change their channel strategies and programs to ensure continued channel performance?
The Channel Pro
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