Inside the EnterpriseAbout the Report Inside the Enterprise was developed based on comprehensive interviews and surveys with major technology distributors as well as vendor partners

Inside the EnterpriseHow Leading Technology Distributors are Advancing Their Business Models

GLOBAL TECHNOLOGY DISTRIBUTION COUNCILGTDC

Today’s Investment, Tomorrow’s Success. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

From Direct to Distribution, Dell’s Turnaround Story . . . . . . . . . . . . . . . . . . . . . . 5

Growing Strong, Deep Roots . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Selling More, Helping More . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Enabling Success Through Training, Solutions Development . . . . . . . . . . . . . . 9

A Cloudy Forecast, That’s a Good Thing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

From What Can You Do, to What Else Can You Do? . . . . . . . . . . . . . . . . . . . . . . . . 12

Earning Trust to Earning Dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

‘No Gaps, No Overlaps’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Enterprise Distribution Is Here to Stay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

From Servers to Services (And Everything In Between) Leading Distributors, Vendors Detail the Secrets to Successful Enterprise Relationships

About the Report

Inside the Enterprise was developed based on comprehensive interviews and surveys with major technology distributors as well as vendor partners in the global enterprise market space. The Global Technology Distribution Council commissioned this independent study with CommCentric Solutions, a channel-focused communications agency bringing more than two decades of related experience to this undertaking. The author, Scott Campbell, Senior IT Channel Communications Specialist at CommCentric, heads up the agency’s channel market research and analytics practice. Prior to joining the firm, he spent more than 15 years reporting on technology and channel business issues for CRN, the channel’s leading trade magazine.

www.commcentric.com(813) [email protected] www.gtdc.org

(813) [email protected]


It’s no secret that IT environments are becoming increasingly complex while the pace of technology innovation keeps accelerating. Today’s enterprises need the solutions — and the support — to ensure that their businesses continue to be efficient and productive without disruption.

However, the gap between innovation and implementation can be a challenge for technology vendors and their solution provider partners to overcome. Vendors capable of delivering a soup-to-nuts solution in a homogeneous environment are few and far between, and solution providers can’t independently stay on top of all the trends — or they lack knowledge and competency as enterprise technology evolves.

Increasingly, both parties rely on distributors to meet diverse channel requirements and help ensure customers get what they need. In many cases, distributors are as valued as much for the services, solutions support and vertical market expertise they provide as they are for any supply chain and logistics expertise, according to executives from both distributors and vendors. But that’s not always the case. Sometimes distributors face an uphill battle convincing enterprise vendors of their overall value, or being adequately compensated for the services they’re providing.

Overall though, distributors say their enterprise business is growing — and they’re investing in that market to capitalize on additional opportunities. Once again, distributors find themselves in the middle of the action. Right where they want to be. And right where they’re most needed.

Today’s Investment, Tomorrow’s SuccessThe list of hot technologies for the enterprise is long, including cloud, mobility, security, Internet of Things, Big Data. Not so coincidentally, distributors have invested millions of dollars planning and building initiatives around the migration to these technologies, creating unique programs, business units and solutions — all dedicated to helping vendors and solution providers better serve the enterprise space.

Those investments will continue into the near future, according to distribution executives. We surveyed nine GTDC members with strong presences in the enterprise market to gauge their opinion

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By Scott Campbell

on growth opportunities with enterprise vendors. All but one respondent said their companies’ resources dedicated to enterprise solutions will increase in 2015.

Further, every respondent expects the percentage of their enterprise-focused software and services to increase this year, with more than half expecting a double-digit percentage increase in software and services during that period.

Distributors are adapting and transforming to serve the needs of the market. Today — and into tomorrow — that means helping enterprises become more productive, more efficient and more flexible.

They are forging relationships with new enterprise-focused vendors, some born in the cloud, and expanding into deeper enterprise-focused relationships with long-running vendor partners.

From Direct to Distribution, Dell’s Turnaround StoryPerhaps no company illustrates this new enterprise distribution dynamic than Dell.

The Round Rock, Texas-based vendor initially made its mark building and shipping products directly to customers. Almost eight years ago, Dell created its first channel program, PartnerDirect, to work directly with solution providers and only later started its first distribution relationships mostly to carry low-end commodity-type products, such as PCs. But over the last couple of years, Dell has started to embrace distribution for a wider variety of enterprise products — building on the success of its SMB growth through distributors.

The main reason, said Frank Vitagliano, Dell’s vice president of global partner strategy and programs, is that Dell needs distribution to compete effectively in the market and in the channel.

“Everybody we’re competing with is there in a big way. HP, Cisco Systems, EMC, Lenovo. They all have big chunks go through distribution. Competitively, if we’re not there, then there’s a whole bunch of people selling against us. That doesn’t make any sense,” he said.

Distribution’s capabilities in the enterprise extend far beyond the traditional pick, pack and ship that helped them rise to prominence — and billions in revenue, Vitagliano said.

“That’s just table stakes. They also are a tremendous help with marketing, events and developing and bundling solutions for vertical and other markets,” Vitagliano said. “The logic is simple. There are great capabilities that exist within distributors to support us on the server side, but also with networking storage and more.”

Enterprise on the Rise 2015 will be a year of enterprise investment for distributors. All but one survey respondent expects to increase their company’s resources dedicated to enterprise solutions.

SOURCE: Inside the Enterprise distributor survey © April 2015

Decrease Stay the Same Increase

89%

11%0%

100%

All distributors surveyed expect enterprise-focused vendors to seek or grow their distribution relationships in 2015.


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Dell’s Enterprise Solutions Group business ramped up its distribution business after seeing that its three main partners in North America (Ingram Micro, SYNNEX and Tech Data) proactively making big investments to win their enterprise business with Dell too. Simply, they wanted it, Vitagliano said.

As a result, Dell’s channel business now accounts for more than 40% of global business, up from about 30% two years ago, with enterprise solutions serving as a catalyst for that growth, Vitagliano said.

“Distributors are working with us. They’ve taken a real solution sales approach. They don’t want me to train just networking people, or storage people, or server people. They want to integrate it all together, so when they talk to partners about Dell, they’re not talking about Dell networking or Dell storage, they’re talking about Dell,” Vitagliano said. “They’re talking about an integrated solution that includes compute, storage, networking, and even beyond that, software with data protection and in some cases client devices. That’s a big value for us.”

Pete Coleman, senior vice president of Sales, CONVERGESolv Enterprise, for SYNNEX, noted that Dell has come to understand and appreciate the value distributors provide to midmarket and enterprise customers.

“We can expand and accelerate the customers they have. It gives Dell more reach, flexibility and depth of services that they never had in the past. It’s ‘consistent continuity,’” Coleman said, noting that leveraging distribution has given Dell significant traction as they increase their engagement with distributors and resellers with midmarket and enterprise customers.

All-In On Software and Services More than half of survey respondents expect their enterprise-focused software/services revenue to increase by at least 10% this year. None of the surveyed companies expects flat or negative growth.


Growing Strong, Deep RootsOf course, Dell isn’t the only vendor with SMB roots in the channel now counting on distributors to extend its enterprise success. Lenovo, historically known for its PCs and serving the SMB market, is gaining traction in the enterprise after acquiring IBM’s System-X server business and Motorola Mobility from Google. Distribution will be a key to success for Lenovo in the enterprise, said Sammy Kinlaw, Lenovo’s North American channel chief.

“We want to participate in the entire ecosystem, from PC to server to cloud. With our acquisition of Motorola, we coined the phrase a few months ago, ‘From your pants pocket to the data center,” said Kinlaw, who ran Lenovo’s distribution business before becoming its channel chief. “What I learned over the course of seven years is distribution has a lot of power. Envision it like a pyramid. You have to have a base or support structure to hold everything else up. Distribution is our base.”

About 90% of Lenovo’s business goes through distribution, and Kinlaw expects a similar ratio for enterprise products because distributors’ abilities, relationships and knowledge align perfectly with Lenovo’s needs, he said.

“We begin with distribution, we end with distribution. They have unique capabilities to add in peripherals, configuration, staging, rollouts,” Kinlaw said. “Specifically, on the enterprise side, they bring a lot of unique things: engineers, solutions architects, a highly technical skill set of resources to offer to the VAR community. We’re 100% confident in distribution’s capabilities to sell System-X, ThinkServer, frankly anything for us.”

Selling More, Helping MoreIncreasingly, the “anything” Kinlaw cites is further attracting the attention of enterprise vendors. As the aforementioned cloud, mobility, security, Internet of Things and Big Data technologies start to converge in the market in the form of larger, multi-vendor solutions that address critical business problems, distributors say they are adding value by developing the complete solutions utilizing the latest IT consumption models to solve those specific business problems.

As converged technologies become more prevalent, it’s more important for solution providers to learn more about networking, computing, security, etc. Distribution has been invaluable telling that story, said Mike Parrottino, vice president of enterprise group channel volume sales at Hewlett-Packard.

Further, distribution’s ability to continually refresh and advance solution providers’ technical and sales capabilities is critical and something that vendors like HP could not efficiently do or scale by themselves, Parrottino said.

Flat/Negative Growth 0% to 10% 10% to 20% More than 20%

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“It’s also critical to our partners’ success. Our distribution network helps us build out transformation practices to capitalize on the shift to the new style of business around infrastructure, software, cloud and services. These trends include the new consumption models,” Parrottino explained. “Simply put, we would not have the success we’ve enjoyed without support from our distributors.”

Adds Dell’s Vitagliano, distributors are great evangelists on behalf of vendors to the channel. As an example, he cites a recent conversation with a partner who came back from a distribution event clamoring to do more server and data protection business.

“He said ‘I’m missing the boat with you guys,’” Vitagliano pointed out, adding that the distributor’s holistic view made the partner realize he needed to transform his model. That’s a message that may not have been received the same coming from Dell, Vitagliano observed.

“That’s a story we try to tell every day, but having distributors demonstrate how they do it on a daily basis really accelerated it. Now we’re having discussions with legacy Compellent and EqualLogic partners about compute opportunities. That wasn’t happening two or three years ago,” Vitagliano said.

Developing larger, business problem-solving solutions is also the biggest opportunity that distributors see for themselves in the enterprise, according to the survey of GTDC members. Half of the respondents chose developing complex solutions bundles on behalf of multiple vendors as their biggest opportunity for 2015, just ahead of helping solution providers migrate to cloud, virtualization, Big Data.

Enabling Success Through Training, Solutions DevelopmentFrom developing multi-vendor solutions to helping VARs begin to offer new consumption models, distributors’ primary value in the enterprise might funnel down to one word: enablement. Vendors need help enabling their partners on new and additional technologies, and distributors have the skills and the reach to do so.

For example, at a recent sales kickoff meeting for Arrow Electronics, Joe Burke, vice president and general manager of Arrow’s Enterprise Storage, Security, Virtualization and Networking Group, noted how proactive distributors and vendors are in their collaboration to bring the latest technology to enterprises.

“We did two panels on disruptive technologies, and they were our highest-attended panels. We had a whole cadre of vendors up there, and not just newer vendors, demonstrating what they’re doing and what we’re doing for them,” Burke said. “They’re using us to train and enable their solution provider base to know just as much as they do.”

Even if vendors are not looking to add thousands of new partners, distribution has the business intelligence to help vendors target a very specific segment of partner. You want security specialists selling into hospitals with less than 500 beds in Arizona? No problem.

“You may need a small number of competent people for this one specific thing. That’s something we can drive to,” said Scott Zahl, vice president and general manager of Ingram Micro’s Advanced Computing Division. “With our BI capabilities, we can create that profile and address their new market needs in a fashion that is quicker and more efficient than they can do on their own.”

And it’s not just about getting solution providers up to speed, it’s about maintaining that level of service and enhancing their capabilities too, Zahl said.

“We do hundreds of calls a year to ensure they’re up to speed on technical developments, meeting certifications, maximizing project scope. That’s in addition to the marketing and sales support that we provide to vendors and VARs. The level of dialogue is very expansive,” said Zahl.

Distributors today are hiring engineering resources alongside sales and marketing staff, said SYNNEX’s Coleman.

“SYNNEX has private and hybrid cloud experts and Hadoop people. Five years ago, you never would have thought that,” he said. “There’s a handful today. There will be more than a few handfuls tomorrow.”

The high-skilled engineers are meant to support solution providers that don’t have enough staff, or don’t have that expertise in house. “At times, we’re going on behalf of the reseller to enterprise customers. We’re wearing their badge,” Coleman said. “We view it as providing a one-two punch.”

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


Meanwhile, cloud was topped only by software as the technology area expected to see the highest growth.

John McCawley, senior vice president and general manager of cloud solutions at WestconGroup, sees great potential for distributors to service enterprise customers with cloud solutions because of their ability to amass economies of scale for cloud solutions.

“Cloud is highly automated, centrally managed, centrally hosted. Now you have an economic advantage to bring additional features and functionality into the market,” said McCawley, former CEO at Verecloud, a carrier-grade cloud service platform provider purchased by WestconGroup in September 2014. “As we look at the 500-person range, we really believe the opportunity is at least in hybrid cloud for those companies. Distributors are ideally positioned for this market.”

Still, cloud is the one area where vendors have shown some reluctance to partner with distributors, particularly those that don’t have legacy partnerships with them. But distribution executives say they continue making progress with both born-in-the-cloud and traditional partners in this space.

“Usually we make the conversation around our value, financing, enabling solution providers, the volume of partners we bring to the table, the end user database that those solution providers cover. It’s not a huge slope once you get over it. Vendors recognize this as a really good investment,” Arrow’s Burke said.

“There’s a reason vendors enable us to get in front of every VAR or end user. Every week we’re out on the road, visiting resellers and their customers, and we have to give our pitch because we stand in the middle. Our value may not be immediately recognized by those not directly involved, but we continue to not only survive, but thrive.”

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A Cloudy Forecast, That’s a Good ThingWhile solutions design is the biggest opportunity for distributors, survey respondents also expect cloud-related business to be their fastest-growing technology area in 2015, and their fastest-growing service area as well.

Cloud services, which include the design, build and management of public/private/hybrid cloud solutions, edged out project design and management services as the service area distributors expect to grow the most this year.

Software Is King Distributors are bullish on enterprise opportunity overall, but here are the top enterprise technology areas, in order, that distributors expect to grow in 2015:

1. Software 2. Cloud 3. Security 4. Storage 5. Virtualization 6. Servers


Cloud, Training Lead Enterprise OpportunitiesWhere distributors anticipate the most 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)


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From What Can You Do, to What Else Can You Do?Eventually, most conversations with vendors migrate from what can you do for me to how can you add value for me, said Chuck Bartlett, senior vice president of Tech Data’s Advanced Infrastructure Solutions unit. “Now the conversation is about how committed you are and how much value you can bring to them,” he said.

Bartlett illustrated his point with a recent high-profile example, EMC, an enterprise vendor that chose distribution as its primary route to market for a hot new hyper-converged appliance.

“It’s only SKU’d up in distribution and only distribution is building it,” he said. “How long ago was it that EMC was viewed as directly only? That’s a huge

swing in how they go to market and how they perceive the value of distribution.”

IBM, Cisco Systems and other big-name companies are also looking at distribution to build converged infrastructure products for them, Bartlett said. “I think there are a lot of people that have seen the value of having access to a channel that can be an extension of them in the market,” he said.

Tech Data’s enterprise-related revenue, captured in its Advanced Infrastructure Solutions (AIS) business unit, is growing several times the rate of its non-enterprise business, Bartlett said, evidence of the enterprise opportunity for distributors.

Any vendor that thinks it can offer the same services as distributors at the same cost is likely focusing its priorities in the wrong space, Bartlett said.

“It’s a matter of where does the vendor bring core competencies and how does that match to ours,” Bartlett said. “We sit down with vendors and say we can eliminate overlap and have folks focused on this target space, this vertical. We’ll be an extension of your strategy and provide the supply chain, the configuration, the staging, the billing, credit, technical resources. Vendors shouldn’t even want to do that in some customer segments and verticals, and typically, they don’t.”

Bartlett has seen plenty of companies that never scaled because they didn’t think they needed distribution, but those examples have become the exception. “In a growing number of cases, companies will come to us because partners referred them,” Bartlett explained. “Our value isn’t always immediately recognized, but that’s changing.”

Earning Trust to Earning DollarsEven 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.

“They know distribution is the right way to market, but how much they want to pay distribution is very different. They like to think it’s not so important, but they know they’re not efficient as distributors are,” Castellacci said. “We provide training, education, financial and technical solutions. They need us for all this support.”

The key to success in the enterprise for a distributor is to never forget that the market is very fluid, Castellacci added.

“We must follow the market and not forget that changes are now occurring. But also observe what the market is asking for. We need to provide support for these technology changes, invest in training and marketing and to add more sophisticated services,” he said. “Like a consultant in the future, we have to go deeper and enable more functionality and simplification at the time. We need to invest in new brands as new technologies are arising and converging, and focus on education. If we all do these things, we all will grow.”

Increasingly, the concept of recognizing value for any perceived margin given up to distributors has become more complex with the advent of cloud and other pay-by-consumption models for IT. As transactions become more streamlined and pricing simplifies for related products and services, more of the administration that enables those improvements is pushed to distributors, who are not always compensated for that work, said Ingram Micro’s Zahl.

“There’s no one way to solve it because it varies by manufacturer. Each of them looks to simplify their environment and their engagement in a unique fashion. There aren’t any simple answers,” Zahl said.

The problem, said Volkan Weissenberg, vice president of partner management at ALSO, an Emmen, Switzerland-based distributor, is that vendors look to compensate distributors very differently for servicing large partners compared to small partners.

“Vendors tell us ‘You focus on the SMB, the ‘unmanaged’ partners, and we’ll focus on enterprise. But the enterprise VARs are also coming to us and saying, ‘We need you to support us.’ They’re asking for a lot of services, but the vendors are hardly willing to compensate for that,” Weissenberg said. “We can prove that we’re helping the enterprise partners, but the equation isn’t always readily understood.”

“We’ll be an extension of your strategy and provide the supply chain, the configuration, the staging, the billing, credit, technical resources. Vendors shouldn’t even want to do that in some customer segments and verticals, and typically, they don’t.”

– Chuck Bartlett, Tech Data

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ALSO makes up some of the cost through margin on products sold to those enterprise customers. The larger volumes help make up the difference, but it’s a less than easy and relatively inefficient process, Weissenberg said.

“The vendors want you to reach certain sales targets, so you need those big accounts. So we have to work with them, we have to be close with those guys to get their business, but they’re not necessarily paying for the services we provide. It’s a difficult situation in many countries.”

’No Gaps, No Overlaps’Gavin Miller, vice president of marketing for Avnet Technology Solutions, Americas, succinctly summarizes distribution’s role in the supply chain to enterprise vendors: “We are structured to provide that differentiated value that enterprise vendors want to deliver to the market.”

Especially scale, said Miller. Distributors can address a larger part of the market, filling gaps and providing lift, than enterprise vendors can do themselves, he said. It’s their core competency, which allows manufacturers to focus on innovation.

“We’ve got a saying: ‘No gaps, no overlaps.’ We closely work with vendors to drive sales and support models that enable them to focus on areas where they excel and already have resources in place,’ Miller said. “It’s really a misnomer when a vendor says ‘We’ve got all our top accounts covered.’ We can provide everything a top account needs – driving awareness for new solutions and helping them stay healthy from a financial perspective, but it’s more than account coverage. We focus on building business outcomes vs. technology outcomes.”

Sometimes, the lines of coverage can be blurred, especially for vendors that serve both enterprise and SMB clients, particularly as technologies and markets have converged, creating opportunities in both spaces, said Rich Long, president of the Catalyst and Communications divisions at ScanSource.

“We have a lot of resellers that need to service both — and the distinction isn’t always made by the vendor or by the customer segment,” Long said. “I don’t even think there is such a thing as an ‘SMB distributor’ anymore. You have to be able to go up and downstream to truly serve your vendors and solution providers. We’ve all learned to do that effectively and both [vendors and solution providers] have learned to value that bridge we provide.”

Enterprise Distribution Is Here to StayEnterprise business through distributors will only increase, as more vendors realize they cannot match the core competencies of distributors, whether it’s enabling partners, providing more reach or providing any number of services on behalf of the vendors or solution providers, Dell’s Vitagliano said.

“It’s a world that is increasingly complex, and it’s not going to get any less complex. If anything, it’s going to get more complex, and you need more folks in the supply chain supporting that and helping partners and businesses navigate through that. That’s what distribution does,” he said. “We need more and more people helping to make it understandable and train and enable partners. I laugh when people still think of distributors as [product] pick, pack and shippers. As things get more complex, partners and vendors will look for more and more leadership from distribution. That’s a trend that will continue.”

ScanSource’s Long and the other GTDC members agree. “On all our quarterly earnings calls, we lead with services. We’re establishing that relevance, about what we can do more efficiently, more cost effectively to ultimately help take costs out for the consumer,” he said “That’s precisely the reason we exist — and the story the world needs to know.”

“It’s a world that is increasingly complex, and it’s not going to get any less complex. You need more folks in the supply chain supporting that and helping partners and businesses navigate through that. That’s what distribution does.”

– Frank Vitagliano, Dell


141 Bay Point Drive N.E., St. Petersburg, FL 33704813.412.1148 • [email protected] • www.gtdc.orgTwitter: @GTDC_org LinkedIn: Global Technology Distribution Council

Documents

Inside the EnterpriseAbout the Report Inside the Enterprise was developed based on comprehensive interviews and surveys with major technology distributors as well as vendor partners