November 2013 Feature

The Evolving Role of Distributors in the Channel Space

by Hobart Swan

When CCI wanted to get some perspective on the changing role of distributors, it seemed only natural to reach out to Peter Koliopoulos. Koliopoulos is aPete Koliopoulos vice president of North America marketing for the enterprise computing solutions segment of Arrow Electronics, a $20 billion-plus distributor that has distinguished itself in part through its industry-leading understanding of the channel, customer needs, and the use of big data.

Koliopoulos has more than 25 years experience in marketing and sales roles in the IT industry. He previously served as senior director of product marketing and then vice president of global channel marketing for EMC. Prior to joining Arrow, he was vice president of global partner marketing for VCE Corp., the joint venture between Cisco and EMC with investment from VMware and Intel.

CCI: Over CCI’s 30-year history, we’ve watched distributors like Arrow remain a central part of global technology channels. How has the nature of technology distributors changed over the last few decades?

Koliopoulos: If you look at distribution over time, it started with broad-line distribution, focusing on logistics and financial support for retail and small businesses. We dealt mostly with volume products like PCs. Then we moved into value-add, where we brought in expertise in marketing, pre-sales, sales, and post-sales. Today we’re working with more enterprise accounts, which means we’re dealing less with “bought” products like we did with smaller accounts, and more with “sold” products. Because of the increasing complexity and size of current IT solutions, enterprise customers don’t always know what they want to buy. They need help choosing from a large number of sophisticated solutions. They need to be “sold” the right combination of products and services.

This change has sent ripples through the industry. On the supply side, we find ourselves helping suppliers profile and manage the thousands of VARs, ISVs, and MSPs that are out there communicating with end users. In some cases, we’re also doing inventory so the suppliers can get product to market more quickly. On the partner side, we are doing everything from educating them about how to sell new services and solutions to helping them make the transition from up-front to recurring revenue.

CCI: The nature of technology is always evolving, but over the last five years the rate of change has accelerated. With cloud services, a vendor doesn’t need to ship a box to anyone. A customer can connect directly to a vendor’s software via a web browser. If this is the case, what are you doing to remain vital to the channel and avoid sliding into irrelevance?

Koliopoulos: The very fact that technology is evolving so rapidly makes us more and more relevant. Just a quick example of that is that we, as a distributor, now provide our own cloud services—and help our partners learn how to offer these services to their customers. So we are not sitting on the sidelines watching all these changes take place. We are in the thick of it.

We’re very involved in helping our partners make the transition from product sales, where they get their revenue up front, to the cloud service model, where they get lower up-front revenue in exchange for recurring revenue that adds up over time. This represents an entirely new revenue model for many of our partners. In some cases, we provide financial assistance to help them make this transition.

We want to be able to help our partners not just with IT departments, but with groups like finance, marketing, and operations. We train our partners’ sales people to help them understand what to sell, who to sell it to, and how to sell it. Because we typically have more marketing people, more engineering people, and bigger labs across more product lines than our partners, we can also serve as an added resource for them. By sharing our expertise with them, we’re able to get closer to our partners and really understand their businesses—all of which helps us stay relevant.

CCI: In addition to changes in technology, would you agree that the rate of channel evolution has accelerated in the last five years or so? What factors are driving this in your mind?

Koliopoulos: Yes, it has. A lot of it has to do with the evolution of computing platforms themselves. Originally it was all about mainframes—big machines located on premises doing a distinct set of tasks. Then it moved to client-server models, where computing started to move off premises but still tackled a relatively small number of workloads. But today’s platform must also be able to manage social, mobility, Big Data and the cloud. So there’s a real multiplier effect at play that amplifies the rate of change.

Increased activity in all of these dimensions has the effect of accelerating change. That’s why we spend a lot of time with both partners and suppliers. We’ve got to be able to see ahead of the curve and be prepared for what’s to come.

One of the big impacts of this change is end users’ move from CAPEX to OPEX. The idea of going more off-premises is enticing to a lot of companies. They realize that they no longer need their data center, their own ERP or CRM system. Instead of buying end-user licenses, they can now pay on an as-consumed basis. We see more and more end users jumping on this OPEX bandwagon.

CCI: Talk to me about your relationships with the top Silicon Valley technology players. How has this been evolving, and where do you see it going in the future?

Koliopoulos: Well, I guess one thing you could say is that the bar has been raised. There’s a lot of competition out there, so we need to continually develop ways to stand out from the crowd. First, you have to provide what I call “expected value.” Every distributor needs to have the right solutions and go-to-market strategies. They need be able to help with demand generation, deal progression, and order fulfillment. They’ve also got to be able to help with financing.

But then you need to find ways to set yourself apart from the rest in the eyes of the big players. We do that by, first, providing very good business intelligence. This BI is particularly important in this period of peer-to-peer selling. Buyers are listening to other buyers just like them. They want to hear from their peers which products are services are really delivering value. The best way for large organizations to hear what end users are talking about is through channel partners.

But there’s no way these large suppliers can manage relationships with what can amount to 3,000 to 5,000 partners. Suppliers are too busy inventing and manufacturing. They want to deal with fewer vendors, not more. Most distributors are in a position to act as a bridge between partners and suppliers. But we think we do it much better than the rest. We see our role as aggregating data from all of our channel partners and suppliers and presenting it in a way that makes the data actionable. These large technology players get outstanding market information. By going to us for this information, they get the information pieced together into a complete story so they can easily draw conclusions based on the data, and they also get more granular detail from us.

CCI: One of the classic knocks we hear from vendors about working with distributors is the struggle to obtain accurate, detailed, timely, and on-demand POS (Point of Sale) data from them. Without quality POS combined with program data, channel intelligence and strategy are a lot harder. What are you doing to help vendor channel teams overcome that pain point?

Koliopoulos: When I say that we use business intelligence to distinguish ourselves, this in one of the main areas I’m referring to.

Arrow captures a lot of data about a lot of things. And one of the ways we put it all together is in a product we call Arrow Insight. Insight was developed through the use of POS data we’ve been collecting from every partner across every supplier we’ve worked with over the last several years. We take that data, add to it a set of analytics—along with information from external sources, and offer vendors some very useful insight into who is selling what to whom. And we make sure, of course, that no single company has access to another company’s proprietary information.

If we take Oracle as an example, Arrow Insight can show it the 10 or 20 or 50 largest end users by sales for a given period of time. Oracle can see who the top-end customers are and how much software, services, hardware, and freight they consumed. They can see what each customer’s rank was among all Oracle customers of the past three years or four years or five years.

Vendors can see what verticals its sales are in—even though this information isn’t on a POS. They can see this “hidden” information because of our ability to add value. For instance, we can overlay Dun & Bradstreet information on top of the data—analyzing the SIC codes that are assigned when registering with D&B. And we can overlay IDC data to tell the vendor what all the technology categories are and what their predicted growth rates are over the next few years.

This is the kind of information that can help vendors do their forecasting. They can see what the growth areas are by vertical and by location. We can even give them insight into the “white spaces;” those companies in a particular region, state, or city that most closely score the highest against the profile the vendor has created of its ideal customers.

This is how you leverage POS data to address key vendor pain points.

CCI: And finally, a hot topic we’re seeing a lot of buzz about these days is the combination of channel data, point of sale data, and emerging ‘big data’ technologies. What are the implications here for a company like Arrow?

Koliopoulos: The market insight we gain from being able to capture data from suppliers and partners alike is a valuable commodity. On one hand, it helps us distinguish ourselves in the market. Suppliers know that when they work with us, they will get the kind of information that can give them a competitive edge.

On the other hand, our ability to work with big data creates a new and growing revenue stream for us. We allow suppliers and partners to license access to specific subsets of the data and the BI to be gained from it. They can do this either as part of their subscription or for an additional fee.

With all of this information at their fingertips, suppliers and partners can start designing the products and the intelligent sales strategies of the future. But they can also use Arrow’s business intelligence to make data-driven decisions about which products and solutions to sell to which prospects right now.