Distribution 2016 Predictions from the Experts: Part Three

The Analyst: Tim Harmon, analyst, Forrester

“There are too many distributors in the world,” according to Tim Harmon, an analyst with Forrester.

Harmon says that most tech vendors that go to market through two-tier distribution have stated they want to reduce the number of distributors they use. He sees the recent Ingram Micro acquisition as evidence of this and the beginning of an increase in M&A activity in the distribution segment of the tech industry. “It becomes a game of musical chairs,” he said.

In Harmon’s view, a dose of new blood is long overdue.

“In general, it’s incredible how antiquated the digital communications are between tech vendors and distributors, and between distributors and value added resellers,” he said. “There’s way too much business transacted in the tech value chain on the back of email and spreadsheets.”

Harmon points to the electronic data interchange (EDI) systems other industries use that standardize the exchange of products, services and other information. EDIs make it very easy to participate in an industry value chain, but such standardization doesn’t exist in the tech world. “Ingram Micro has a different requirement for communicating than Tech Data does than Synnex does than Arrow does,” he said.

That’s just one example. Harmon’s point is that in this age of efficient digital communications, distribution and tech in general need to establish some standards for efficiency. To do so will take a fresh look—and, Harmon points out, a fresh investment.

Distributors have always operated on narrow profit margins, so they haven’t had the money to make a big reinvestment in their own technology architectures. Potentially, acquirers could. In addition, an outsider like HNA might be free of some of the “myopia” created by an industry with a long tradition of doing things a certain way. As the tech industry moves more and more to cloud, mobile and microservices, distributors are going to have to diversify and innovate at a greater rate.

Harmon sees plenty of opportunity. For example, in a world that turns on metrics, distribution is a potential repository for big data analytics, which has to date gone unexploited. He also cites distributors’ powerful yet underutilized financing capabilities for channel partners as something that could be leveraged with some creative thinking. And these are just the obvious opportunities. Who knows what an outside perspective might see?

“The tech distribution industry is waiting for someone to come along and Uberize it,” Harmon said.