Channels are quite busy with the existing product portfolio and it becomes difficult to immediately shift the customer requirement. But sometimes, one needs to face competition with the new products, which often kills the margins because all distys who work directly or jointly with partners often contact the customers directly - D K Bajaj,director, DM Systems
M&As of technology OEMs has been a constant occurrence in the industry, but now, IT distribution houses have caught the fancy of other companies acquiring them.
The recent spree of acquisitions of IT disty majors includes Ingram Micro and Transition Systems in two separate deals within a period of 45 days.
How disruptive will the trend of IT distys like Ingram and Transition getting acquired be for channel companies of India? “There’s definitely some consolidation going on in the market with big distribution companies getting acquired and some more set to get acquired,” says Ashok Kumar,CEO, RAH Infotech, a Delhi-based distributor.
Technobind Solutions too feels this trend will be disruptive and more acquisitions will happen. “It was well expected because IT distribution has changed primarily because the technology landscape has changed. All has changed, whether it is the way technology is deployed, applications are accessed or data is consumed. The delivery of technology has also changed, with cloud and mobility becoming a reality today,” says Hari Krishna Prabhu, Director, Technobind Solutions.
Kumar adds, “More than distributors, such acquisitions impact the channels most as the change in management brings change in policies and eventually the relationship dynamics change. More vendors introduced to the market further increases the competition and channels will have a tough time with the bottom line,” he said.
Vipul Datta, Chief Executive Officer, Futuresoft solutions says,”Consolidation will only bring pressure on margins for channel as cartelization probabilities increase and exclusive distribution concept will take more acceptance with OEM community. Futuresoft does work with Ingram and Transition in India for many products.
Solution provider company DM Systems works with Ingram for Trend Micro, VMWare and Red Hat only. Its director DK Bajaj says, “It impacts the business sometimes--while placing the order, one needs to do registration for new distys.”
At the OEM level, M&A could be beneficial but merger of IT distys may create more competition in an already crowded marketplace as per Kumar of RAH Infotech. “Such tie-ups will bring into the picture more vendor products that we don’t recognize today. And with too many vendors for the end customer to choose from, sales cycles too will be impacted,” he adds.
Prabhu of Technobind says, “Distributors just focusing on credit and logistics will have a serious problem because logistics is no more a concern as it is deployed over the cloud and neither is credit--with strong controls in place, access can be cut off in case of defaults.“
DK Bajaj says, “Channels are quite busy with the existing product portfolio and it becomes difficult to immediately shift the customer requirement. But sometimes, one needs to face competition with the new products, which often kills the margins because all distys who work directly or jointly with partners often contact the customers directly.”
Does the new merged IT distributor operating on a bigger scale pose a threat to Indian IT distributors? “We are in the era of cloud and as more and more infrastructure and applications move to the cloud, the less compelling logistics synergies become. Hence, the scale of operations doesn’t matter much. On the revenue front, they will be well equipped to handle larger deals, but our understanding of this market is far better," says Kumar of RAH Infotech. Prabhu of Technobind Solutions feels that, since the people are the same, the DNA will be the same.
With such acquisitions and with the introduction of new vendors to the market, competition gets stiffer, margins get tighter and customers will be spoilt for choice, agrees Kumar. “However, we are confident that partners will move away from merged entities distributing many competitive product lines within their portfolio and creating chaos amongst the customers. We also expect potential customer churn and employee turnover related to uncertainties amongst the acquiring distys to turn the tide in our favour,” he says.
It is business as usual for us, says Prabhu of Technobind Solutions. “Some of these M&As will boost existing presence upwards and some of them can bring them down."
For example, Ingram acquisition by Tianjin Tianhai is not a challenge as it will move towards more of a commodity and volume player. But Transition Systems acquisition will be interesting as exclusive networks is known as a strong technology focused distributor. It also endorses the view that new generation distribution models is the need of the hour to help partners align with today’s changing technology eco system.
Shift of sides
Such news usually leads to a shift of some channels from the merged entities towards other standalone distys.
Technobind Solutions has already seen that side-shifting happening. Prabhu says, “It is only an endorsement of the fact that the channels are aware of this shift in the tech ecosystem and are making plans to align with the same."
It does lead to shifting sides amongst channels, feels Kumar of RAH Infotech. Channels look for clarity in business relationships and with merged entities, clarity is a rarity. "We will continue to expand our channel base as always, while turning our existing partners into loyal ones," he says.
“In fact, with a few partners, we have also seen them create a separate team to focus on technologies that Technobind carries. We intend to push the pedal further in this direction and the launch of our Cloud Service BU will only further strengthening our foray in this direction, “says Prabhu.
This is a phase where channels would be skeptical of merged entities and we want to take this opportunity to reassure them of our commitment to their business, says Kumar. “Attracting new channels is an integral part of our GTM. We will be coming out with new initiatives to help new channel recruitments as well as turn our existing partners into loyal partners,” he adds.
For Technobind there is no course correction as per Prabhu. "It basically strengthens our positioning and gives us confidence to do more of what we are already doing," he says.
Is there a threat to channel business as there could be new people and new processes coming in after some time in these acquired entities? “Not as long as they don’t come up with direct customer engagement model," says Datta at Futuresoft Solutions.
Administration time will definitely increase as per Bajaj at DM Systems. "But we will continue to concentrate more on our technical expertise and products and improve the payment cycle.”
Datta at Futuresoft Solutions says, "The focus will be on expansion in reach and adding more capabilities.
Ashok Kumar of RAH Infotech talks on their future plans in the wake of such M&A news. He says, “We will have continued focus on end customer engagement, renewed focus on channel engagement and enablement and more channel friendly initiatives to retain existing ones and attract new channels.”
We don’t expect any significant impact on channel ecosystem due to disty’s mergers unless they decide to change their GTM or the distribution eco system by looking for exclusive partnerships with respective OEM’s, says Datta at Futuresoft Solutions.