Distributing UC

There are no shortage of conversations about how UC is changing the channel, but generally it is with the reseller business as the subject. The dealer channel is changing dramatically as products move from hardware to software as well as major shifts in both customer expectations and the dealer skills required. But how the dealers obtain their products, or more specifically the role of two tier distribution is also transforming.

Back-up a decade and the distributor's role was well understood. Distributors were known as "box movers," and were tasked with "pick, pack, and ship." Logistics, far from trivial, was the heart of a distributor's business. How quickly items could be picked - minutes or hours? If the items weren't packed properly orders could arrive damaged or incomplete. Shipping included accuracy, rates, and carrier management. Distributors bragged about the number of warehouses and their ability to process an order the same day until late in the afternoon.

A decade ago, a phone system comprised of cabinets, cards, and various specialized/proprietary components and cables. Distribution was a physical and logistical challenge. A typical end-user sales quote today is 50-80% software, most of which are downloaded. The hardware components are largely third party solutions such as gateways, servers, switches, cables, and cables. Endpoints are shifting from proprietary to standards based and may or may not be included in the same order.

As the channel shifts, dealers are less a part of the vendor's sales team, and more a part of the customer's IT team. The focus is much less about acquisition, and much more about implementation and integration. Distributors are rapidly adapting their business models to assist resellers in these areas.

Distributors no longer tout operations as their key value-add. "Box moving" still exists, but more and more we are seeing VADs or value-added distributors looking beyond pick, pack, and ship - and aim to add value to both sets of their customers; resellers and manufacturers.

Here's a snapshot of key two tier UC distribution relationships.

A few things stand-out from the table above. First off, two tier distribution is showing no signs of disappearing. ShoreTel just announced Ingram Micro as its third US distributor and believes distribution is critical to its ongoing growth. Mitel and NEC do use some distribution in the US, but predominately maintain direct relationships with their resellers, both companies expressed the reseller relationship is far too critical to delegate to third parties. It really boils down to the value-add that distributors bring (and the price they charge for it). The key value areas where distributors are now focusing include:

Training: Traditionally voice vendors perform their own training, but Cisco and Microsoft have used a separate channel for training for some time. Voice vendors are beginning to delegate both sales and technical training to the distributors which often have training facilities. ScanSource, for example, performs ShoreTel authorized training courses.

Kathy Alaimo of Ronco Communications & Electronics, Inc., a New York based Avaya Connect Channel Partner said she relies on Jenne University for training on Avaya enterprise products, such as Avaya Aura. "Our folks are not only trained on system features and functionalities, but they receive immersive, hands-on experience with each product along with technical assistance from knowledgeable instructors."

Financing: Cash flow is critical - for all parties. Distributors ease the load in multiple ways. Allowing the distributor to do dealer financing frees up cash at the manufacturer. Plus, if the vendor uses multiple distributors, resellers can spread their debts across multiple suppliers which effectively increases their available credit. Most manufacturers allow this, however ShoreTel requires dealers to commit to one distributor. This lock-in approach protects distributor investments in dealer recruitment as well as prevents pricing battles between suppliers.

Integration: Sometimes distributors have more capability than resellers to mass-configure or preconfigure systems before shipping them. NETXUSA developed systems to configure Digium Switchvox systems prior to shipping. The company is using the product's administrative API to preconfigure systems including user/phone administration and even SIP credentials. The result is a significantly quicker on-site installation. Some distributors even offer feet on the street to assist on-site implementations.

Dealer Recruitment: Most UC vendors are currently seeking to expand their channels and distributors are a means of reaching prospective VARs. Most dealers have conferences and webinars to introduce their customers to new programs, products, and services. Since distributors may already have a business relationship with resellers, they may be more effective at recruiting the 'right VARs' than the vendors. Programs like Tech Data's Tech Select is aimed at larger dealers that meet for best practices and enjoy access to special programs the distributor offers.

Tech Support: Some distributors offer first and second level tech support to dealers and sometimes even to end-users reducing the burden on the manufacturer and increasing accountability in training and pre-sales engineering.

Lead Generation: This area never meets expectations of anyone, thus it isn't clear if its best performed by the vendors, distributor, or reseller. However, many distributors are staffing up full time operations to generate leads. Most distributors now offer advertising assistance programs, and outbound call center prospecting for a fee.

Just as resellers are honing their value add, so are the distributors - and in both cases it heavily involves services.

The elephant in the room has to do with the Internet which changed or disrupted distribution in so many other sectors including retailers, publishing, travel agents, and many other sectors that the Internet turned upside-down. Telecom VARs feel it too, though few proprietary telecom endpoints are available from discount dotcoms. Most UC sytems manufacturers have successfully curtailed Internet distribution. The big exception area invovolves SIP phones which do have wide Internet based distribution options.

Polycom and Snom SIP phones are widely available online and thus difficult for dealers to offer at traditional margins. This creates a challenge as SIP phones penetrate UC dealer offered solutions. Digium Switchvox, for example, goes through a dealer network, but relies on third party endpoints. Sometimes, the users obtained the endpoints directly from online purveyors. Aastra has a similar situation, but offers SIP endpoints, proprietary VoIP (for Aastra and Microsoft, and digital endpoints though different distribution channels - different routes for different products.

One interesting twist for Aastra came from Synnex which opted to get directly into hosted voice wholesale solutions and became an Aastra distributor in the process. Synnex's CloudSolv targets resellers, and bundles the service with Aastra IP phones. Service providers (big and small) are an emerging form of distribution. Most service providers practically give away the SIP phones in exchange for the dial-tone business which further drives down equipment margins.

Distribution is critical even in a downloaded world. With equipment margins shrinking, there is even more importance on efficient services and distributors are working to crack that code.

Dave Michels is a frequent contributor and blogs about Telecom at TalkingPointz.com.