Investors have doubled down on distribution as they look to capitalize on increased spending around cloud marketplaces and Everything as a Service, Frank Vitagliano said.
The pool of investment dollars available to IT distributors has increased in recent months as private equity firm Platinum Equity completed its $7.2 billion acquisition of Ingram Micro in July, Tech Data and Synnex closed their $7.2 billion merger in September, the same month Exclusive Networks had a successful IPO, according to Vitagliano, CEO of the Global Technology Distribution Council (GTDC).
“The smart money in the marketplace … has gravitated to the distributors,” Vitagliano said Tuesday during the Best of Breed Conference 2021, hosted by CRN parent The Channel Company. “And I think what they see is not only the value of what we’re doing today, but also the opportunity to enhance that.”
Distribution can provide the same value in cloud marketplaces as it does in traditional environments, and distributors have been making significant investments in the space for quite some time, Vitagliano said. Vendors like to leverage marketplaces to accelerate their go-to-market at scale in a cost-effective way, typically for mid-market customers and smaller, according to Vitagliano.
Solution providers, meanwhile, have found that cloud marketplaces reduce complexity and provide a single source for procurement in a complex environment, according to Vitagliano. Distributors provide a broad range of services in marketplaces from order processing and provisioning and billing management to simplified invoicing, multi-vendor solutions, and training and enablement, Vitagliano said.
“When we look at the services that are provided … that all still matters, whether it’s the cloud world, whether it’s physical or whether it’s virtual,” Vitagliano said. “And what also matters very significantly is that it’s with a partner that has established relationships with each of you and trust with each of you.”
In addition, Vitagliano said every vendor on the planet is in the process of developing a set of general programs and offerings to support Everything as a Service (XaaS). Customers are driving the push toward XaaS, and Vitagliano said it was happening initially at the enterprise level and has more recently started to move down market.
The role that solution providers play in XaaS is both important and potentially being overlooked, according to Vitagliano. Distribution can help the channel and make a difference since it’s going to immediately require a profound change in business models, Vitagliano said. One area that’s expected to be impacted is cash flow, meaning distribution might return to its roots as a warehouse and a bank.
“Some of you operate that way today, some of you can easily make that transition,” Vitagliano said. “Some can’t, particularly smaller solution providers. It’s going to significantly change the way they do business similar to the transition to services over the past five or ten years.”
Vitagliano urged solution providers to stay abreast of what services their distribution partners are offering and ask questions if anything is unclear. The channel should take advantage of the relationships they have at the top echelon of distribution organizations to stay engaged and continue to understand the changes that are happening.
“The services and the capabilities are continuing to expand and be enhanced in a really significant way,” Vitagliano said. “The worst thing that you can say to one of your distributor partners is, ‘I didn’t know you did that.’ That’s the worst thing you can say.”
Marketplaces and XaaS will continue to resonate with customers as market forces and COVID-19 put downward pressure on everybody, according to Mark Galyardt, president of Las Vegas-based XIOSS. This shift has prompted XIOSS to form tighter relationships on the finance side of its business to understand the different financing models available to Fortune 500 companies, Galyardt said.
Fortune 500 organizations are looking for solution providers to pull together the newer piece parts in a way that the customer couldn’t do on their own, according to Galyardt. As marketplaces and XaaS gain traction, XIOSS plans to work with financial experts to put together deals that don’t crush the company economically by spreading both the payment as well as the profitability over a several year window.
“You need to understand the financial side,” Galyardt said. “If you’re dealing with a large enterprise, there’s a lot of touch points.”