Commentary | Two decades of change for the reseller community

Policy and market changes force some out of business, survivors to adapt

Dendy Young, chairman of GTSI Corp.

Susan Whitney

Survival of the fittest operates everywhere, including in the reseller world. Over the past 20 years, no fewer than 17 large and small companies have come and gone in the federal government product resale market.

Some, such as BTG Inc., Falcon Microsystems Inc., Federal Data Corp. and MicroWarehouse Inc., have been acquired, while others, such as Ameridata Technologies Inc., product divisions of EDS Corp., Hughes-Raytheon Co. and Northrop Grumman Corp., have exited the market.

The emergence of the Internet, government credit cards, e-commerce, "the Dell factor," a more forgiving contracting environment and the increased sophistication of customer requirements have greatly affected all businesses, but left their mark most visibly on the traditional reseller.

The Internet has made product sales a commodity. It has reduced profits for all resellers and forced logistics to become extremely specialized. Today, buyers can configure products to their own specifications, order online and within days receive their orders. Companies such as CDW Government Inc. have leveraged their commercial volume to hone their logistics and Web commerce capabilities for government customers.

Others, such as GTSI Corp., have leveraged distributors' logistics to ship products on a timely basis and have learned that they must move upstream into more sophisticated technology solutions to remain profitable. For example, GTSI is carving out a unique market niche by focusing on offering hardware and software combined with professional and financial services to implement customers' more complex solutions.

In the procurement arena, two significant milestones occurred. First was passage of the Clinger-Cohen Act, ushering in a new environment in which contracts became easier to create, amend and administer.

Cropping up throughout government were new government wide acquisition contracts and blanket purchasing agreements, some giving the General Services Administration its first real competition. In this new environment, open-market purchases by credit card were sanctioned. The result is that contract vehicles are of less importance than they once were because today everyone has them. For commodity products, price and immediate delivery became the deciding factors.

At the same time, Dell Inc. had more impact on the market than any other single player. Dell redefined customers' price and delivery expectations and eventually knocked Compaq Computer Corp. and IBM Corp. off their perch as kings of the PC business. Even though Dell reputedly did more than 20 percent of its government business indirectly, customers and competitors alike followed Dell's branding and wanted to "be direct." Hewlett-Packard Co., long a channel supporter, engaged in a difficult dance, selling directly to its customers while publicly avowing its commitment to its resellers.

E-commerce, coupled with the government's new procurement methods, also changed the competitive landscape. This new technology transferred the power of information and market pricing to the hands of the customer. Resellers would have to either bulk up until they were in a position to set the market price, specialize in very narrow niches or move into new businesses.

Before the mid-1990s, acquiring services had been difficult for the government. Each services requirement had to be described in a request for proposals and acquired separately. Then GSA schedules began to add complex time-and-materials services. This, along with some services-specific contracts from the Commerce Department, GSA and other agencies, mushroomed into the huge outsourcing business that we see today. Minority and disadvantaged business set-asides also grew rapidly. These trends facilitated the government's later turn to acquiring not just products, but complete solutions.

Last, but not least, the world changed, most radically with the events of Sept. 11, 2001. After 9/11, the government was forced to review its true mission, and it realized that it didn't have time to quibble over pennies. It urgently needed solutions, and it needed suppliers that could deliver the hardware, software, services and financing that constituted a solution.

The reseller channel that we see today is one that has evolved with a changing world and changing market. As long as Moore's Law drives technological progress, resellers will be needed. Middlemen can better and more responsively serve their customers by giving them choices and hands-on support.

Survivors will be companies that listen to their customers and change quickly to accommodate their rapidly evolving needs.

Dendy Young is the chairman of GTSI Corp. of Chantilly, Va.

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