Distributors Look for Smooth, Open Channel in 2000

By Calli SchmidtJust like the products and services they sell, information technology distributors are in the middle of myriad changes as they scramble to keep pace with the constantly evolving government market. The name of the game in 2000 is to make sure the channel stays open with the distributor taking the role of navigator, according to executives from distributors that focus on the government market. Just one year ago, distributors and analysts worried about increased competition from manufacturers such as Dell Computer Corp. The Round Rock, Texas-based company, which bypasses the channel and sells directly to the end user, had annualized revenue of $27 billion as of its third quarter, which ended Oct. 29, 1999. Although 1999 was less than a stellar year for many distributors, officials weighing in on trends for 2000 said attempts to sell directly have reaffirmed that the distributor is more necessary than ever. When the distributor focuses on its role in the back room and frees the manufacturer from worrying about inventory or accounts receivable from hundreds of small customers, "there are major benefits to the manufacturers," said John Lindgren, government and education program manager at Merisel Inc.Distributors also need to make sure that systems integrators and solution providers have quick access to the products and services they need. To that end, companies such as Ingram Micro Inc., Tech Data Corp., Pinacor Inc., Merisel and newcomer D&H Distributing Co. are adding features to their e-commerce sites, stepping up training programs and offering new services to both systems integrators and manufacturers. And as year 2000 worries and government spending on compliance solutions wane, some distributors are forecasting a banner year."Once that [Y2K] hurdle has been cleared, it will be business as usual, and these end users will be back on the upward growth curve of IT spending," said Kelly Ross, director of government services for Pinacor of Tempe, Ariz.Distributors tout recently launched programs and services to try to make themselves indispensable at both ends of the channel. Here is how they shape up.XXXSPLITXXX-The Clearwater, Fla., distributor opened a new training facility in downtown Washington in November 1999 to cater to its customers as well as the manufacturers that want to demonstrate their products. This group includes Cisco Systems Inc., 3Com Corp., Hewlett-Packard Co., Microsoft Corp. and Nortel Networks Corp.The distributor's 6,500-square-foot office has a conference room, classrooms and manufacturer showroom space. It is also where members of the company's new five-person government sales and service team hang their hats, so that sales and support are now under one roof, said Terry Bazzone, Tech Data's vice president and general manager of strategic business development.With the introduction of Windows 2000 slated for late winter, Bazzone said a local training facility will offer the tools that give resellers the confidence to embrace more quickly the new operating system, although she would not predict how quickly end users will adopt Windows 2000. Another new offering: Tech Data's Procurement Partner Program, launched in October 1999, offers government customers enhanced warranties, leasing and credit options, assembly, configuration and other services that can be incorporated into bids and proposals along with the products. Tech Data's government sales are expected to top $1 billion for the first time this year, part of an anticipated 44 percent growth in U.S. business for the fiscal year that ends this month. In December 1999, the company announced revenue of $4.31 billion for the third quarter that ended Oct. 31, up 31 percent from $3.28 billion in the same period in 1998.XXXSPLITXXX-"We didn't anticipate a decrease in government spending in 1999," Pinacor's Ross said. "However, overall IT sales were impacted by Y2K concerns and a shortage of funds because of the war in Kosovo, which affected individual agency budgets."Pinacor is preparing for what the company sees as pent-up IT demand by beefing up electronic capabilities so it can assume reseller and supplier back-room functions, Ross said. This will allow "resellers to focus on sales activities [and] suppliers to focus on manufacturing functions and other mission-critical tasks."Pinacor executives see an increase in government spending "all year in 2000," Ross added. Government entities will continue to bring services to the public through e-commerce, "so security will be an ever-increasing concern."E-commerce sites will be "graphic intensive, networked, secure, Internet capable and will allow the public to feel a personal touch by the government entity on the service provided," he said.Pinacor recently announced its APO/FPO services program so resellers can ship products to federal government post offices inside and outside of the United States. It also has a Letter of Supply program that allows resellers to market their own General Services Administration contracts.Revenue rose from $5 billion in 1998 to $5.4 billion in 1999. The company does not release specific government sales figures, said Pinacor spokesman Steve Jensen.XXXSPLITXXX-Enhanced e-commerce capabilities are the keys to success in the government procurement channel, and Ingram Micro's Partnership America program is the centerpiece of this strategy, said Steve Halland, vice president and general manager.The Santa Ana, Calif.-based company's Partnership America program is designed to help resellers, value-added resellers, systems integrators and vendors with services that include bid pricing, proposal, contract management and processing support, dedicated account managers, technology refreshment, credit services and configuration support.Customers and manufacturers involved in testing of the Web site, Partnership America.com (www.partnershipamerica.com), said it has "very exciting capabilities," Halland said. The site will be ready in March.Ingram Micro posted third-quarter 1999 revenue of $6.71 billion, an 18 percent increase from the same period a year earlier. XXXSPLITXXX-At the beginning of 1999, Merisel was on the comeback trail, launching a new government and education division to get a larger slice of the federal, state and local pie. As the El Segundo, Calif., company enters 2000, it has found success with customers serving the federal sector. But as that market matures and profit margins get thinner, Merisel is turning to the state and local market for new business, said Lindgren.Merisel has 120 customers on state and local schedules that it supports with certification programs, pricing strategies and back-room functions. "For the state multiple-award schedules, we provide our customers with a Merisel pass-through letter of commitment" to get products delivered more quickly, he said. And like other distributors, Merisel is bracing for a great influx of orders in 2000. In the government market, "everybody will tell you that sales didn't die this quarter, but they didn't shoot up," in large part because of year 2000 concerns, Lindgren said. His prediction: As people come back to work in the New Year and find out that "everything works," there will be a surge in sales by the end of February.XXXSPLITXXX-D&H Distributing has more than 80 years of distribution experience, 15 years IT distribution experience and a government services division that was formed in July 1999. The company entered the government market with an e-commerce model and its interactive Web-based system for resellers, web2000, according to Fred Humbert, who runs the government unit. Humbert previously was the government sales manager for Iomega Corp. of Roy, Utah. Web2000, which includes a daily Web promotion page for special deals, was designed with ordering simplicity in mind. For example, resellers can copy the contents of a previous invoice to save time when creating a new one. The Harrisburg, Pa.-based distributor had 1998 fiscal revenue of $600 million. Projected revenue for 1999 is $650 million. Humbert said he could not provide a breakdown of sales to government vendors.