For distributors, the services market creates a dilemma, but some are rising to the challenge with plenty of creativity. The big broadliners are, to a large extent, excluded from the picture because their business remains focused on practicalities. Stock availability, next-day delivery and credit facilities are services for resellers in themselves. But the broadliners have not yet started to provide services that resellers can sell on. Competition and the continuing fall in product margins has made volume product distribution difficult and, as the recent demise of CHS illustrates, consolidation is still taking place. Most of the ground is being laid by a group of smaller, innovative distributors, including KNS, Equinox and ATL Networks. But some of the big distributors are getting in on the act too. One is Ideal Hardware, which offers a number of insurance and finance plans and sells mainstream service products through its Unisolve business. Alex Tatham, commercial director at Ideal, has a clear view of the road ahead: "The future is in reselling services. Resellers are becoming the focal interface for external services and the IT resource for users. For SMEs, they become external IT departments. "Resellers are suffering from a lack of margin. Services are one way to move the focus from tin shifting by attaching higher margin opportunities to their sales. "Service is all about trying to increase the offering to users, and distributors are ideally placed to fill the void left by some resellers through a lack of resources or focus. Ideal will be offering a shopping basket of services for resellers large and small, to increase margins and offer to their customers," he adds. The services will be particularly relevant to SME resellers, which cannot afford their own IT departments. They cannot afford to invest without return and will need the support of the distributor to exploit opportunities in the services market, Tatham claims. "Resellers must focus on what they do best and on fulfilling the requirements of their users. Let the tin shifting, configuration and installation be handled by those that can take cost out of the equation," he says. This is the way most distributors are moving - providing standard backup and support. Resellers, particularly the smaller ones, can sell on these services, usually in a packaged form. But while packaged services for installation, maintenance, training and support are becoming more usual, others are taking the services concept further. KNS, best known as a Citrix distributor, has billed itself as a knowledge distributor. It tries to focus on developing technology areas and delivering services around the technology that both support the reseller and which the reseller can re-market and resell. The model is based on entry cost. Yuri Pasea, managing director of KNS, says: "When a market is fairly mature, there is little value that the distributor can add to it. But when it is a new market, such as thin client, the upfront cost of getting involved is very high." KNS offers consultancy, implementation, training and support services in five areas - thin client, radio networks, remote access, video and bandwidth management. It has 10 Microsoft Certified Service Engineers (MCSEs). "The only way we can make it work is to offer extended services to the reseller," says Pasea. The services are 'productised' so that resellers can sell them on. Typically, says Pasea, the margin on these products is about 20 per cent. Services business accounts for between 15 and 20 per cent of KNS' £15m turnover. Equinox is a five-year-old networking distributor with a services business that generates about 70 per cent of its £12m revenue, according to managing director Duncan Crook. Equinox does provide packaged service products but has become much more intricately involved with the market over the past year due to its managed service provision offering. Utilising its in-house expertise in Wans and communications, Equinox has set up a managed communications arm that provides a fully managed end-to-end service for the user. Equinox takes control of every aspect of the service, from the back of the PC to the connection the customer wants - a Wan, a specific host or an ISP. It provides hardware, monitors service performance, takes the risk and guarantees service levels. Equinox sells most of its services through resellers. It is a symbiotic relationship, says Crook. "There is a cost of sale in developing the relationship between the reseller and the customer. It is a marriage made in heaven. We have the skills and the service and there is a cost in developing those." Some services are now provided direct, but only in response to a reseller request, says Crook. He has set up a separate business to deal with these projects. Although Equinox offers a set of service packages, Crook says there is a danger services will become too homogenised. "Everyone tried to productise everything in this industry but the rate of change is phenomenal, so businesses and service delivery models have to be dynamic as well. You have to put the processes in place that will deliver that service." ATL Networks takes the services concept even further by describing itself as an IP services distributor. Mark Randall, managing director of ATL Networks, says the company bills itself in this way because the old models have to be consigned to the past and services have to be central to what distribution companies now provide for resellers. "Traditional distributors are continuing to struggle - witness the recent demise of CHS Electronics. Many more will follow over the coming year and beyond, leaving only the huge, global, volume players, which will continue to scrap over continually shrinking profit margins," he says. Ironically, it is the industry itself that has largely fuelled this change, Randall says. Developments in electronic trading are making traditional models less cost-effective and breaking down barriers between the vendor and user. Randall expects the market for traditional services such as implementation, integration, maintenance and support, to grow as companies compensate for declining product sales and margins. Distributors will develop skills so they can address convergent internet and ebusiness opportunities. "This will drive resellers to partner with specialists to deliver these packages - even the largest cannot cover all bases," he says. ATL Networks' focus is on services surrounding IP-based systems for messaging, security, remote access and ebusiness. It also works with service providers to create ongoing revenue opportunities for resellers - sales that generate repeat revenue, of which the reseller takes a small percentage. The main potential areas are ISP and ASP services. This is one example of how the internet can become an opportunity rather than a threat, says Randall. "A deferred ongoing revenue stream is inherently more valuable than any one-off business." Changes in distribution will ultimately be driven by demand, he adds: "Increasingly, users want to focus on core business and reduce cost of ownership." Most analysts agree the rental and outsourcing market is about to grow. Durlacher predicts the ASP market will be worth $1.5bn in 2004, compared with $14m this year. IP technology, for the first time, is making the extended enterprise a reality and the internet is the platform. THE KEY PLAYERS EDS EDS has four key areas in its services business - management, solutions, business process management and outsourcing. It is certainly the leader in the latter category. One of the world's largest outsourcing providers, the company has a wide set of capabilities in legacy systems, internet integration, network operations, data and applications management and field services. It runs some of the biggest outsourcing contracts in the UK. EDS is heavily focused on the enablement of applications through electronic means. The usual menu of solutions options - supply chain, CRM and so on - are provided, as are industry focus groups. The company is also big in payment systems and EDI. EDS' management consulting is provided by AT Kearney, the management consultancy acquired by the organisation in 1995. This division offers general IT consulting and internet services. In business process management, EDS offers to help find better ways to do business without turning the company upside down. This is much more consultancy than IT services - it looks at ways of cutting costs, improving performance, strengthening relationships and improving information flows. THE BEST OF THE REST Sema Group is a world leader in systems integration, consultancy and outsourcing, with 18,800 employees in more than 130 locations worldwide. In 1998, turnover was £1.25bn - an increase of 21 per cent on 1997. Systems integration accounts for 43 per cent of Sema's turnover, but outsourcing is the fast growth area, up from 14.5 per cent in 1992 to 46 per cent in 1998. The company focuses on specific industries - defence, banking and finance, energy, industry, commerce and services, the public sector and telecommunications. Customers include the DSS, Olivetti, Ericsson, Bilspedition, Standard Chartered Bank, BP, France Telecom, Electricite De France, Britannia Building Society, Snecma. Cap Gemini was founded in 1967 and is one of the world's leading management consultancies (represented by Gemini Consulting) and IT services companies (Cap Gemini). With more than 38,000 people located in more than 20 countries, it operates all over the world, designing and delivering strategic packages and services. Services are a $1.2bn business at Sun Microsystems and the company claims to be the number one network support provider, with more than 1.2 million systems currently on contract. It also claims to be number one in network education, training more than 100,000 Unix students annually. It has more than 150 education centres in about 50 countries and 35 Solution Centres around the globe.
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