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Disrupting the IT Distribution Model

June 08, 2017 - Article

Sergio FaracheBy Sergio Farache

In the last few years, the distribution industry has experienced several sea changes and challenges, as dynamics such as technology commoditization, margin pressure and the slowdown of the classic IT market growth alter the evolution of the channel. Distribution has been employing approaches like scale, efficiency and services to continue its intended journey toward providing value to the suppliers and partners — both critical components of the current two-tier model that has defined the industry for many years.

The two-tier model presumes that value is created by a linear process from the suppliers to the distributor to the partner to the end user. The model provides, and will continue providing, value through this linear structure, but the value creation is limited to the players and by fact that each member relies on their capabilities and investment power. Technology has been a fundamental element of this model as a support layer of the business, providing efficiency, scale and control. Several technology features, such as the e-commerce and brokerage platform, have played the same role for a new set of offerings and services, but both technologies are following the same linear two-tier business model.

The next-generation technologies enable disruption in many industries, and the deep integration between technology and business models creates the opportunity to transition the value-creation process to a broader group of players. Today’s disruptors such as Uber, Airbnb and Amazon, for example, have demonstrated that enabling this value creation to all possible participants maximizes the network effect — creating additional value to all participants, expanding their offerings and services, but moreover producing an opportunity for that disrupting flywheel effect that spurs growth in an exponential manner.

Analysis performed by consulting firm Deloitte described the “business ecosystem" as coming of age in the following way: “Ecosystems are dynamic and co-evolving communities of diverse actors who create and capture new value through increasingly sophisticated models of both collaboration and competition."

I took the liberty of using the Deloitte approach to define the Digital IT Distribution Ecosystem. This ecosystem is a dynamic and co-evolving community of IT B2B actors, i.e. producers and consumers, who create, provide, consume and capture current and the new value (intellectual property, products, software and services) through commercial interactions, collaboration, enablement, exchange and competition.

The IT distribution industry is beginning to realize that the two-tier model will limit its ability to capitalize on the total market opportunity available, and some disruptors are expanding their models to a new value-creation paradigm. The industry is perfectly positioned for this transition, but it should move, adapt fast and invest in ...

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