Can the Channel still make Money from Hardware?

Gartner recently opinioned that the PC business model is broken. http://www.gartner.com/newsroom/id/3443519. Manufacturers need to rethink their approach. And it made me think, if the manufacturers are losing money chasing market share, why would the channel see selling hardware as a profitable opportunity?

Mind you, back in the 1980’s when I was in a minicomputer company selling VAX computers for hundreds of thousands, my VP was lamenting that there was no money in hardware anymore. But it probably has turned a corner. Not just for PC’s, because it seems that most technology hardware is commoditized, with manufacturers racing each other to the bottom.

We see consolidation and acquisition across our industry. I frequently talk to major vendors and the ones that have a legacy hardware business are between a rock and a hard place. They want to keep their revenues up and make sure Wall Street is happy (see Michael Dell on this subject!) but increasingly it is generating less and less profit. So they have to invest less to sell more. And that is not a recipe for success!

So where’s the channel in this? There’s an argument and it’s reasonable, that the channel will do anything that will make money for them. If a manufacturer needs something shifting, then as long as it turns some profit, they’ll shift it. But what I see more and more is that hardware fulfilment is becoming a separate and specialist channel, leaving traditional ‘added value’ players making their money elsewhere ‘in services’.

What does this mean for manufacturers who are used to ‘owning’ their own channel?

There seem to be a number of plays going on and generally the manufacturer is no longer in charge. As brand equity in hardware diminishes, do I really care what logo is on my PC or my monitor, as long as it delivers the ‘content’ I want to access? Rather than manufacturers incentivising channel players to push their brand, they will need to pull different levers to ship their product. Add to this the fact that hardware devices no longer have to deliver so much of the smarts, and you understand why refresh cycles are extending. If I have a Citrix desktop, I’m not going to need a new PC every two or three years!

What I see emerging for hardware I would describe as ‘omni-channel fulfilment’. Ensure your product can be fulfilled through whatever route works for the end customer. That might mean traditional volume technology players, but it might increasingly mean players like Amazon moving in on the B2B space.

Another important angle is Device-as-a-Service. Much like mobile phones or photocopiers – don’t buy your hardware – pay for it ‘by the yard’. Although some channel partners can offer this approach themselves, the industry seems to be going back to the vendor as a provider of service. So the traditional reseller may not be in the financial loop. Referral fees start to become relevant here, to drive loyalty to a particular brand.

Hardware manufacturers are struggling to maintain their hold on ‘their’ channels. Although there may be less money around in the hardware business, it won’t be the channel that loses out. Manufacturers will continue to have to buy channel influence, even if it’s not through resale margins, so they are going to have to look very closely at their profit models to understand what makes sense.

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