October 2020 — By Frank Vitagliano, CEO, Global Technology Distribution Council

Students of evolution will recall that long-term survivability often doesn’t come down to size or strength, but adaptability.

Believe it or not, the information and communication technology (ICT) industry isn’t so different. The ability to thrive in the ICT ecosystem is more often determined by who has the more agile or flexible business model than who has the fastest product or largest market share.

Don’t get me wrong: product innovation counts for a lot, but business ingenuity often counts for more.

This is why there is so much debate over which go-to-market (GTM) model — direct, single-tier indirect or partner-led indirect — produces the highest returns. In some tech circles, disagreements over business models get as heated as deliberations over politics or religion. (Sorry Mr. Darwin.)

But debates over business models are far more nuanced than this or that. Truth be told, an optimal strategy can vary greatly based on a technology’s price-point, target audience, maturity and other factors. Many tech innovators rely on a mix of strategies. But time and again, the partner-led GTM model that leverages channel partners supported by distributors has produced consistently high returns.

Distribution’s Edge examines why.

In this, the latest report from the Global Technology Distribution Council (GTDC), we return to a topic we first studied in 2008. That routes to market paper was followed by an in-depth study in 2013, The Economics and Value to Technology Distribution.

The two studies confirmed what many tech insiders knew at the time: When it came to the sales and marketing of high-volume, low-margin technology goods and services, the two-tier GTM model that relied on third-party channel companies supported by distribution wholesalers provided the highest return on investment (ROI). Back then, the two-tier model provided product innovators (think vendors) the highest margins on products, the greatest geographic reach and the most-efficient mechanism for managing returns, support inquires and follow-up sales.

More than a decade later, we wondered if a comparable study would find similar results. We had reason for doubt. Since our last study, cloud computing has radically altered how technology is delivered and sold. The rise of mobility and the shift in tech purchasing from ICT departments to line-of-business (LOB) buyers has similarly transformed the industry.

Wanting to put these and other issues to the test, we worked with Vation Ventures LLC and CommCentric Solutions to examine the financial outcomes that direct, single-tier and partner-led indirect business models produce. Our assessment forms the foundation for our new report. In addition, Distribution’s Edge showcases four real-world companies and their 2020 GTM strategies, plus several important market trends, such as:

• Many tech giants spend more on sales and marketing then tech development.
• Each GTM model influences business outcomes – including control, scale, profitability, customer satisfaction and competitiveness – differently.
• The direct model affords the most control but at the expense of profitability and SMB intimacy.
• A one-step indirect model provides scale but can create channel conflict.
• A partner-led model that relies on distributors is SG&A friendly but requires significant coordination.In technology, EBITDA is typically more influenced by SG&A than COGS.

If you or your organization is looking to better understand the economics of business models and route-to-market options, then download your copy of Distribution’s Edge: An Economic Analysis of Routes to Market for ICT Products and Services today. And don’t forget to compare your company’s economics with others using the Vation Routes to Market Calculator, which can be found here.

Download Distribution’s Edge