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IDC: Distributors will solidify their role in Cloud Software...

10 Mar 14

What's the future of Distribution? Well it's flying drones, of course. Just kidding (I think?).

Clearly logistics, inventory management, and pick, pack and ship are redundant when software is delivered as a service.

However, this doesn't mean we think there is no role for distributors in 2014 and beyond. There are several reasons behind this.

First, all of the major distributors in North America for example have created tools for aggregating SaaS, Paas and IaaS offerings that allow partners to present a single consolidated, consistent bill to their customers. This is good news for solution providers who were wondering if they were going to be disintermediated, or at best play only a peripheral role within referral fee programs.

Then there are the things distributors have always done well, such as the necessary evils of credit checks, collections, and keeping on top of credit card expiry dates.

Distributors have developed incredible efficiency in these tasks, which vendors would be hard pressed to take on directly and try to scale to accommodate thousands of partners.

Last but not least is the nature of the economics and financial models of technology vendors versus distributors. On average, cloud software publishers reap about 75% gross margin, while distributers take home a lean and mean 8 to 9%.

It isn't too much of a stretch to imagine that software companies would be more than willing to give up 8% to get rid of the headaches inherent in doing credit dirty work.

That's why this year we expect to see at least one important cloud software player to move to 2-tier distribution, and the start of a major trend.

By Darren Bibby - Vice President, Channels and Alliances Research, IDC