Okay, I admit it. Like many young boys when they were growing up, I used to play
"army": setting up the little green plastic army men, and sometimes having a
friend over and taking turns shooting at the soldiers with rubber bands to see who won
the"battle." And I still remember the point in my education where I suddenly
realized that waging real wars wasn't as simple as just setting up, shooting, and breaking
down - that there were many more factors involved, one of these being the distribution of
supplies and equipment to troops. Ever since then, the idea of supply lines and movement
of materials - whether the supplies were military munitions, food for refugees, or medical
supplies for disaster relief - the process of distribution has fascinated me.
So when we decide to cover the topic of Distribution Strategy in this issue of CTI, I
thought to myself that this would be an interesting topic to research - to gather
information through interviews with various distributors in the CTI marketplace. And I
hoped I wouldn't be the only one interested either.
Distribution is a key element of our everyday lives, and even in our games. Anyone who
has ever played chess knows how important it is to avoid overextending your army -
otherwise what looks like a strong attack suddenly falters as pieces fall into disarray,
refusing to work together, unable to support one another. And what of backgammon? Who
hasn't had the frustrating experience of a sole "stone" sitting on the bar,
desperately trying to re-enter the game but unable to due to its complete isolation from
the rest of the pieces? And look at the popularity of "simulation" style PC
games: SIMCity, Civilization, Settlers, Age of Empires, and so on. Many of these games
rely heavily on distribution strategies to determine who is successful in a particular
campaign.
These same issues can affect who is successful in the world of CTI. Systems
integrators, VARs, VADs, manufacturers - they all rely on distributors to get their
products out, or to supply them with products which they in turn sell to an end user or
another vendor. And if CTI is to be a successful industry, if it is to capitalize on the
end user interest that has been so apparent, it will require fast, reliable supply chains
to keep the products flowing. So what is it like to make a business out of distribution?
And, what light can a distributor shed on the CTI industry - its needs, growth rate,
quirks - that might otherwise be missed by those of us who take more of a bird's-eye view?
SURVEYING THE INDUSTRY
In pursuit of answers, I conducted interviews with representatives of three
distributors in the field of CTI: Joe D. Jackson, executive vice president of Alliance Systems, Sandra Rivera, president of Catalyst Telecom’s CT division, and Rick
Cord, CTI Marketing Manager for Pinacor . The
response from all three of these participants was quick — but then you’d expect
that from someone who makes a business out of acquiring products, integrating them, and
then delivering these value-added products from one point to another on demand to
businesses who won’t be too happy if their phone system or call center is down for
even a minute longer than they had expected.
Components Or “Turnkey”?
Initially, I asked each of these participants about the balance between
component-level distribution versus the distribution of “turnkey” solutions.
What were the plusses and minuses of each approach, and how did this affect them as
distributors? The answers were unanimous in one respect: Across the board, these
distributors preferred working with more turnkey type solutions, which allowed them to do
the CTI system integration in-house. In this way, the distributor was able to provide a
more complete, more immediately functional product to their customer (the VAR, consultant,
etc.), who could then do the same for his/her customer. This leads to faster
implementations, assured product interoperability, and higher margins for both the
distributor and the implementer.
Pinacor seemed to be the most willing to distribute at the component level, citing the
benefits of customization based on a specific customer’s needs as well as faster
inventory turnover for the distributor. But they also pointed out that such sales can
often be reduced to commodity interactions, where both distributors and VARs have no
competitive advantage other than price, leading to reduced profit margins all around.
Knowledge Equals Power (And Leads To Sales)
My next series of questions focused on the differences between distribution of
CTI products and distribution of mainstream IT products. After all, the knowledge required
to build a CTI system — be it a multimedia call center, an enterprise IP phone
system, or a remote access network for telecommuters — is a bit different from the
knowledge required to maintain an e-mail server or ensure smooth traffic flow on a
strictly traditional data LAN. Surely this must mean different strategies for distributors
and their workforce.
Again, all three companies agreed that there were significant differences between
selling in the CTI and the traditional IT markets, and that it was of the utmost
importance that the salespeople understand what they selling. Catalyst Telecom pointed out
that, when a distributor does a significant amount of the integration in-house, it is
crucial that the salesperson understand what the customer (VAR) and the customer’s
customer (end user) require. But even a distributor of board-level products needs to
understand issues of function and compatibility.
As Sandra Rivera pointed out: “The requirement for compatibility exists in either
scenario — the products all have to work together in the platform regardless of who
physically puts them together, and a value-add distributor will do an excellent job in
servicing customer requirements in both situations.” Joe D. Jackson made this point
exquisitely clear: “Distributors of CT that are not able to comfortably cross into
all fronts of sales and support will have a difficult time being effective. As with any
product, they have to be able to relate to the buyer, or in this case, the reseller.”
Knowledge Equals Support (And Leads To Sales)
This, then, leads to the question of education: of the sales force, as well as of
the resellers who are a distributor’s customers. Is there really such a thing as a
CTI salesperson? Sure, there are IT salespeople who have a frightening amount of knowledge
about, say, networking, or database management, or even about a particular company’s
products: the engineer certified to work with Microsoft, Novell, or Cisco lines. And there
are certainly telecom salespeople, who know all the capabilities of and enhancements to
traditional products by companies such as Lucent, Nortel, NEC, Siemens, Rockwell, Comdial,
and Mitel. But who fills in the spaces in between these systems, and where do those people
get the knowledge they need to sell effectively?
All three participants agreed that this was a significant issue. There is hope, of
course, as the traditional barriers are coming down: telecom is gradually opening up and
becoming less proprietary; datacom is beginning to address PSTN levels of reliability. All
three distributors spoke of support and training that they offer to their customers, in
order to insure that the various resellers understand and properly utilize the
distributors’ offerings.
For example, Joe D. Jackson spoke of individual support for resellers: “The type
of support required depends on where the reseller is in their own ‘personal
balance’ with the convergence of the technologies. In other words, you have to be
patient and willing to invest time to coach a reseller along the learning curve. The
reseller wants to be self-sufficient and equally comfortable in both technology
environments as quickly as possible.”
Sandra Rivera also addressed education of the VAR community directly: “In an
emerging market, value-add distributors work with manufacturers to attract resellers into
the industry and train them on products and solutions. The primary vehicle we use…is
a series of seminars which we host in three cities, four times a year. The TechTeach
seminars, which are co-sponsored with the manufacturers we represent, will reach 550-750
resellers during the course of each three-city tour. The event is organized into several
tracks, and resellers select a track of study for the day and learn from industry-leading
experts the basics of extending their business into these high value-add, high-margin
industries.”
Rick Cord raised an interesting issue, however. He said that the market surrounding the
convergence of the voice and data markets may initially be a little disappointing for some
resellers, especially those familiar with selling proprietary products to heretofore
captive telecom markets: “Interconnects are accustomed to much higher margins than
you find in the computer industry. They are reluctant to change that model. As a
distributor, we make an effort to provide our resellers the appropriate education needed
to enter the business. We also provide the back office support (solution development,
design, and configuration, and additional tools) for our interconnects so that they may
grow CTI at their own pace.”
Telecom resellers may be disappointed in their returns on the products they sell in a
new, open market, but this again points to the need to sell turnkey solutions, rather than
individual components. As Joe D. Jackson stated, “The reseller should be able to
concentrate their efforts on providing value-add services, and creating learning
relationships with their end users, and not worrying about the dozens or hundreds of
things that are involved in the integration of the platform. Our resellers are able to get
a built-to-order solution, within five days or less, that meets or exceeds their
requirements.” And Rick Cord agrees: “There needs to be a major education shift
not only in product knowledge, but also in how to sell applications versus features and
price. Service technicians need to be hybrid in nature (half telephony/half data) and able
to intuitively install products. The ROI will be much higher in convergence sales versus
typical IT products. The ROI lies in developing the application and then selling,
installing, and servicing that product.”
Advantage: Data
This issue of education of the resellers leads to another question: Who has the
advantage in this market, the data guys or the telecom guys. While all three participants
agreed that the CTI market can be a lucrative place for both telecom and datacom
resellers, Pinacor did suggest that one side had a small advantage: “If there is an
advantage, it may be with the MIS folks. Companies today are increasingly moving the
telephony decisions to the MIS department. The great majority of products are computer
based with a lot of products being NT-server based. Therefore, the technicians need to
have a strong basis in data networking. MIS folds are also accustomed to the constant
change in computer products and upgrades.”
Advantage: Voice
On the other hand, when it comes to making a profit on existing systems, Pinacor
saw a different advantage: “Telecom personnel have an upfront advantage in that today
90 percent of all phone systems are traditional, and it will take some time before
existing customers begin migrating to the newer IP-based telephone systems. Telecom
personnel have limited time to educate themselves in the newer technology.”
WRAP-UP
Judging by the questions I’ve fielded at various events, and by the
attendance at CTI EXPO this past May in D.C., the potential market for CTI applications is
growing. End users who are curious about the possibilities of integrating their networks
are becoming more comfortable with the idea. They are gaining familiarity with the
possibilities for cost savings, enhanced features, and customization made possible by
opening up their voice networks. This surge in interest places a demand on resellers to
provide solutions (and sometimes individual components); resellers in turn rely on the
various distributors to get them these solutions.
From my interview with these three representatives of the distributor community, I am
confident that as the demand for CTI continues to grow, the products, resellers, and
distribution lines will be in place to service the need. As Sandra Rivera said,
“Customers are demanding one source of expertise, products, and services for both
their voice and data requirements. As customer fears are addressed with more reliable
packaging of core CTI technology, greater demand will surface for CTI solutions, thereby
growing the addressable market for all of us.”
Chris Donner is associate editor for CTI magazine. He can be reached at lguevin@tmcnet.com.
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