Technology Distribution Meets New SMB Realities

Distribution channels are moving front and center in the competitive arms race. Virtually everywhere in our scan of a hundred-plus markets, companies are finding that channel design, execution, and management are becoming critical to profitability, defensibility, and long-term growth.

This isn’t too surprising in mature commodity product categories, but it’s also the case in technology markets as well.

And even though technology offerings for small and mid-sized businesses (SMBs) seem tailor-made for direct-channel delivery, upstream providers and downstream customers often continue to favor the value created through new one- and two-step distribution models. The reason, we’re finding, is that SMB owners and managers still find themselves stymied by the dizzying pace of technology change, a proliferating universe of sources, and an insurmountable array of adoption hurdles.

And because they usually lack sophisticated and dedicated technology staff, SMBs are looking for best solution packages tailored to their business processes and integrated seamlessly into existing operations. In fact, share gains in the SMB market will increasingly accrue to distribution channels that efficiently and effectively deliver new value in areas related to solution customization, one-stop sourcing, on-site demonstrations, small-scale pilot testing, non-disruptive and affordable installation, enhanced adoption training, easy upgrade, and lower total adoption costs. And more.

Superb technical expertise is no longer adequate. SMB technology sales are evolving from one-off, pick-and-pack hardware and software licensing sales into persisting cloud-based subscription services. As hardware and software products become less stand-alone and more like component parts in a larger on-premise or off-premise cloud solution, physical product adoption and distribution services are taking a back seat to more consultative approaches to solving vertical- and user-specific business challenges.

Many sophisticated solution providers understand this shift and are attempting to ramp up the skill sets of their 3rd-party distribution partners. From a practical standpoint, this requires clear and actionable answers to two closely related questions:

• What specific channel behaviors will move market share? and,
• How do we incent desired channel behaviors?

For example, What steps should be followed to educate SMBs about their technology design and delivery options, in terms they find clear and compelling? What are the best ways to demonstrate tailored web-based solutions? What concrete channel activities are needed to maximize ease of adoption and use for SMBs? How can channel players best collaborate to ensure one-stop process integration and make upgrades effort-free for the SMB? Is this SMB’s business security best guarded through on-premise or off-premise cloud solutions? How can the channel help reduce an SMB’s all-in cost of adoption?

While major technology solution providers have largely figured out the product and price side of new offline and online technology offerings, many of the biggest players have yet to pin down a distribution-based competitive advantage. And while Gartner estimates that over the next five years companies will spend $112 billion cumulatively on cloud-based solutions, the road to SMB adoption has been bumpy.

SAP, for example, recently acknowledged that poor downstream value-added meant that over the past three years adoption rates of its internet-enabled offering ran barely 1% of target. IBM is finding that barely 20% of its partners are driving meaningful results in their local markets.

In the end, better results for all technology providers and their distribution partners will take detailed, customer-based understanding of the market combined with disciplined execution in the heart of the channel system – in other words, the what and the how.

Microsoft Escalates Vertical Integration Wars

The WSJ reported today that Microsoft has decided to enter the rapidly escalating battle over how the consumer electronics market space is being fundamentally restructured (Microsoft Seeks to Take a Bite Out of Apple With New Stores).

Unlike Gateway's anemic efforts at forward integration into retail (1997-2004), I anticipate Microsoft's moves, along with those of other leading players, will dramatically reshape the landscape. Those moves include Best Buy's backward integration in private label (see: In Hard Times, Is Best Buy’s Best Good Enough? ), Wal-Mart's and wireless service reseller Tracfone's entry into mass market electronics (see: Wal-Mart Wireless Expands), Samsung's designs on the content and apps end of digital retail (see: Samsung Seeks Some iPhone Magic ) and Amazon's rabid appetite to dominate the conventional 'click and buy' internet merchant space (see: Can Amazon Be the Wal-Mart of the Web?).

But back to Microsoft's forward integration into consumer electronics retailing: here's the bottom line perspective from the company:

"Our customers have told us they want more choice, more value and better service, and that's what we'll deliver through our Microsoft Stores" David Porter, corporate vice president . Microsoft retail stores, WSJ, 10/15/09

This is only the latest entry of another major player in what is shaping up to be a battle of the titans. Noisy dithering by wall street analysts, journalists, and other pundits over who's making the most aggressive price reductions, who's sourcing smartest, who's ramping up their M&A engines for greater scale and efficiency, and who's "getting the value message from consumer" is simply obscuring a more fundamental and ultimately dramatic business model restructuting hidden in plain sight.

So, buckle up - it's going to become a (much) bumpier ride competing in the consumer electronics space! (due credit to Bette)

New Stand

Have you taken a look at Fast Flip?It’s Google’s experimental newsstand, displaying articles and magazine covers in a pictorial design format that lets your eye gravitate toward front-page layouts you instantly recognize and to photos or other images that appeal subliminally to you. Read a bit at Google, then click through in a two-step process to a blowup extract in Google, with accompanying ads, then if desired click to the full story at the site of, say, Cosmopolitan or the Washington Post. (The media keep 100% of revenue from their own ads; Google further chips in most of the revenue from its ads.)

I like it. It’s fun to browse, if not quite like glancing at tabloids on Broadway. I hope it will pull old-line media like my cherished New York Times through their internet-driven financial woes to give us all the news that’s fit to print along with my Sunday morning coffee. We’ll see.

Big partners, like the Times’s digital chief Martin S. Nisenholtz, are “participating” but also “concerned.” Fast Flip could be the lifeline that fatally disintermediates. Right now, Fast Flip front-ends to forty publications, all of them major players in their content areas.

Whatever their contractual terms with Google, these first-in partners have begun with de facto exclusives, or near-exclusives. Should Google keep the newsstand small or open it to all comers? Should it offer publishers a spot along a sliding scale of exclusivity, presumably at a cost? Preferential shelf space is more than a pricing question. It’s a relationship issue. The best answer is by no means clear, yet but finding it will be crucial.

RE: The Fakebook Generation

Me thinks Alice Mathias doth protest too much (“The Fakebook Generation”, NYT, OpEd, Oct. 6). After stripping away all the requisite “old folks don’t get Facebook” façade, what Alice really lays bare is the oft-commented on phenomenon of the coddled generation’s struggle for identity and connection.

Her argument about the dangers of Facebook users being able to see who’s been visiting their profiles is essentially this: we like to be lovingly fawned over and observed on our own personal performance stage, but are terrified that anyone might find out how much we crave relationships. Alice asserts in closing that Facebook is a form of escapism for young people. Yet the deep insecurity exposed by her own arguments suggest that for young people, Facebook is really about searching.

Perhaps what makes Alice most uncomfortable, is that the grown ups are making more public just how serious social networking is to young people like her.

RE: "Hail to the Twitterer"

In response to: “Hail to the Twitterer” (NYT; August 3, 2008).

A candidate’s mastery of new digital technology should be of less concern than the level of intellectual curiosity they exhibit about how the world is changing.

Just as engaged parents need not experiment with drugs or anorexia or unsafe anonymous sex in order to help their children navigate to maturity, I could care less whether John McCain blogs or blathers online. What we should pay attention to, however, is a senior leader’s intellectual curiosity and engagement with the world around us.

And technology continues to profoundly affect our world and our country in ways both hopeful and despairing. From international criminals like Al Qaida building effective global organizations on the back of digital networking, to gaming systems that let twelve year olds in Enid, Oklahoma play live with teens in Vietnam, it’s alarming that a major candidate like McCain continues to exhibit the digital equivalent of a blank stare.

The long-ago dust-up around George H.W. Bush’s odd delight in the wonders of scanning technology was not that he had never used a scanner. It was that he really didn’t understand the world around him.