VAD-Distribution in the Era of Digital Transformation

The main thing about digital transformation that is rather popular today is not just digitization, but an associated substantial business transformation with participation of multiple companies of different profile.
15 september 2017
Media: PC Week/RE
Author: Sergey Svinarev

PC Week/RE

In the opening speech at the first conference of MERLION IT Solutions Summit, Alexey Abramov, MERLION’s Chairman of Board expressed his hope that the format of the event would best suit the company's strategy to develop Value Added Distribution, VAD. The main thing about digital transformation that is rather popular today is not just digitization, but an associated substantial business transformation with participation of multiple companies of different profile: distributors, system integrators, cloud service providers, consultants, etc. All these specialists and leading IT market analysts took part in this forum. According to Yuliya Pechnikova, Director of the MERLION’s department of VAD business development, over 1,000 participants were registered at the conference, including 200 specialists from 52 vendor companies, over 500 MERLION’s partners and over 100 company’s customers. The summit program, along with concept presentations, included target-oriented sessions to cover infrastructure solutions, engineering systems, network equipment, cloud infrastructure and services, and solutions for SMB.

What is the reason for high demand for VAD distribution? If we summarize experts' opinions announced at the conference, there are two main reasons for this demand: sophistication and diversification of IT architecture and demand for digital transformation from businesses.

Elena Semenovskaya, Research Director for IDC Russia/CIS touched upon the so-called Third Platform. This IT platform being formed today includes, along with traditional corporate cloud systems, mobile technologies, social networks, big data, Internet of things, etc. The platform features an evident distribution formation covering the internal infrastructure of an enterprise, clouds, edges and terminal equipment which are getting smarter.
According to Peter King, Sales Director in Central and Eastern Europe, Microsoft, ten leading industries spent $115 bln last year (including $32 bln in financial service sector, $20 bln in state sector and $19 bln in telecommunications and innovative production). In 2019, these expenses will reach $200–240 bln. It is clear that in order to build such sophisticated infrastructures, system integrators shall not only have the required qualification, but also constantly expand their expertise. In new conditions, distributors shall meet similar requirements.

Speaking of businesses’ requirements, Diego Segre, Vice-President, IBM Global Business Partner stated that due to the existing “digital Darwinism”, we should implement digital transformation as fast as possible: if a goods/services supplier fails to adapt to requirements of customers who have already estimated benefits offered by a new digital world, he may be quickly driven out of business by competitors.

According to Elena Semenovskaya, IT platforms often become capital assets of one or another enterprise as the major players such as Alibaba and AWS in foreign countries or Sberbank, Rostelecom, EuroChem and Russian Railways (RZD) in our country begin to develop their own digital platforms, which will allow to interact with multiple partners, create ecosystems and to quickly implement innovative business models through open API interfaces.

Roman Gilg, Channel Sales Manager for HPE Europe made a self-critical statement that all vendors gave their own predictions for development of the industry for 5–10 years, but such predictions would never become real to the full extent. Nonetheless, Mr. Gilg highlighted three trends, which, in his opinion, would keep their effect in the foreseeable future: despite a fast development of public clouds, the IT world would remain hybrid while the intellectualization of devices located on the network edge would boost the development of IoT, and, eventually multiple IT services would become more important.

Philippe Fosse, Dell EMC Vice-President for Partner Business highlighted main attributes of digital transformation being in progress: corporate IT specialists work in hybrid environments that combine cloud and on-premise components while cloud IaaS, PaaS and SaaS services and mobile communications become more popular; components of the Internet of things are likely to be included in the corporate IT infrastructure. Now, customers are not focused on routine procurement of equipment and software, but demand that distributor partners shall implement special-purpose ready-made solutions. Moreover, a partner brand is more important for them than vendors’ brands.

Elena Semenovskaya announced IDC data, which proved that cloud technologies became popular in our country: According to estimates, in 2016 the consuming capacity of cloud services was increased by 20 % while in the private cloud off-premise segment (actually, private cloud services deployed on the infrastructure of a public provider) this capacity grew faster. Despite the fact that leading positions in the national cloud service market are held by foreign companies, a “relevant” location of the provider infrastructure is more important for obvious reasons. To deploy such an infrastructure in our country, global suppliers more often enter partnership with local market players and offer some or other localized solutions for Russia. In whole, the world market of infrastructure products (servers, DSS and network equipment) more often prefers cloud technologies: in 2016, 37 % of the relevant equipment market were intended for supplies to cloud DPCs; by 2020 this figure is likely to reach 50 %. According to IDC estimates, in 2021 cloud service providers will put into service IT- solutions, the amount of which is 2.5 times higher than enterprises have at their own sites.

MERLION expands its expertise by training its personnel and by purchasing promising niche players. For example, MERLION have recently purchased DSCon specializing in distribution of software and hardware solutions for building and modernization of DPCs and network infrastructure, as well as RentSoft, a distributor of cloud software services, and Velvica, a developer of the technological platform for such distribution.

According to Mikhail Pismennyi, Director of RentSoft, the software subscription model has unchallengeable advantages over the traditional purchasing of licensees. A customer has options to transform capital costs into operating ones, reduce actual load on the company’s budget, unsubscribe and choose the other product at any time. Such a service becomes very popular, and now RentSoft is cooperating with 250 partners, who resell the software subscription through the Velvica platform. According to Mikhail Pismennyi, his company controls over 30 % of Russian software subscription market in the B2C segment. End users will benefit from considerably simplified software-metering and audit procedures and may receive financial documents with calculations expressed in rubles to fully meet requirements of Russian laws. Using this service, customers buy 300 thousand subscriptions per month through RentSoft. The company’s profit is based on distributor discounts and optional services as partners may form package proposals, including subscription for a few software products and purchase of traditional licensees or may apply cross-selling. Sometimes a partner implementing a large-scale multi-purpose project does not require any customer’s payments for software subscription, including relevant support expenses.

Another trend that becomes popular and sets up strict requirements for partners is the artificial intelligence (A.I.). According to Peter King, as early as 2018 50 % of all applications under development will include A.I. functions. The economic effect based on the application of A.I. only at U.S. companies will reach $60 bln by 2020. According to Diego Segre, though IBM offers its own platform Watson for cognitive technologies, they need qualified partners to implement actual projects based on this platform.

We shall remember that along its advantages, digital transformation may cause certain risks. Today, some companies use so-called bimodal model for development of their IT. This model allows to separate innovative developments from routine operation. Elena Semenovskaya warned such companies: they may face the risk of so-called Technical Debt that occurs due to very aggressive development of innovative trends and may undermine the entire program of digital transformation.