Open or closed: That is the question

Over the past few months, we’ve been hearing a lot about the death of closed distribution.

A closed distribution model means that VARs are forced to choose an exclusive distribution partner – typically for a specified period of time – for specific enterprise products. Typically distributors offer low-end commodity products through open distribution, while higher-end products may go through closed distribution – the argument being that closed distribution provides higher margins to those VARs.

But it also locks them into a contract, limiting their options to do business with other distributors.

And a lot of VARs aren’t too happy with that, since they feel disties should have to play by the same rules that VARs have to play by when selling to their enterprise customers.

Symantec is the latest vendor to move away from closed distribution – it just dropped Arrow as an exclusive distributor for some of its higher-end products and moved over to an open model. Other distie partners include Avnet, Ingram Micro, and Synnex. Already, Synnex has reported that revenue from Symantec has more than doubled since April – which clearly shows a positive reaction from VARs to this transition.

The argument against open distribution for high-end products, however, is that it could force distributors to compete on pricing – which isn’t generally the best approach for value-added solutions.

But this doesn’t have to be the case. Aside from bringing in more revenue from Symantec, Synnex is also investing in more technical resources to help VARs get into Symantec’s higher-end products – so Synnex is clearly not competing on price alone. Ingram, for its part, has a fleet of dedicated Symantec licensing specialists on staff, so price here is not the distinguishing factor either.

Interestingly, closed distribution tends to be a North American phenomena (in Europe, all distribution must go through an open model). But we may not exactly see the death of closed distribution just yet. Instead, what we’re seeing is vendors offering different distribution models for different product lines in more of a hybrid model.

Open distribution puts pressure on distributors to keep their VARs happy or lose them to a competitor. It also gives VARs incentive to shop around for the best price, and that isn’t necessarily going to make all disties happy.

For resellers, though, it’s a sweet deal. Distributors are going to have to work harder to keep their business if they don’t have exclusive one-year contracts.

But will distributors have the same incentive to provide all of that extra value if they don’t have exclusive contracts? It’s not as black and white as it may appear, but a shift is happening – and one that will no doubt affect the relationship between vendors, distributors and VARs (and margins).

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Jim Love, Chief Content Officer, IT World Canada

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Vawn Himmelsbach
Vawn Himmelsbach
Is a Toronto-based journalist and regular contributor to IT World Canada's publications.

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