10 min read

The Innovation Chronicles

The Canadian channel has seen its share of ups and downs, from the onset of the IBM PC to the direct model. We list the best and worst moments that partners have had to deal with

The IT channel arguably started with PC dealers who, over a period of time, re-invented themselves several times into what they are today.

The following is a history of the channel’s brightest and darkest moments.

Hardware

The IBM PC

The year was 1980. IBM was in hush-hush talks with Microsoft to develop a new operating system for its personal computer aimed at consumers and businesses. The deal was that Microsoft would develop the base OS and both companies would then make improvements and share the code. Microsoft went on to market MS-DOS, while IBM used PC-DOS in its own PCs. The first computer was code-named “Acorn” – but thankfully it was renamed the IBM PC. (Imagine if everyone referred to PCs as Acorns.) On August 12, 1981, IBM released its 5150 model, which came equipped with a whopping 16KB of memory, two floppy drives and a colour monitor. It was built from off-the-shelf parts using Intel chips and marketed by distributors – including Sears. This was the beginning of the PC era, as other companies jumped on the bandwagon and started making IBM-compatible clones, software and accessories.

Software

Microsoft Windows

Around the same time Michael Jackson released the hit song “Billie Jean” in 1983, Microsoft announced the development of Windows, a graphical user interface for MS-DOS. This was modelled after Apple’s Mac OS (Microsoft had partnered with Apple to create Mac software and, in return, Steve Jobs showed Bill Gates a Macintosh prototype). But unlike the Mac OS, Windows was designed to provide a GUI for IBM PCs. IBM was working on its own DOS-based multitasking program, called Top View, which was

released in 1985 without any GUI features, but that didn’t exactly take off. Before Windows, users had to type in DOS commands at the C: prompt. Windows allowed users, for the first time, to point and click their way through concurrent applications using a mouse. Microsoft shipped Windows 1.0 in November 1985. In true Microsoft style, this was a year and a half past its original release date.

Suites

Microsoft Office

Microsoft was also responsible for developing the industry’s first office products. In 1986 it introduced Microsoft Works, a home productivity suite that included a word processor and spreadsheet/database application. In 1989, the company introduced what turned out to be its most successful office product, Microsoft Office. Unlike Works, Office was a bundle of separate office productivity applications, including Microsoft Word and Microsoft Excel. It also included a re-branded version of SQL Server, which Microsoft jointly developed with Sybase for IBM’s OS/2 platform. While Works was geared toward home users and small businesses, Office had more expansive capabilities, making it ideal for corporate settings. Today, saving a file as a “Word” document is a de facto standard.

Competition

Dell’s direct model

Dell made history by selling directly to customers and cutting out the middleman, both retailers and resellers alike. Michael Dell founded the company in 1984, which was incorporated as Dell Computer Corp. three years later. There is no other vendor that has had such a direct effect (no pun intended) on the reseller channel. What became known as the “Dell model” pushed prices down, turned hardware into a commodity and squeezed reseller margins. And this forced the entire industry to change. Other vendors tried to copy Dell’s model by cutting out the channel, though none ever did this as successfully as Dell (and in subsequent years many turned back to the channel). Resellers who only pushed boxes quickly closed. Dell started selling PCs online in 1996 and made most of its products only after a customer had placed an order – which offloaded manufacturing costs onto suppliers. The company has since entered other markets, including servers, laptops and printers. In 2001, Dell became the biggest PC seller in the world, surpassing Compaq/HP.

Collapse

The tech bubble burst

Most of us can still remember the lavish parties at Comdex in Las Vegas, when it seemed like money was no object. Those were the good ol’ days of tech, filled with possibility, when a programmer working out of his basement had hopes of becoming a multi-millionaire overnight. From 1997 to 2001, dot-coms flourished. But it was also a time of hype, bad ideas and start-ups that didn’t have viable business plans. In March 2001, all the dot-com hype came crashing down. The tech bubble burst; quickly rising stock prices were simply not sustainable. Suddenly tech spending dried up. Dot-coms went bankrupt. High-wage IT workers lost their jobs. The Nasdaq fell by more than half and the tech sector suffered from a loss of consumer confidence from which it has never fully recovered. The cloud, however, had a silver lining. Investors, wary of online companies, are now making sure their investments are actually viable before dumping money into them.

Logistics

Online ordering, shipping and delivery

It’s hard to imagine a day when resellers flipped through product catalogues and placed orders over the telephone – perhaps even using a fax machine in the process. The Internet has clearly altered the way resellers do their ordering, shipping and delivery. Vendors and distributors started by displaying their wares online. Then they started offering channel partners the ability to go online and check availability, place orders, make payments and arrange for delivery. This served to dramatically cut the inventory cycle – particularly for mammoth horizontal distributors – and ultimately get the end-product to the end-user faster, with less hassle.

Alarm

Y2K

New Year’s Eve parties in 1999 were filled with apprehension, as everyone waited for the clock to strike midnight (while others hid out at home with a stockpile of food and emergency supplies). Would every computer in existence crash, leaving the world in a state of chaos? Midnight came and went in every time zone around the world and nothing happened. But Y2K changed the tech industry in a number of ways – and for the better. Software developed during the ’60 to late ’80s used two digits to represent a year rather than four digits. But then developers realized computer systems might interpret the year 2000 as 1900, which would cause all sorts of malfunctions – particularly in the finance, utilities, telecom and manufacturing sectors. Vendors came out with Y2K-compliant operating systems and everyone raced to upgrade their systems before the clock struck midnight on Jan. 1, 2000. Later, many complained about how much money they had spent becoming Y2K-compliant – all for nothing. But, as it turned out, it wasn’t for nothing. Because of Y2K, many companies had actually installed backup systems, which kept them going after events such as the Sept. 11 attacks on the World Trade Centre, the 2003 North America blackout and last year’s Hurricane Katrina.

Money

Distributor financing

Financing has often held resellers back from pursuing larger opportunities, particularly in the public sector and enterprise market. This changed when distributors started offering credit and financing options to resellers, allowing them to establish credit lines. In some cases they even offered on-site representation. By going through a distributor, resellers could take advantage of the most competitive financing programs available, which was particularly beneficial to small and mid-size resellers. This not only served to extend their cash flow, but to reduce the financial burden of extended pay cycles. And, ultimately, this levelled the playing field, allowing smaller resellers to start delivering more complex solutions and service larger contracts.

Incentives

Channel programs

At one time, channel programs were all about quotas, and how much you sold determined whether you were a Gold, Silver or Platinum partner. Clearly, this didn’t benefit the smaller reseller, nor did it recognize quality over quantity. But as margins were squeezed into almost non-existence, vendors had to look for other incentives to encourage partners to peddle their products. Now vendors are focused on selling solutions, and their channel programs reflect that. These programs help resellers extend market reach or enter new markets, deliver more complex, integrated solutions and, of course, decrease the cost of doing business. Over the past couple of years, software vendors in particular have made significant investments in partner programs to maximize technical and business value for partners, according to research from IDC.

Solutions

Selling services and building solutions

When one door closes, another opens. And from the box-pushing era of computing arose the solution sell. Hardware became a commodity and resellers could no longer make a living from product margins, so they began to focus on selling services and building integrated solutions. The technology business was no longer about selling PCs and software and networking equipment, but tying those together into an integrated, customized solution, along with service and support. In essence the days of the order-taker were gone. Not everyone was able to adapt and some resellers fell by the wayside. Others focused on vertical markets or niche technologies. Many became consultants, providing education and training to customers. There still are companies such as CDW and Insight that push product with success, but by and large this signified the death of the box-pushing era.

Pricing

PC price wars

With Dell’s direct model and cheap clones from white-box builders, pricing for desktops hit rock bottom. And PC makers felt the squeeze. Back in the early 1990s there were more than 100 PC vendors. Can you remember the DEC Rainbow PC? How about AST? Did you know that Epson made PCs? Today you can count them on your hand. The winner in the PC price war was of course price.To pick up the slack, many cut back on computer memory, according to research from Gartner, offering fewer features and installing smaller disk drives as a way to cut prices and attract customers. The price war really hit home when IBM made the rather shocking announcement that it was selling its PC business to a Chinese company called Lenovo. Back in 2001, as sales of PCs and laptops slowed to a crawl, Dell, Gateway and Compaq slashed their prices by up to 29 per cent. Intel then slashed processor prices, fuelling the war even further. A few months ago, Intel cut prices on its desktop microprocessors by more than half, right after AMD slashed its prices, causing speculation there will be another price war.

Development

The rise of storage

Storage has evolved from basic tape backup to networked solutions. It’s created a whole new vocabulary of acronyms, like SAN (storage area network) and NAS (network-attached storage). This is due in part to some other acronyms, like PIPEDA, HIPAA and Sarbanes-Oxley (which isn’t an acronym, but at least is a new word). Companies have been hit with an avalanche of regulatory compliance statutes, forcing them to back up, store and easily retrieve data. This has led to a few more acronyms: SRM (storage resource management) and ILM (information lifecycle management). These more advanced storage strategies are meant to help companies better manage their information over the course of its lifecycle.

Management

Supply chain

Distributors used to perform a pretty basic function: pick, pack and ship. Now they call themselves “integrated supply chain specialists.” Over the years, global competition put pressure on companies to reduce costs in the supply chain. Yet they also found themselves under pressure to collaborate with business partners. They wanted to reduce inventory, while increasing transaction speeds. Many started adopting Web-based supply chain management technology, which involved managing the entire process from supplier to reseller to customer. For resellers, it meant ready access to handy features such as order status information, inventory data and demand projections.

Partnership

Distributor mergers

If you blink, you might miss an acquisition. In 1979, Jim Estill created EMJ Data Systems, a specialty distributor that focused on niche products such as Apple, bar coding, point-of-sale and networking. In 2003, it doubled its size by buying the Canadian operations of DaisyTek. In 2004, broadline distributor Synnex bought EMJ. Tech Data expanded into Canada in 1989 and, in May 1999, doubled its size in the Canadian market through the acquisition of Globelle Canada. By 1993, Ingram Micro had expanded its reach around the globe through a series of acquisitions. It united its U.S. and Canadian operations to become Ingram Micro North America in 2001. With so many niche distributors out there, we can expect to see more mergers and acquisitions as horizontal players target vertical markets and technologies.

Evolution

Rise of the software reseller

As the hardware market started its inevitable decline, some resellers set their sights on software. The focus was less on pushing shrink-wrapped boxes of software and more on providing overall solutions, such as customer relationship management (CRM) and enterprise resource planning (ERP). The result has been a change in the way software is sold, using application hosting and vertical market customization, while software vendors increasingly rely on channel partners (including Microsoft, which dramatically revamped its channel strategy over the past few years). Application hosting allows companies to buy software as a service (SaaS), rather than paying for software licences and the infrastructure to run it. Now it looks like SaaS is here to stay, and is a viable business model for software resellers.

E-business

Online resellers

The e-commerce boom fuelled a new generation of online resellers – without bricks and mortar. Canadian online reseller Softchoice, for example, offers more than 280,000 different software and hardware products online. It also offers searching and product comparison tools, volume-purchasing programs and licence renewal tracking. CDW and Insight offer products and services for business, government and education markets. Each customer works with a dedicated account manager, who provides expertise in many areas. Clearly, there are cost benefits to this model, though resellers haven’t been able to survive without strong marketing skills and customer service.

Challenges

Open source

The open source movement began several decades ago with a small community of programmers who passed code back and forth, made improvements and distributed it freely over the Internet. In Finland, Linus Torvalds came up with the first version of Linux as an alternative to UNIX. During the ’90s, open source flourished. Apache became widely used as a Web server, Perl as a programming language for Web scripts and Mozilla for building Web browsers. Open source started gaining public acceptance as a viable alternative to proprietary software though it still hasn’t gained mass acceptance. IBM, Sun, Cisco, HP, Dell and Oracle have all invested in open source, and it’s making inroads on servers, desktops and mobile devices.

Trendy

Apple Macintosh

In 1976 Steve Jobs and Steve Wozniak released the Apple I computer, which was the first computer with a single circuit board. But all was not well at Apple. Jobs left after an internal power struggle and didn’t return until 1997. The first Mac didn’t sell all that well either, but later, when combined with the Apple LaserWriter printer and Mac-specific software like PageMaker, it gained more interest, particularly in desktop publishing. The ability for users to design, preview and print page layouts with text and graphics set the standard in the desktop publishing industry and remains largely entrenched there today. Microsoft and Intel started to erode Apple’s market share with Windows 95 and the Pentium chip by offering comparable features and performance at a lower cost. Apple responded by creating a clone program, which was quashed when Jobs returned. Jobs instead focused on Apple’s strength: innovation. In 1998, Apple released the iMac in trend-setting Bondi Blue, followed by the iBook and Mac OS X in 1999. The phenomenal success of the iPod has put Apple back in the spotlight.

Government

Federal procurement

Ottawa spends about $13 billion on goods and services, including IT. But in an attempt to cut some $2.5 billion over five years from its spending, Public Works has proposed an overhaul of procedures that caused an uproar this year among VARs and vendors who deal with the government. Under pressure from the industry, which created the Canadian Government IT Providers Association, the ministry has been forced to back down from its original plan for limiting the number of eligible printer vendors and creating a reverse auction process to squeeze prices. This month an association spokesman said the department has pulled the reverse auction idea off the table and has asked the industry for more input.

While this story isn’t over, it appears to be a rare example of resellers and manfacturers coming together to form a common bond.

Connectivity

LANS

Before PCs came on the scene, businesses used a single central computer to run their operations. In the late 1970s the first local area networks (LANs) started to appear, designed to connect several of these large computers at one site. But the proliferation of PCs changed everything. Suddenly, businesses had a lot of smaller computers – sometimes hundreds. Thanks to the LAN, these computers could share the same communications link, which meant users could share files or the same laser printer. The LAN began to gain mainstream acceptance. By the late ’80s and early ’90s, VARs were making good money with LANs.