Potential Hyperscaler Headwinds

A bit about the industry

As someone who works in this space, I thought I’d leave some food for thought on changes that may impact all technology distributers (or 'disties' as they're called in the industry).

Disties such as Dicker act as an intermediary between technology resellers and IP owners / technology manufacturers. They transact with major retailers such as JB-HIFI who provide a B2C and B2B motion; and resellers such as SoftwareOne, NTT, Insight and D#3 who primarily support a B2B motion.

If a business goes to their reseller to buy some Adobe or Citrix licenses, or perhaps some laptops etc, the reseller then goes to a distie to buy the IP (software licence / subscription) or technology. Sometimes the reseller goes direct to the IP owner / technology manufacturer, but this is dictated by the IP owner / technology manufacturers GTM strategy. 

One of the main reasons why IP owners / manufacturers may want to use disties and resellers is to get better and quicker access to the market without having to heavily invest in local sales operations.  

There are numerous other disties in Australia but some of the major ones include: Aquion, Ingram Micro, Nextgen and Tech Data.

Potential Headwinds – Hyperscaler Disruption

For B2B software transactions the market has long been used to a model supported by a small number of resellers who deal directly with software publishers or via disties. The customer is forced to buy from a reseller if they want access to enterprise agreements and volume discounts for large purchases, or access to charity / educational discounts and so forth.

Hyperscaler marketplaces may disrupt this motion. Hyperscalers are the big cloud suppliers such as Amazon (with Amazon Web Services or AWS) and Microsoft (with Azure). Both these companies have launched their own online marketplaces which sell subscriptions to applications that are designed to run on the platforms that Amazon / Microsoft host. 

The marketplaces however can also support technology transactions – and just think about it, Amazon is a world leader in provide e-commerce experience excellence. What Amazon and Microsoft are doing is engaging with other IP owners to get them to sell their software as a subscription through their marketplaces (i.e., they’re becoming disties). They can pit the IP owners against each other to drive adoption – e.g., if NitroPDF are onboarded to Amazon’s marketplace, it motivates Adobe to get onboarded too.

What Amazon and Microsoft do is sell multi-year pre-commit agreements that are heavily discounted e.g., pay $5m up front to get $6m credit over 3 years. This is offered on a ’use it or lose it basis’. This pool of funds can be spent on both cloud services provided by the hyperscaler as well as subscriptions available on the marketplace. This means that if a business is mid-way through their agreement term and they are tracking under the spend forecast e.g. it looks like they won’t spend that $6m, they could look to spend that money on subscriptions from other providers through the marketplace, to ensure that they don’t waste their pre-pay. This then could take money away from the distie.

It's very early days on this front and it’s difficult at this stage to assess the magnitude of this risk and what it will mean for companies like Dicker, but as software publishers continue to move to SaaS models and start to transition away from using disties and resellers, companies like Dicker will be impacted.

Into the future

The good news is that distributing software is only a portion of Dicker’s business and this potential headwind does not appear to be particularly disruptive at this stage. One of the reasons that disties and resellers exist is that like good travel agents, they advocate on behalf of the customer to get the best technology solution for the best price. So many companies will still want to continue to work with resellers and the disties because it minimises the number of vendor relationships that procurement teams need to manage and it provides customers peace of mind that they have a partner advocating for them both in terms of technology fit and hunting discounts. Oh, and don’t forget that cost savings is a procurement KPI and can mean the difference between going on that holiday or not when it comes to bonus time. So it’s important to not understate the power that resellers and disties have here when they’ve been able to demonstrate a strong track record of delivering cost savings to their customer’s procurement counterparts.

For this reason, we may even see a blended model emerge where disties and / or resellers clip the ticket or receive rebates on transactions through the hyperscalers where they have been supporting the presales process on behalf of the IP owner.

It will be interesting to see how the hyperscaler marketplaces start to disrupt these traditional technology supply chain motions.

I’ll be sure to provide further updates as I learn more and would be glad to share my experience if there are any questions people may have about how these businesses operate.

Disclosure: I hold Dicker in RL and on Strawman

*Edited due to some typos