The EMEA ICT Channel Landscape

By Jack Mandard – CEO compuBase

Channel Marketing Managers Challenges….

What are the general trends of our business Is the EMEA distribution manageable as a unique

territory or not? What are the key countries? How to address a small country? Are channel organized the same way everywhere? How many partners? How many tiers?

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An Enlarged Target Market

1970 1980 1990 2000 2010

Users

CentralisedSystems

Clientserver

Web

Mobile

1

x10

x100

x1000

x10000

2020

• One Server per entreprise, many computers

• One computer, many terminals

• Many Servers, Home computing

• Server Clustering, Mobiles

Machine to Machine

• Server, communicating objects…

An Increasingly Wider Spectrum

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One, two, three tier Channel Model

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Directly addressed by vendor’s channel sales

team

Animated by vendor’s marketing team but

managed by distributors

Influenced by advertising and demand, addressed by

regional distributors or larger resellers

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A complex distribution

Massmarket

MassMarket

ITSpecialist

Home Digital

Specialist

Integrators• IT• Telecoms• Solutions

e-tailer@

DirectSales

ICTSpecialist

ForEnterprise

Distributor Retail

SpecialistOr

Directly managed

Distributorbroadliner

RegionalDistributors

Master VARs-

VAD

SolutionEntreprisecommoditiesSoho - Retail

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Importance of Services to Resellers

Total Revenue

Margincontribution

With a 12% margin on resale

Source of Net Margin

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Market impact

• B to B Resale activities as an additional service not a core business.

• More and more IT partners consider themselves to be IT experts who should rather integrate technology value (future ROI) within the business environment than focus on resale.

• Their TCS (Total Cost to Sell) as a key issue to monitor.

• Vendors' capacity to offer additional services as a Key Factor of Success in a commercial relationship.

• Number of ICT & CE partners will continue to grow• To address the full market IT Distribution will address

more and more channel of sales.

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The largest worldwide Indirect Channel Landscape.

> 350,000 ICT partners – 80 countries> 25,000 vendors (Manufacturers & Software Publishers)

> 5,000 distributors

• ICT market: IT, Telecoms and CE products

For the largest market in value / partners

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• Numbers about Europe vs. …

2007 WW Europe US ROW€ Millions Value % Value % Value %

All IT 1

vs. 2004

961,899+14.6 %

339,836+13.5 %

35.33% 355,961+14.8 %

37.0% 266,102+13.7%

27.67%

Telecoms 1

vs. 2004

1,141,160+11.2%

361,319+7.2%

31.66% 233,369+8,4%

20.45% 546,470+15.3%

47.89%

ICT1 2,103,059 701,155 33.34% 589,330 28.02% 812,573 38.63 %

# ICT Partners 2

870,000 305,000 180,000 385,000

1 Source EITO - 2 Source compuBase / CRN US

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History of ICT Indirect Distribution …

1. A vendor has a good new product, very expensive and targeting large accounts.

2. The product is a success, the vendor develops its sales team.3. A new market is born, the vendor receives overseas requests for distribution.

Overseas market specificities and size push them to use exclusive and non exclusive distributors.

4. The vendor develops its own channel with dedicated agents.5. Overseas distributors lack the financial structure to market the product, they

work with resellers.6. Locally the vendor swaps from a strict direct model to a one-tier model, usually

dedicated to the brand.7. Competition gets stronger, new product lines are launched, the offer gets

broader. Competitors try to speed up using indirect channel.8. Export activities are stronger and stronger based on a successful one/two-tier

model. Locally, competition on price is now heavy, the vendor reduces its direct sales activities and moves locally to the same distribution model as export.

9. The vendor and his competitors try to enlarge their market using new distributors to gain new markets.

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Differences between US and Europe Indirect Markets

Facts: Most OEM Manufacturers located in US or Asia. Most vendors have initially developed an indirect channel in

Europe or EMEA before developing locally. EMEA is an extremely fragmented market, 80 countries, 50

languages.

Consequences: ICT indirect distribution in EMEA is older than Asia or US. Nowhere is the number of partners/number of inhabitants ratio

higher than in EMEA. Marketing & Distribution costs are higher in EMEA than in US. Business Growth rates and market value are not homogeneous.

EMEA Channel Market

Distributors

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Distributors

Broadliner… VAD… MasterVar… MasterReseller….

More than 5,000 Distributors EMEA !

General wholesalers

31%Specialist IT wholesalers

69%

Type of distributors

0 100 200 300 400 500 600 700 800 900

Wholesaler specialising in video gamesSpecialised in office products

Workstation specialistsWholesaler specialised in mobile products

System specialistsAccessories specialists

Software specialistsSpecialists in electronic components

Consumables specialists ...Specialists in telecom and network products

Peripherals specialists ...

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Hardware vendors & Channel…

53% of vendors are using indirect ChannelSell direct

47%Sell

indirect53%

Hardware Vendors

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Hardware vendors & Distributors

43% of all vendors are using distributors

80 % of vendors using a channel have also a distributor

Do not sell through

Distributor57%

Sell with Distributors

43%

Hardware Vendors

Sell only directly to resselers

20%

Sell with Distributors

80%

Hardware Vendors using a channel

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Software Publishers & Channel…

Only 21% of software vendors are using an indirect channel and only 4% a distributor….!

Sell direct79%

Sell indirect

21%

Software Publishers

Do not sell through

Distributor96%

Sell with Distributors

4%

Software Publishers

EMEA Channel Market

IT & Telecoms Partner

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Africa: 19,000 ICT partners

Middle East

11,500 ICT partners

Europe 305,000

ICT partners

• An ICT partner is a company generating a majority of its business in IT & Telecoms or more than 300 K€ / year

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Northern Europe: 55,000 ICT partners

Western Europe: 119,000

ICT partners

Eastern Europe:

45,000 ICT partners

Southern Europe:

78,000 ICT partners

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  Major Differences Between Distribution in the Big 5 and in the Rest of EMEA

Big 5 : Multiple strong broadliners A few very big VAD (often bought by broadliners..) Many specialist distributors A three-tier distribution system A lot of specialized IT partners

Rest of Europe One strong broadliner A few specialist distributors A two-tier distribution system Many Vars (The « we can do it also » resellers… )

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  Major Differences Between Distribution in the Big 5 and in the Rest of EMEA

Other EMEA large countries One strong local broadliner Few specialist distributors A great number or master Var or Master Reseller A two-tier distribution system A lot of Vars

Other EMEA small countries Overseas distributors Few strong Master Resellers or Master Vars who play the

distributor role. IT dealers not specialized

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How Many ICT Partners?

Europe

Pure IT150,000

• The Top 5 countries represent70% of IT market value

• Other EU 20%• Other Western non EU 6%• Eastern represents 4%

• 80% of locations are HQ

IT + Telecoms + CE= 305,000

IT + Telecoms= 250,000

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Where is the Growth?

Top 3Other

Western

Northern

Europe

Southern

Europe

Emerging markets

IT Resale

IT Service

Software

Telecoms

Home Digital

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Business changes

The companies declaring resale as a main activity, represents only 34% of the locations and are growing again thanks to CE products

The companies declaring Services as main activity, represents more than 40% of the locations and are increasing, but specialisation is decreasing.

Main business Model (variation of weight in the industry, number of location) 2005 2006 2007 Var 05/07 Vol 2005 Vol 2006 Vol 2007Manufacturer 7% 6% 6% -6% 6495 6772 6783Software publisher 5% 5% 5% -7% 4909 5072 5104Publisher of software for a specific activity 6% 5% 5% -6% 5517 5759 5788Publisher of software for a specific process of companies 4% 4% 4% -1% 3642 3876 4034Software solutions integrator (developed by third parties) 3% 2% 2% -30% 2688 2279 2113IT services, Software development (hosting, maintenance, training, bespoke software development....)29% 29% 31% 7% 27990 30741 33367Telecom services (Telecom operator, ISP...) 3% 3% 3% -9% 3296 3301 3362Telecom & network infrastructure integrator 2% 2% 2% -2% 2210 2422 2415IT infrastructure integrator 2% 2% 2% -15% 2071 2137 1962Consulting 4% 4% 4% -14% 4361 4373 4189Reselling to individuals 11% 12% 12% 5% 10900 12745 12780Reselling to enterprises (hardware, software & services & assemblers) 16% 17% 17% 11% 15326 17999 18936Wholesaler (resale of IT and Telecom products to resellers) 5% 4% 4% -12% 4463 4456 4385Large Assembling company 0% 0% 0% -36% 206 167 146Other IT and Telecom connected activities 3% 3% 3% -12% 3360 3336 3291Total 100% 100% 100% 0% 97434 105435 108655

Changes are important

Over the last 5 years 29379 ICT companies have disapeared - nearly 30 % of existing companies of 2002

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71%

0%2%

19%

8%

29%

Still in activity

Hardware Manufacturer

Software publisher ...

Services ...

IT & Telecom resale

Changes are important

Hopefully, we have detected 32 245 new companies

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• Software business suffers from concentration and the challenge to go to Indirect. • Non Specialist IT Services still up.• Resale to end user is growing fast thanks to CE products.

New companies since 2002 Vol WieghtVar vs Business

WeightManufacturer 1243 4% -39%Software publisher 1300 4% -15%Publisher of software for a specific activity 944 3% -46%Publisher of software for a specific process of companies 823 3% -32%Software solutions integrator (developed by third parties) 492 2% -23%IT services, Software development (hosting, maintenance, training, bespoke software development....)11319 35% 13%Telecom services (Telecom operator, ISP...) 665 2% -34%Telecom & network infrastructure integrator 737 2% 1%IT infrastructure integrator 585 2% -1%Consulting 1370 4% 9%Reselling to individuals 4731 14% 23%Reselling to enterprises (hardware, software & services & assemblers) 6146 19% 8%Wholesaler (resale of IT and Telecom products to resellers) 1144 3% -13%Large Assembling company 39 0% -11%Other IT and Telecom connected activities 961 3% -3%Main activity non qualified 206 1% nsTotal 32705 100%

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Germany

Concentration in process. Business back on track No centralised business but

stronger importance to the western part.

A door to Eastern countries. A door to Austria and

Switzerland. Strong mid size ecosystem. Around 46 000 IT & Telecoms

partner. 21 000 available at compuBase.

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France

Concentration in process Business centralised around

Paris for HQ Growing importance of the

other regions especially western region.

A door to South Europe, Magheb and West Africa.

Around 35 000 IT & Telecoms partner.

23 000 available at compuBase.

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Italy

Largest granularity in business Strong IT business in the north,

very weak under Roma. Very small companies and SMB

oriented Not concentrated Isolated in Europe At least 38 000 partners. 10 000 available at

compuBase.

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Spain

Strong granularity in business. Two main poles of activity:

Madrid and Barcelona. Small companies. Dynamic market open to

abroad. A door to South America and

Morocco. Many HQ for Portugal joined to

Spanish HQ. At least 27 000 partners. 8 000 available at compuBase.

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BeNeLux

High density of companies. 2 languages Small companies. Dynamic market open to

abroad. Brussells getting stronger

thanks to EEC. Around 22 000 partners. 8 000 available at compuBase.

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Austria and Switzerland

Switzerland.• 3 languages.• Strong IT & Telco business.• Small companies.• Some European Financial HQ.• More than 6 000 ICT companies. • 2 100 available at compuBase.

Austria• A door to Eastern countries.• Weaker than CH.• Around 4 000 ICT companies.• 2 000 available at compuBase.

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Nordic Countries

Medium and Small companies.

Dynamic telecom market.

Around 25 000 partners.

12 000 available at compuBase.

A door to Russia and Eastern countries.

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Africa & Middle East

30,000 ICT partners Market driven by local

Master Vars or Master Resellers

Northern and Western Africa markets addressed often by French distributors.

Southern and Central Africa markets addresed by UK or RSA distributors

Eastern Africa addressed by Middle East distributors.

Fast in Growth rate but small value Market.

7,00011,500

5,000

3,000

2,000

2,000

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Northern Africa….

Total # of partners: 7,000

A market driven by local distributors and French distributors.

Strong importance of governmental networking.

Business focused on the Mediterranean border.

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Middle East

Total # of partners: 11,500

A market driven by local

distributors and UK distributors.

Strong importance of governmental and family networking.

Business focused on the Mediterranean border and Persian Gulf.

Address also Eastern Africa

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Is the One/Two-tier Model Adapted to Emerging Countries?

Yes Vendors need local actors to understand the market and business

usages. A local distributor may address other areas in a country

No Distributors business organization is different in emerging markets

compared to well established markets.• Less point of sales in volume.• More multiple activity businesses.• Most local distributors are also resellers.• Most local resellers declared able to be a distributor.

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Conclusion

EMEA market is not a fully fragmented market, but a multiple area market covering 10 different regions.

Business management must be adapted to each region specificities.

Country size and economy have a very strong influence on IT & Telecoms distribution organization.

1 tier / 2 tier model is NOT a standard in emerging countries…

Language and colonial history usually define the natural business flow.

Addressing cultural and business issues requires local support.