Not long ago a couple of executives from Ingram Micro’s global headquarters spoke at a technology conference for financial analysts hosted by investment firm UBS in New York City. During the presentation, which I heard via audiocast, one of the executives tried to explain to the audience what the channel was, how a distributor works, and what Ingram’s particular strengths are.
“It’s our broad product line that really adds a bit more to the mix,” she said (I didn’t hear her name). “We have hundreds of thousands of individual products. The biggest chunk is peripherals. It’s half of our business – monitors, printers, even those point of sale systems you see at the retail checkout.”
That’s when it hit me: Ingram and broadline distributors like them are capitalizing on the whole Long Tail thing.
If you haven’t already heard this term, the Long Tail is the title of a book by Wired editor Chris Anderson, and it’s been around long enough now that I think it’s fair to say it’s less than a business fad than an increasingly accurate description of a paradigm shift.
According to Anderson, businesses have traditionally focused on selling a few really popular products in as large a volume as possible. PCs, obviously, were the big hit that made distributors, and therefore resellers, successful. The Internet, however, is changing that.
The reason Amazon, iTunes and other online merchants have prospered is because their distribution channel – the Internet – allows them to satisfy a lot of specialized markets. In other words, they can sell small volumes of hard-to-find items to a handful of individuals that want them fairly cheaply and easily. The result is low inventory and high profit. On a graph, the “long tail” is the line that stays close to the bottom but stretches out almost infinitely.
This is not the way the channel has traditionally been geared to work. Originally resellers and distributors were focused on high volumes and enjoyed high margins. Although even Ingram would admit those margins have shrank considerably, there’s an expectation that they can continue to focus on high volumes. And no wonder: the Long Tail, in some ways, is counter-intuitive. It’s weird math.
Distributors might actually thrive in the Long Tail economy if they can stock such a wide variety of products that they can give even the smallest, most vertically-oriented VAR an item they need, whether it’s a specialized keyboard or a custom-configured PC (are you listening, white box makers?).
Similarly, resellers need not only to develop value-added services around their products but to cater to customers in a more one-on-one basis. This can be harder than pushing something like the iPod at every consumer, but providing they can effectively use the Internet as a marketing and sales tool and so long as distributors don’t gauge them, there’s never been a better time to stay niche.
The current financial crisis is forcing everyone to think hard about their long term strategy. VARs should also be thinking hard about their Long Tail strategy.