Bechtle AG is a German IT services business that sells products and services from technology manufacturers such as Microsoft or Autodesk. Beneath the surface, there are thousands of ‘value-added’ partners or resellers that effectively act as the enterprise fulfilment arm of technology OEM’s. In Germany, there are 84,000 such businesses with under 1m EUR annual revenue and only 190 companies that generate over 50m EUR per year. Bechtle is the leading German IT services player with 3.3bn EUR revenue and 3% market share.
Just as Watsco sells Carrier HVAC units or Pool sells Pentair pumps, Bechtle sells Microsoft 365 licenses to small and medium enterprises across Germany. One of the big risks for all value-added distributors is disintermediation. Why can’t the OEM just go direct to customers and capture the distributor’s margin? This is even more of a risk for distributors like Bechtle that are selling intangible products and services. Also, the transition of IT spend to the cloud increases the risk of disintermediation for two main reasons:
Technology companies like Microsoft now have greater direct access to end-user data which gives them more control over the value chain. IT resellers used to have the only major direct contact with end users and would relay insight and data about how the customer was using the product to the OEM for the designers to improve the product experience. Now the OEM’s get the data directly from the end-users usage patterns.
Product lifecycles are also much shorter. Products evolve much quicker which means resellers need to continually train and stay up to speed with new products entering the market so they can fit any solution into their customers’ tech stack.
As IT spend shifts to the cloud, OEM’s increase their bargaining power throughout the value chain. This has put pressure on reseller margins:
In the early days, the reseller model was quite simple in that you received a margin from everything you sold. If you sold high volumes, you could negotiate back-end margins where the total volume over the year could give you an extra kick back. In 2008 we moved from a product and service to a service only house, and cloud has lower margins. The model changed from a selling fee to a use or activation fee. Over a short period of time, I saw the falling margins on selling fees and the resellers who had built their business model on these reselling fees had a tough time.
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