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By | Tim Worstall 17th December 2013 11:04

Resellers, distributors - your countdown to oblivion starts NOW

A little economics, a little evolutionary biology, and you're toast

Whither the channel when it's all in the cloud? Whence the box-shifter when no one actually buys PCs any more? The answer is, of course, that once a particular business model has no more business then that business model ends.

It is, however, possible to look at this in rather more sophisticated terms.

The most obvious, since we're talking about business, is through the lens of economics. And to the economist the ability to make a profit means that whoever is making that profit must, by definition, be adding value. The reverse isn't quite true, it's not always the case that adding value will lead to profit but it's still a good indication.

So for those in the channel at present the question is, well, is it possible to identify the value that is being added? The answer will be different from different parts of the channel.

For a simple box-shifting distie it's difficult to see what the value added is beyond the basic logistics of the process. Someone does indeed need to get the boxes to where they're wanted and perhaps a specialist will be preferred over and above DHL or UPS. But that is the comparator: hefting PCs around the country doesn't require much more skill than they have so margins are going to be like theirs too.

For the distributor with a wide range of equipment and spares and repairs, well, if people will indeed pay for the just in time delivery then there's a margin to be made there. But for both the competition is only a click or two away on Amazon, and so margins are going to be squeezed yet again.

For those providing an actual solution to a problem it will be rather different: as it will also be depending upon which solution is being offered. Basic networking is now simple enough that no one's going to be making a living at it but those who really are adding value in the eyes of the consumer will be able to carry on.

I have in mind a company I did some work for 25 years ago. Their software was for building companies, telling them the price of concrete wherever they are. The actual PC it ran on was sold as part of the package but that wasn't the value-add.

Value-add... sometimes it's all about knowledge

That was in the database of knowing where all the concrete-mixing plants around the country were, what each of them was charging at any time and the transport costs to the customer site. They might move into the cloud, or might be an internet service now, but the basic solution itself is still adding value for the users.

If in the world where people get their tablets from the phone shop, their PCs off Amazon and the software out of the cloud, if in that world you can still add value then there's a good chance of survival. But no value added and there's no place in that ecosystem for a business.

Which brings us to the second way we can view this, from the evolution point of view.

It's often described as the survival of the fittest but that's not really quite right. For it is the environment itself that does the selecting. You can be the fittest cheetah on the planet but you're not going to survive in a swamp as one.

We can see the channel environment changing around us and the question is, well, where's my niche? To continue with the big cats, if I'm just great at running things down on the plain now there's a forest here, can I learn how to climb trees?

Or, to slightly change the analogy (and we can leave aside the question of whether the channel is a symbiote or a parasite), who is it that needs things done and can I actually do those things? What is the gap left in the interstices between the big guys? Perhaps I can't make money flogging Adobe licences to people now it's all on subscription but what about training? Possibly even a training school for would-be designers?

The exact details of all of these things you will know better than I of course. But the general idea should be obvious: as the business environment changes then so too will the things that small businesses have to do to survive. And the one heartening tale from this evolution analogy is that small businesses are very much like those small mammals who took over after the dinosaurs. Small, nimble and able to exploit evolutionary or business niches a great deal faster than any remaining reptiles.

Peak support services?

There is one further pressure and that's best explained by an analogy with the car industry. The point is that all computing is simply getting so much more reliable. An early car needed almost as many people to run it as a coach and horses did. This ratio of labour to travel improved, certainly, but the expansion of the car fleet after WWI meant that the employment of those necessary to keep said fleet on the road continually expanded. Even by the '50s or '60s cars were still sufficiently unreliable, in need of repairs and tuning and handholding, that the increase in numbers of cars to one per family still led to a growth in the number of mechanics and garages and so on.

But we can see quite clearly that while car ownership per head has continued to grow in these recent decades the size of that support ecosystem has not. We very definitely have fewer filling stations than we did, for example.

And I would maintain that something akin to that is happening in computing. Yes, the population of computers is still expanding rapidly (not least that computer that is a smartphone) but that doesn't mean that the population of people to service those computers is going to expand. Indeed, I think we're at, or have passed, the peak level of the support industry.

Which leaves us with three points: the first being that the industry as a whole is going to be shrinking, the support and channel industry that is, despite the overall expansion of the computing market.

The second is the blindingly obvious point that those who survive in it are going to be those who are adding value. Value-add is why people will pay you and profit is that portion of value add that you're able to appropriate.

And the third is that in a changing environment it's necessary to find that new ecological or business niche where you can sustainably and in a protected manner add that value.

Sadly, it doesn't matter how good you were in the old environment for this survival of the fittest is all about the new environment doing the selecting. ®

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