May 9, 2002

RoperNOP Technology

May 9, 2002

Sizing Up the State of DistributionGlobal Technology Distribution Summit

Richard March, Senior Vice [email protected]

RoperNOP Technology

RoperNOP Technology:A global leader in turning market intelligence into action

We help marketers:

Understand B2B technology decision-makers and technology buyers in the US and globally

Build great brands, products, and services

Attract and retain customers

Improve communications effectiveness

Manage corporate reputation

Forecast IT spending and confidence levels

Richard March, Senior Vice [email protected] 212 240 5448

mailto:[email protected]

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Presentation Agenda Study background

Data report and analysis: A ‘360’ View of Distribution SALES IN: product manufacturers to distributors

SALES OUT: distributors to resellers

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SALES IN: Product Manufacturers to Distributors

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Methodology RoperNOP Technology conducted in-depth qualitative interviews

with 16 executive-level respondents from major computer hardware and software manufacturers in North America. The interviews focused on percentage shares of product shipments, and on the value of distributor services. Interviews were conducted in March and April 2002.

Because of confidentiality or legal restrictions at individual companies, total percentage sales information was not available from all respondents.

Findings based on percentage share data is intended as directional.

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Methodology (continued) Respondents were recruited from proprietary RoperNOP Technology sources.

The screening process confirmed that respondents were most knowledgeable about sales fulfillment through indirect channels at their organizations.

Manufacturers represented: Apple Microsoft

Cisco NEC

Citrix Oracle

IBM (Systems) Seagate

Intel Toshiba

Kingston Viewsonic

Lexmark Xerox

Lucent 3Com

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Definition of Terms Throughout this study, RoperNOP Technology uses the following terms:

1) End-User Direct: manufacturer sells directly to end-users (businesses and consumers), e.g., Dell model 2) OEM: manufacturer sells to directly to another manufacturer 3) Distributor: manufacturer sells directly to distributor 4) Reseller-Direct: manufacturer sells directly to reseller

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IT Products Supply Chain

IT Product Manufacturers: Computers, Software, Networking IT Product Manufacturers: Computers, Software, Networking

OEMOEM

Resellers, Integrators, Solution ProvidersResellers, Integrators, Solution Providers

End-Customers: Businesses, Public Sector, ConsumersEnd-Customers: Businesses, Public Sector, Consumers

Distributor1 2 3 4

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IT Products Sold by ChannelsRemain Consistent in ’01 and ‘02

2001 Product Volumes Sold by Channel Reported by IT Product Manufacturers

3) Distributor

4) Reseller-Direct 1) End-User Direct

2) OEM

2002 Product Volumes Sold by Channel Estimated by IT Product Manufacturers

3) Distributor

2) OEM

1) End-User Direct4) Reseller-Direct

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Summary Findings Of the manufacturers providing percentages of

product shipments to 1) End-User Direct 2) OEM 3) Distributor 4) Reseller-Direct

Respondents reported six out of 10 products were sold through distributors in 2001.

For 2002, these manufacturers estimate that sales through distributors will continue to account for six out of 10 products.

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Manufacturer Ratings of DistributorStrategic and Tactical Services Strategic Services

Market Coverage Product Fulfillment/Logistics Recruits/Trains Solution Providers (resellers) Inventory Management

Tactical Services Product Order Entry Product Technical Support Configuration Services Credit

IT product manufacturers asked to rate importance of distributor service on a scale of 1 to 5 where 5 is extremely important

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Importance of Strategic Support From First-Tier Distributors

Considering the role of your first-tier distributors in your sales strategy, please rate the following functions in terms of how important they are to your company’s sales strategy.

5 =extremely important: *

Market Product Recruits/Trains Inventory Manufacturer CoverageFulfillment/LogisticsSolution Providers Mgt.Cisco 5 5 3 5Kingston 5 5 4 4ViewSonic 5 5 4 4Seagate 2 5 3 5Lexmark 5 5 1 5Apple 4 5 4 5Intel 2 3 2 3Toshiba 5 5 2 4

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Importance of Strategic Support From First-Tier Distributors Cont’d.



Market Product Recruits/Trains Inventory Manufacturer CoverageFulfillment/LogisticsSolution Providers Mgt.IBM 4 5 4 5NEC 5 5 5 5Xerox 3 5 2 3Citrix 2 5 4 5Microsoft 3 5 2 4Oracle 5 2 5 1Lucent 4 4 3 43Com 4 4 3 4

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Strategic Support Importance RatingsManufacturer Averages: 2002 vs. 2001

00.5

11.5

22.5

33.5

44.5

MarketCoverage

InventoryManagement

FulfillmentLogistics

Recruit &Train SPs

2002 2001

Considering the role of your first-tier distributors in your sales strategy, please rate the following functions in terms of how important they are to your company’s sales strategy.5 =extremely important

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Importance of Tactical Support From First-Tier Distributors



ProductProduct Tech Support Config Credit

Manufacturer Order Entry Services ServicesCisco 5 3 3 5Kingston 4 4 3 4ViewSonic 5 3 3 5Seagate 4 2 3 5Lexmark 5 3 5 5Apple 5 3 3 5Intel 5 2 NA 5Toshiba 3 2 3 3

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Importance of Tactical Support From First-Tier Distributors Cont’d.



ProductProduct Tech Support Config Credit

Manufacturer Order Entry Services ServicesIBM 4 3 4 5NEC 5 3 3 5Xerox 5 2 1 5Citrix 5 4 4 5Microsoft 4 3 2 4Oracle 3 3 5 5Lucent 4 2 2 43Com 4 3 3 5

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Tactical Support Importance RatingsManufacturer Averages: 2002 vs. 2001

00.5

11.5

22.5

33.5

44.5

5

Product OrderEntry

Credit Tech Support ConfigurationServices

2002 2001

Considering the role of your first-tier distributors in your sales strategy, please rate the following functions in terms of how important they are to your company’s sales strategy.5 =extremely important

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Summary Findings IT product manufacturers consistently placed high importance

on the value of strategic and tactical services provided by distributors in 2000 and 2001.

In tracking studies in both years, on an overall basis, IT product manufacturers rated distributor services a 3.8 on a scale where 5 is extremely important.

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SALES OUT: Distributors to Resellers

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Methodology Product purchasing volumes are based on telephone interviews with 400 second-tier reseller and service provider organizations in August, September and October 2001. Combined data reflects +/- 5 percent margin of error.

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Market Summary Amount of IT product purchases made by resellers

(solution providers) through distributors is estimated at $71.5 billion (for October 2000 – September 2001)

In 2000 and 2001, the estimated share of IT product purchases made by resellers (solution providers) through distributors remained consistent at approximately 60 percent of all computer product purchases by resellers.

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Product Purchase SourcesConsidering the following purchase sources, what percent of your company’s computer product purchases (including systems, software and networking hardware) were actually made and ordered from the following sources in the last 12 months?

Distributor telesales rep

Distributor Internet site

Direct through product manufacturer rep

Local Reseller (Gray Market)

Online retailer/catalog Internet site

Product manufacturer Internet site

EDI or XML-based distributor order

38%

23%

12%

5%

3%

12%

7%

Conclusion: Although purchases through telesales reps account for the highest percentage, more than one-fifth of purchases are now made through distributor Internet sites. This is consistent with distributor efforts to encourage Internet purchases. Also, purchases made through online retailers and catalog sites reflect significant volumes of products sourced from distributors.

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Reseller Purchases Financed with Distributor Credit

Distributors financed $39.3 billion

in purchases by second-tier resellers

in 2001. This represents 55% of all

purchases.

In 2000, distributors financed $32.7

billion in purchases by resellers. The

increased volume of credit in 2001

sought by resellers reflects a shortage

of capital amid an economic slowdown

and a greater reliance on distributors

by resellers for financing.

$39.3 billion

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Considering such issues as access to product information, credit and ordering and shipment of products, please rate the value of your primary distributor to your company’s overall business. (Rated on a scale of 1 to 5 where 1 is “No Value” and 5 is “Extremely Valuable”.)

Conclusion: The value of the primary distributor to the reseller’s overall business is consistent year to year, but the sluggish economy in 2001 has led to more specific evaluation and appreciation of distributor services, resulting in higher importance and satisfaction ratings of the individual distributor services provided.

Business Value of Distributors

2000 2001

4 4

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Resellers Explain the Business Value of Distributors

“Those distributor services such as product availability, logistics and support are all competitive advantages that we utilize as part of our business process. We find that product availability and the ability to provide products and support on time is something that our customers value.”

“We think they (distributors) are continually improving their processes. They are doing more than they used to do. Things like on-line tracking of orders are improvements. There’s also the tech support and other services that they are adding that make a difference in our business.”

“It’s service, quick response, the support on the product – all the technical support. When we do have issues, they call back in a timely response. The value to our customers is that I can guarantee I will have it (the product) to them the next day.”

“Product availability and tracking of shipments are the big things. Knowing when it (the product) is going to arrive so I can schedule my staff to meet it at the customer’s site is critical. I can’t afford having people sitting around.”

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4.1

4.0

3.9

3.8

3.7

3.5

3.4

3.7

4.2

1 2 3 4 5

Distributor Importance RatingsConsidering the following reasons as to why your company purchases computer products from distributors, please rate the importance of each reason on a scale of 1 (not important at all) to 5 (most important).

Ability to determine product availability, shipment

Lowest price compared to other sources

Relationship/trust with distributor sales rep

Post-purchase logistics (order tracking, etc.)

Ability to aggregate purchases

Pre-sales information on a variety of products

Post-sale tech support on multiple products

Credit extended by distributor

Marketing and sales tools from Internet

Conclusion: In a slower IT products market, resellers are seeking greater efficiencies in costs and operations to remain competitive. As a result, they are placing high values on services that help achieve these objectives.

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2.9

2.5

2.5

2.4

2.1

2.0

2.3

3.4

1 2 3 4 5

Distributor Importance Ratings (2)Considering the following reasons as to why your company purchases computer products from distributors, please rate the importance of each reason on a scale of 1 (not important at all) to 5 (most important).

Outsourced logistics and delivery

Online configuration tools

Training and certification

Lead generation

Ability for on-line invoicing

Outsourced configuration & assembly

Ability to provide “electronic storefront”

Joint sales callsConclusion: Services such as on-line invoicing and providing an “electronic storefront” are somewhat less important than the core business-to-business services identified in the prior slide. Also, the highly publicized failures of “dot.coms” have reduced the motivation among resellers to radically transform their businesses into e-commerce operations.

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4.3

4.2

4.0

3.9

3.8

3.8

4.3

1 2 3 4 5

Distributor Satisfaction RatingsHow would you rate your company’s satisfaction with your primary distributor in the following areas, where 1 is not satisfied at all and 5 is extremely satisfied?

Timely product, pricing, availability info

Timely order confirmation and tracking

Accurate and on-schedule shipments

Aggregation of multiple products

Ability to handle product returns

Access to necessary credit terms

Access to informed account repConclusion: Satisfaction ratings with core, business-to-business services provided by distributors are closely linked to the high importance values that resellers assign to these services. The ability of distributors to provide timely and accurate order and shipping information are critical factors in helping resellers retain customers in a challenging market.

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3.6

3.4

3.3

3.0

3.0

3.7

1 2 3 4 5

Distributor Satisfaction Ratings (2) How would you rate your company’s satisfaction with your primary distributor in the following areas, where 1 is not satisfied at all and 5 is extremely satisfied?

Pre-sales technical information

Post-sale technical support

Web site: navigation, information, etc.

Outsourced logistics & delivery of products

Marketing & sales tools from Internet site

Outsourced systems configuration

Conclusion: The increasing complexity of solutions such as voice/data and storage area networks (SANs) that are sold by resellers require technical information on a cross-platform and cross-product basis in pre- and post-sale environments. As distributors become the aggregation point for purchase of these complex technologies, they also become the source of tech support and information.

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Distributor Role in Business DevelopmentWhich of the following services provided by distributors does your company use to help increase sales and/or enter new technology markets?

Phone or e-mail access to technology solutions specialists

Local seminars or technology product demonstrations

Internet-based seminars and/or discussion groups

Subsidies or co-op money for technical training

Subsidies or co-op money for sales training

82%

65%

42%

32%

24%

Conclusion: As distributors extend their service offerings, they are taking an active role in helping resellers expand into new technology markets. Typically, distributors provide resellers with a multiple-product “solutions view” of new technologies, which helps resellers build their overall businesses. This, in turn, raises reseller sales volumes, benefiting the manufacturers.

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Reseller Primary Customer BaseWhat size company makes up your company’s primary customer base in terms of largest percentage of sales in the last 12 months?

One to 20 employees

21 to 100 employees

101 to 500 employees

More than 500 employees

32%

32%

19%

17%

Conclusion: Historically, small businesses (100 or fewer employees) have been the primary customer base for resellers. Small businesses represent a more stable market for resellers because the reseller typically acts as the outsourced IT department, which leads to a high incidence of repeat business. Additionally, as IT product spending rebounds, it is expected that small business will be a key segment to lead the recovery.

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Summary Findings In the timeframe of 2000 and 2001, the most turbulent period to

date in the IT industry, product volumes and business value ratings for distributors have remained steady:

The percentage of IT products that are purchased by resellers (solution providers) through distributors remained consistent, with six out of 10 products being purchased by resellers from distributors.

Resellers (solution providers) consistently placed a high value on the role that distributors play in their businesses, rating them a 4 on a scale where 5 is extremely valuable.

Documents

May 9, 2002