Expanding the distribution footprint

The Global Technology Distribution Council (GTDC) has published quite a rosy report entitled Investment trends in the IT industry, which states that global venture investment in the IT industry reached a record in 2021 with a 90% increase on 2020.

The report notes that IT companies have been attracting investors since the introduction of the first computer, but “activities over the past two-plus years have heightened awareness and the business case of high-tech firms”.

The steady growth in cloud applications with recurring revenue streams and predictable cashflow provides greater financial assurances to potential investors. “The ‘as-a-service’ model removes some mystery for current and prospective stakeholders by making it easier to calculate revenue and profit projections since prices and associated discounts are typically fairly standard,” says the report.

If organisations can scale their services without incurring significant new costs, it says, “projecting sales and profit potential is a simple matter of multiplication, but estimating the value of other organisations, including those that manufacture hardware, components and ancillary products, can be more complicated”.

Commenting on the report, GTDC CEO Frank Vitagliano said: “It’s no surprise that investors see the IT industry as a high-return opportunity. The eye-opener is how much money is flowing into our community and the power behind these investments, which is driving real innovation and increasing the overall value of the technology community.”

Actually, for me, the most intriguing aspect of the report is in the section headlined “Can distribution affect IT investment?”, which makes an interesting argument in favour of the role of distributors in helping IT companies to attract investment.

“Good business partners can help organisations grow sales, profitability and market share,” says the report. “Increasing any or all of those key metrics will help validate the long-term viability of a company, while also raising its valuation and investment potential. A strong partner network makes it easier to scale the business, with fewer headaches and cost concerns. IT distributors provide that type of support daily.”

This is a very good point – but one that may often go unacknowledged. The report adds that distributors can “expand the footprint” of vendors and solution providers “and streamline processes to increase efficiencies and scalability”. The business relationships between distributors, vendors and solution providers may not feature on corporate profit and loss statements, but “investors are sure to note the value of these alliances in the financial performance”.

You would hope so, and it is certainly good to see the “channel effect” being highlighted in this way. The only difficulty is that it’s very hard to assign a quantifiable value to how much distributors contribute to the valuation of vendors for investment purposes. There are probably people a lot cleverer – or at least more accomplished with numbers – than you and I who can at least make some kind of calculation over the contribution the channel makes to the financial wellbeing of vendors. That’s why they get paid the big bucks.

At least you hope so. Certainly, the role of the channel in general has achieved a greater prominence with the vendors themselves and their customers over the years, so you would expect that to filter through to the financial whizz-kids as well.

In any case, it’s good to see an acknowledgement of the value of the channel, even if there is no definitive view of how much that value amounts to. God knows, we’ve been talking about “value add” for years and it is heartening to see it being applied in a more direct fashion here. It’s not just about adding value to products and services, it’s also about adding value to the vendor.