What are the main types of distribution channels in IT
After moving from a Value-Added Reseller (VAR) to an Original Equipment Manufacturer (OEM) partner with OpenText, we examine the main types of distribution channels for IT vendors.
From direct sales to VARs, there are untold direct and indirect distribution channels for IT vendors and technology companies like Oracle, IBM, and SAP will have a distribution strategy encompassing several distribution networks for their products.
What is a distribution channel?
A distribution channel is the path through which goods or services move from the author to the end user. It is a crucial element of the supply chain that helps companies to reach their target markets, improve their sales, and expand their customer base.
Some of the main types of distribution channels include:
- Direct sales
These distribution channels can be direct, indirect, or hybrid.
Types of distribution channels
Direct channel of distribution
Direct distribution – or direct sales - is a method of distributing software from an author directly to the customer, without the involvement of a number of intermediaries such as VARs. In a direct distribution channel, the author assumes full responsibility for marketing, sales, and delivery of the software.
Direct channel of distribution advantages include:
- Control: authors have greater control over the distribution process, allowing them to ensure that their products are marketed and sold in a way that aligns with their brand and values.
- Customer relationships: authors have direct contact with their customers, which can help build strong relationships and increase customer loyalty.
- Speed: Direct distribution channels can be more efficient and faster than traditional distribution channels, allowing authors to respond quickly to changing customer needs and market trends.
However, direct channels of distribution also have some disadvantages, such as the need for significant investment in marketing and distribution infrastructure, as well as the risk of over-reliance on a single distribution channel.
Indirect distribution channels
In an indirect channel, the author uses a number of intermediaries to sell its products to end users. While there are many types of indirect distribution channels such as system integrators, ISV alliance partners, and consultants to sell its products to end users, this section will focus on two of the most common examples of indirect distribution in IT – VARs and OEMs.
According to Gartner, a VAR is an organisation that is usually part of a sales channel for an author.
A VAR resells software and hardware and adds value to the products by providing additional services and support. These services include customisation, integration, installation, training, and ongoing maintenance and support.
There are several advantages to working with a VAR, including:
- Expertise: VARs are often specialised in specific industries or technologies and have deep knowledge of the products they sell. For example, ePC has worked with OpenText TeleForm and OpenText LiquidOffice for over 20 years and has extensive hands-on experience with these products.
- Customisation: VARs can provide customised solutions that are tailored to the specific needs of each customer.
- Integration: VARs can help customers integrate new solutions into their existing systems, ensuring a smooth transition and minimal disruption to business operations.
- Training and Support: VARs can provide training and support services to help customers get the most out of their new solutions. This can include on-site training, remote support, and ongoing maintenance and updates.
In an OEM agreement, the author provides the OEM with a product or component. The vendor then integrates the product into their greater product or service and sells the combined offering to its customers.
Under an OEM agreement, the vendor typically rebrands the product as its own and takes responsibility for marketing, selling, and supporting the product. In some cases, the author may provide support or training to the vendor, but the OEM is responsible for the customer relationship.
An OEM agreement can offer several advantages to both the OEM and the author licensing the product. Some of the advantages include:
- Access to technology: An author can access new technology or software solutions that it may not have been able to develop in-house.
- Reduced development costs: By licensing OEM technology, the author can reduce the cost and time associated with developing new solutions.
- Faster time to market: An author can bring new products to market faster by leveraging existing OEM technology.
- Improved quality and reliability: The use of licensed OEM software can improve the quality and reliability of an author’s product.
An OEM agreement can offer several advantages to both parties, allowing them to leverage each other's strengths and expertise to create successful and innovative products.
Dual distribution channel
A dual distribution – or hybrid – channel involves a combination of direct and indirect channels. The author sells its software both directly to the end users and through intermediaries such as VARs, system integrators etc.
What is the difference between an OEM and VAR agreement?
The main difference between an OEM and VAR agreement is the level of integration between the manufacturer's product and the vendor’s offering.
Under an OEM agreement, the product is integrated into the OEM’s offering, while under a reseller agreement, the VAR sells the product as-is under the manufacturer's brand.
At ePC, we have extensive experience with each of the distribution channels discussed. We are a VAR for BP Logix and provide consultancy, development, training, and support for Process Director-based BPM solutions in the UK and Europe.
At the same time, we customise and embed OpenText technology including TeleForm and LiquidOffice into our products as an OEM partner. For example, we have successfully utilised OpenText TeleForm in an exam system that processes up to 2.25 million ‘pen and paper’ IELTS tests each year for the British Council. Meanwhile, OpenText TeleForm is a key component of a timesheet processing system for Next Plc.
We decided to write this article after moving from a VAR to an OEM partner with OpenText and hope it has provided useful insight into the main channels of distribution in IT and technology.
While the VAR to OEM transition has been positive, there have been some unintended consequences such as the removal of our listing in the OpenText Partner Directory. OpenText has explained to us that entries are not available for OEM partners, but reserved for other partner types (i.e., Reseller or Services). This is despite OEM partners providing the same services as resellers (i.e., training and support).
As a result, we are not visible to prospects searching for a TeleForm or LiquidOffice partner in the directory and have anecdotal evidence that prospects review the directory to confirm we are an “official OpenText partner”.
More concerning is that procurement teams at a few of our customers, who we have worked with for many years, are discovering that we are not listed in the directory during their annual supplier audits, and we must subsequently explain the situation to them.
We hope OpenText management will review the situation in the future and decide that OEM partners should be permitted to have a profile entry in the OpenText Partner Directory.
If you have any questions regarding distribution channels in IT or need confirmation of our relationship with OpenText, please contact us.