Short-Term Optimism Conceals Medium-Term Fears Finds IDC Study

PARIS, June 1, 1998 — Despite the menace hanging over the indirect distribution model in Europe, International Data Corporation's (IDC's) second annual survey of distribution channels in Western Europe revealed continuing optimism about short-term business prospects for the coming year. Nine out of ten of the 200 companies interviewed were expecting positive growth in turnover in 1998 and more than half were expecting their turnover to grow by at least 20 percent.

Overall, however, the channels' expectations in turnover growth were somewhat lower than those recorded in 1997. While the distributor channel continued to exhibit strong and consistent confidence in the future, the reseller and solutions providers were more mixed in their views and, with the exception of the value added resellers (VARs) generally less optimistic.

IDC's report, How 200 Top Channel Players Rate IT 1998 (#D02EB), highlights the confidence gap within the reseller channel is due to a combination of factors: vendor price wars and the continuing erosion of margins on IT hardware, competition from direct sales operations, the cost of acquiring the skills to sell and support more technical products. In this context, the channel assembly programs being developed by IBM, Hewlett-Packard, Compaq, Digital and other vendors could be a blessing for certain corporate resellers unable to boost their services revenue beyond the 15 percent mark and finding it harder each year to make ends meet in their conventional box-shifting role.

Only the VARs exhibit similar optimism to the distributors. This is understandable at a time when much IT investment is going towards solutions related to the Year 2000 and the Euro, as well as to groupware, databases and new Internet-based applications. Moreover, the strong demands for servers, notably midrange UNIX servers and entry-level Windows NT servers, is creating new business opportunities for VARs both in terms of providing solutions and support and in terms of integrating WiNTel platforms within heterogeneous computing environments.

Recent decisions to employ direct marketing techniques are a reminder that IT vendors sometimes make radical changes in distribution policy that can have far reaching impacts on the long-term viability of their channel partners. The fears and criticisms generated by such changes in vendor strategy emerged clearly when, for the second year running, IDC asked distribution companies to benchmark leading IT vendors. Despite expressions of resentment in the face of near monopolies, and of frustration and anger at weakening commitments to indirect distribution, the 200 interviewed made a conscious effort to be fair in attributing scores to vendors in terms of their market leadership qualities and the way everyday business was conducted. Nevertheless, certain of last year's darlings found themselves heavily marked down for ambiguous channel strategy and weaker support of business partners.

About IDC

Headquartered in Framingham, Mass., International Data Corporation provides IT market research and consulting to more than 3,900 high-technology customers around the world. With a global network of 375 analysts in more than 40 countries, IDC is the industry's most comprehensive resource on worldwide IT markets, products, vendors, and geographies.

IDC/LINK, an IDC subsidiary, researches and analyzes the home computing market, leading-edge technologies in telecommunications and new media, and the convergence of computing and consumer electronics.

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