Indirect Hits

In some businesses, the word middleman conjures visions of a profit-siphoning extra wheel, to be disengaged wherever possible.

Not true in storage networking, where the middleman is not only a help but a necessity. Storage companies are increasingly relying on the indirect sales channel, comprising distributors, value-added resellers (VARs), integrators, and other third parties.

"Indirect is where it's all moving, QLogic Corp. (Nasdaq: QLGC) marketing VP Frank Berry says. “The commoditization of SAN technology lowers the cost, and the channel is a way to get products out there."

Channel partners, particularly those that specialize in specific vertical markets, not only have access to more customers than most vendors do, they also do a lot of the handholding associated with putting storage networks in place. "SANs are a complex thing. Customers need help deploying them,” says Bob Wilson, VP of worldwide channel sales at Xiotech Corp.

Wilson says Xiotech's indirect sales increased from 10 percent of its total revenue last year to 42 percent this year. Wilson agrees that indirect sales are crucial for a storage vendor’s long-term growth.He's not alone. Hitachi Data Systems (HDS) (272.4 percent growth to $21.2 million) and EMC Corp. (NYSE: EMC) (109.4 percent to $32.1 million) had triple-digit year-over-year distributor sales growth for the quarter that ended in June, according to the Global Technology Distribution Council, an industry group that includes eight large U.S. distributors.

How's the boom affecting the indirect channel companies directly? Bell Microproducts (Nasdaq: BELM), the largest IT distributor to specialize specifically in storage, reported revenue growth of 31 percent year over year and 16 percent quarter over quarter for the quarter that ended in September (see Bell Micro Reports Q3). Bell CEO Dan Bell forecasts his company’s revenue will grow 25 percent for 2004 – more than twice the rate of the IT distribution industry in general.

Bell Micro EVP Phil Roussey credits the extra services required of storage networking sales with his company's success. “You call us a distributor,” Roussey says. “But when you have 70 to 80 people doing integration, design, installation, and support, it’s a lot more than distribution.”

Indeed, two of the hottest trends in storage today – ILM and regulation compliance – aren’t technologies, but processes that lend themselves to integrated solutions packaged with services. That opens the door marked "integrator" to companies that formerly restricted themselves to product distribution.

The growing popularity of the small to medium-sized business (SMB) market is another reason the indirect sales channel is booming. Storage vendors can’t possibly keep up with the millions of SMBs in the United States alone, but indirect channel partners have that access. So it’s no coincidence that EMC announced a list of new channel partners on the same day it launched its AX100 system aimed at SMBs last May (see EMC, Dell Get Small With SATA).In this environment, it's no surprise to see system vendors gauge their success in part by the number and the quality of channel partners they engage. Many startups' go-to-market strategy consists of selling directly only until their product gains enough acceptance to go through the channel.

The benefits of indirect channel sales accrue at both ends of the transaction. Distributors, who commonly sell competing products in the same space, likewise pick vendors who supply them with the names of potential customers who want their product as part of an overall solution. “We need to make sure we’re keeping mindshare with resellers,” Xiotech’s Wilson says. “Resellers want leads, and we have to make sure we’re feeding that engine.”

In line with the growing importance of the indirect channel in storage networking, Byte and Switch intends to conduct a survey. To get things going, we're gathering a comprehensive list of key multivendors, distributors, resellers, and integrators in storage networking. Once the list is assembled, we'll launch an online survey, asking users to rate their favorites according to range of criteria.

So, to kick things off, Who are your favorite indirect storage channels? Write to us at [email protected].

— Dave Raffo, Senior Editor, Byte and Switch

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