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Distributors in turmoil: the Ideal answer

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Simon Meredith is a leading UK channel journalist</> In the statements he has made to the press over the last few days, Ideal’s new MD, Ian French, has more or less said that the old model of distribution is redundant and that the group would now derive more income from its Unisolve services business and the product-comparing on-line database venture, the IT Network. But just how important is the IT Network now to InterX and to Ideal? And can it generate sufficient business and profitability to propel the company into a new era. Several questions that, in all fairness, can only be answered by the passing of time, will need to be answered before we know if it can. The IT Network is Ideal’s new wave, the one that would roll the business on after the crest of the Ideal distribution business had hit the beach. It’s not time for it to start delivering results. It started off a few years ago as the Business Television Network – a satellite TV station designed for resellers. When that did not catch fire, Ideal modified the concept and the IT Network was born – this was a mix of on-line news content services using both text and video, publications, and marketing services for resellers and vendors. Product comparator That seemed to work at least in part, but last year the company tore up the plan and announced that it was going to create an on-line database service that would allow users to compare like-for-like products in every critical detail. It will launch this service on 28 June with, it says, over 100,000 registered members and committed revenues of over £650,000 – just about enough to pay the restructuring and redundancy costs that Ideal is incurring. This year, the IT Network is forecast to break even and it will make a material contribution to group profits next time. But it has not been cheap to get off the ground and the launch costs ballooned to £3.7 million - £500,000 higher than original estimate but this is due, says the company, to the "overwhelming" response they have received for the service. So, on the face of it, things look good. But can IT Network make this pay off in the long-run. The first three months will be crucial for the venture and will probably tell us if the whole system can succeed long-term. All or nothing The IT Network idea is an all-or-nothing one; to work, the users must utilise it as part of their buying process and the vendors who are contributing their information and their money to it, must see it working and support it. If the evidence is not there, vendors may get jumpy and start to reconsider how much effort they put into it. A withdrawal or a lack of up-to-date information would undermine the whole concept immediately. What use, for example, would a database that compares desktop PCs be without the details of any one of the leading three vendors? Without comprehensive information the service is of limited value - to the user and to the vendor. So, getting users to use the service is absolutely crucial. The registration numbers look good so IT Network can be optimistic about achieving this aim. But the company must not be complacent even if it does achieve good numbers initially. To succeed in the long-term users must go on using the service. IT Network must ensure that they adopt the service as an integral part of their product selection and buying service and use it repeatedly. If they do not do this, the honeymoon will soon be over and real life may be much less pleasant. How much the company may be able to influence users in this respect is difficult to judge – only time will tell, but one thing it will have to do is continually market the service and ensure the content is bang kept up-to-date. Challenge This is a considerable challenge. We all know about the speed of product life-cycles and the database will need to be bang up to date with all the information from all the vendors. This will, to some extent, be the responsibility of the vendors but once again, it is something IT Network must make sure it achieves as any slippage between availability of the product on the market and the information on the database will devalue the latter. If it works, the marketing will become less of a requirement as word about a good service soon travels. But it will be more vital and eat up cash if uptake is slow. The service has to work first time and needs to get off to a good start to avoid incurring more costs. But IT Network has already spend considerable time and money in researching needs and setting up the system so, that base should also be covered. Assuming it does work, what will be interesting is the scale upon which it works and how it interacts with the Ideal and Unisolve businesses. Within InterX these three companies are, ostensibly, independent of each other. However, they are bound to crossover to some degree. Clearly, Unisolve is going to provide services for Ideal Hardware customers and, surely, IT Network will endeavour to point users in the direction of the reseller channels that Ideal and Unisolve feeds. Channel-oriented But how will the vendors feel about it? Or more to the point, how will other distributors and services companies feel? It is hard to see how they could claim it is unfair as long as Ideal and Unisolve remain channel-oriented, all the IT Network would be doing is generating leads for them - and for the vendors. Other distributors then might have to respond and develop their own services but how could they differentiate them from IT Network? That, we can assume, is a question they will ask themselves when they have to – first of all the IT Network has to succeed – in itself first of all and in generating business for vendors and their resellers and, perhaps, for the other parts of InterX. Then final question is to do with money. How much will the It Network be able to generate and how much will it contribute to InterX sales and profits? InterX is a £300 million group; the IT Network will have to fly very quickly if it is to make a substantial contribution to the overall business. In spite of what French is saying, Ideal and Unisolve will have to continue to generate decent levels of business and profitability themselves while the new wave starts to gather strength. ®

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