How important is market share?

Channel players are becoming less tolerant of the vendor obsession with market share

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By  Andrew Seymour Published  April 4, 2010

Just how important is market share to IT providers in the Middle East these days? Dare I say it, but the answer to such a question is no longer as obvious as it once might have been.

When the regional channel business was expanding at a rate of high double-digit figures from one quarter to the next, market share was the metric that most companies wanted to talk about more than any other.

And nowhere was that better illustrated than in the vendor community. Rarely was it possible to make it through a major vendor event without being bombarded with at least one PowerPoint slide portraying a massive pie chart or referencing the size of business gained from apparently less illustrious competitors.  

Market share has always been more of an obsession for vendors than it has their channel partners, perhaps because it is a conclusive measurement of product sales in a given category, and therefore far easier to quantify and a lot more readily accessible.

At distribution level it gets a little bit harder to calculate - sure, you can work out a distributor's share of a certain brand or even the approximate volume of business it does in a particular sector - but it is not as clear-cut as the percentage of PCs sold into a specific country during a specific quarter, for example.     

And when you get down to the reseller tier it becomes more complicated still, mainly because of the sheer number of variables at play.

Some of this explains why there has always been a noticeable discord between vendors and channel partners when it comes to their acclaim of market share data.   

As I'm sure numerous disties would testify, the emphasis given to it by vendors is routinely the cause of some of the more unscrupulous behaviour - channel stuffing especially - that is common sight at quarter-end when vendors are desperate to meet their numbers and ultimately enhance their positions.

The channel has come to accept these practices because they are often woven into the fabric of a vendor's culture. Whether it's sales people's incentives being tied to such metrics or merely the level of attention afforded to them by corporate HQ, the end result is that it encourages a system where the focus is never any longer than the next three-month period. In contrast, a distributor or reseller is far more likely to want to talk about a six-month or full-year plan than getting too fixated with quarterly performance.

But while these dynamics have been allowed to exist, there is no escaping the fact that the channel business - and more specifically the channel's priorities - have changed enormously in a short space of time.

It now remains to be seen whether vendors can still drive a business model which is geared to making significant market share gains without compromising the needs of channel partners that are far more risk-averse these days and a whole lot less willing to be messed around.

Many of the lessons that the channel claims to have learned from the financial crisis - such as the benefits of adopting stricter credit policies or turning down unprofitable business - fly in the face of the very things that vendors have relied upon for market share gains.

I have no doubt that market share remains an important and valuable indicator of performance, but the principals that continue to regard it as their number one driver would do well to ensure that it doesn't alienate them from their partners.

I recently posed the question asked at the beginning of this piece to a senior executive at one prominent vendor and his response at least suggested the market is starting to think in the right way.

"Market share is the result of how well you are doing in the market place, but anybody can gain share by losing money," he said. "Profitability is how smart you are at driving your business. If you can gain share while keeping profitability then you are doing a good job."

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