Online software sales hurting major South African distributors — but all is not lost

Two of South Africa’s major ICT distributors say that the increased online availability of software has hurt their sales in the retail market but not yet in the business-to-business (B2B) segment.

In the early years of software releases, individual customers typically bought a physical copy with a product key or licence at a store, which had purchased stock from a local distributor.

The entire software package or program would be contained on physical storage mediums like floppy or stiffy disks, CDs, and later DVDs.

Businesses bought their software from specialist service providers that offered additional value-added products on top of the software itself, which could include 24/7 technical support and frequent updates.

As Internet access became more ubiquitous and faster, major vendors began offering digital downloads of software, which initially also required a product key.

Over time, many software providers began hosting their entire software packages online, allowing consumers to buy their offerings directly.

This has evolved even further, with many companies shifting to subscription-based software-as-a-service models rather than once-off licencing.

This is particularly true for cloud-based services, which require that a customer get a certain allocation of server hardware dedicated to their processing and storage needs.

MyBroadband asked two well-established ICT hardware and software distributors in South Africa — Mustek and Frontosa — how this has impacted their businesses.

Personal software users migrate to online downloads

According to Mustek group data and technology officer JP Gough, the biggest impact has been on personal and home users who previously bought their software licences at retailers.

As consumers have become more comfortable with online purchases, digital online-based distribution has overtaken traditional software sales.

“This trend is expected to continue as the pay-per-use economy accelerates,” said Gough.

However, Gough said the fundamentals have remained unchanged for the business-to-business (B2B) environment despite changes in how the software is delivered.

“B2B distribution has grown exponentially due to the wide variety of fit-for-purpose applications which present phenomenal opportunities for the distribution ecosystem,” Gough said.

“Software is normally followed or prefaced by a professional service need for many B2B applications, and the opportunity has shifted from what was traditionally a product sale to new and exciting professional services in the market.”

“Local finance terms, requirement-specific skills, and customer service are still some of the main deciding factors for businesses acquiring these virtual products through the distribution ecosystem.”

He also said that distributors played a vital role in simplifying buying and product decision-making by enabling their partner ecosystem to supply and support different market segments with local skills.

In addition, Gough said some businesses still preferred a physical boxed item to sell.

“This being said, most physical software packages now potentially only contain an activation key and a download link inside the packaging, and the entire delivery is digital.”

Frontosa general manager Eddie Pio said increased online software distribution has significantly impacted their sales.

However, he also said some companies still prefer that a dealer do the installation or update, so they often use the traditional suppliers. They might also want the original packaging and key.

In addition, software pricing is sometimes better from distributors than when bought directly online, particularly when bought in bulk.

Pio said he still saw a role for distributors in software provision for some time but that this would gradually be phased out in favour of direct digital subscriptions.

Meanwhile, Gough said that distributors would continue to play a role in the future, but the role and definition of distribution would continuously change as the market evolved.