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Avnet Targets the Electronics Industry's Water Coolers

If Arrow Electronics is targeting the electronics industry’s newsstands, Avnet is trying to conquer its water coolers. The Phoenix, Arizona-based company is investing in the online communities where entrepreneurs and electrical engineers trade advice on everything from hardware prototyping to manufacturing so that they can avoid rummaging around the internet for answers.

Avnet’s gravity is growing stronger. The company recently said that its communities, element14 and Hackster.io, now boast more than a million members. The combined membership rose 48 percent over the last year and has almost doubled from the 630,000 members both services reported in the fourth quarter of 2016. The communities currently get more than two million page views per month.

For Avnet, the communities have offered some stability following the $2.6 billion divestment of itsTechnology Solutions business unit and the ongoing commotion in its executive ranks. Almost two years ago, the company spent around $840 million for Premier Farnell, which runs Newark element14. Only months later, the company took majority control of Hackster Incorporated, which operated a slightly smaller community.

The acquisitions are aimed at tapping into the entrepreneurs and other foot soldiers in hardware's recent resurgence. Members of the element14 community collaborate to solve each other’s design challenges. They can also take training courses and put out calls for help optimizing a project. Hackster is more focused on teaching programming and hardware, and the community also organizes in-person workshops and meetups.

The hope is that electronics engineers will prototype new products with parts ordered from Premier Farnell and then order production volumes from Avnet. The world’s third largest electronics distributor is also offering manufacturing and other services to startups lacking in the supply chain department. Chief transformation officer Pete Bartolotta calls this Avnet's "end-to-end" strategy for boosting component sales.

“Everyone wants to find the next GoPro,” Ralf Buehler, Premier Farnell’s senior vice president of sales and marketing, told Source Today. The strategy is shrewd, but still unclear is how many community members are converted into paying customers. For Premier Farnell, the biggest challenge is keeping shelves stocked to handle smaller orders for smaller customers. The average order placed with of Premier Farnell is less than $500.

To that end, the company has its inventory investments. It has pumped up its stock from $350 million to $444 million over that period, replenishing its biggest sellers and adding another 77,000 new products. Premier Farnell is focused on covering more of the average customer’s bill of materials as well as on holding enough inventory to support the online ordering surge among not only among entrepreneurs but also so-called professional makers.

“They may not be registering with their company email but over time we learn that they’re professional engineers as well as makers,” Buehler said. Targeting that demographic—professional engineers at work, tinkerers at home—requires restraint from Premier Farnell, which launched its online community in 2009. “We want people to get unbiased opinions,” he said. “We don’t moderate the community or censor what happens on it.”

Avnet has also targeted other phases of product development. Last year, the company acquired Dragon Innovation, which offers software that can predict production costs and refine products for manufacturing. Dragon Innovation, which was founded by former executives at iRobot, also connects customers with Chinese factories. Avnet has partnered with Kickstarter to offer startups engineering support as well as discounts on components and services.

“The Internet of Things is not only a hardware problem,” Buehler said in an interview at the EDS Summit conference last month. “Hardware is very often not the core of an idea,” he added. “But customers need the hardware” – whether custom circuit boards or the tiny Raspberry Pi computer that Premier Farnell has shipped more than 14 million units of over the last half decade – “to bring their idea to life.”

Avnet’s model is mostly unproved. But the electronics industry is still far from extracting all the economic upside from potentially billions of connected sensors, cars and other devices, said Alex Iuorio, Avnet's senior vice president of supplier business development. To him, the Internet of Things has the potential to introduce completely new customers to Avnet. “We’re still in the infant stages,” he said.

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