Party on or party over?

Global squeeze: The downturn will mean a greater focus on solutions provision for channel firms

After years of strong IT sales across all sectors of the economy, 2009 is widely predicted to be tough. Yet channel players, many of whom reported a better-than-expected end to 2008, ­are discovering golden opportunities despite the bleak outlook.

Tamar Brooks, channel sales director at CA, said the mixed bag for end users and the channel that was 2008 may be followed by a similarly mixed year in 2009 ­ with plenty of opportunities available despite and, perhaps, because of the economic downturn.

“We are seeing strong growth in enterprise solutions,” she said.

Project and portfolio management software, for instance, is increasingly popular as firms seek to prioritise their projects and divide the successes.

CA is seeing strong results from this new product area already, especially when combined with the trends for cost savings, consolidation, computing in the cloud and green technology.

“We are seeing a lot of vendors now opening up their platforms. We are now offering three solutions in an on-demand model and offering those through the channel,” Brooks said. “They can be flexible options with improved margin.”

Government regulation and compliance will be even more pressing in 2009, with channel and vendors investing and moving quickly to ensure customers and are aligned with new legislation.

That will be alongside the growing popularity of flexible low-capex investment and payment programmes including leasing, according to Brooks.

“The channel is going to look more closely at each vendor and compare the solutions they sell. They are really going to need to focus down,” she added.

Andrew Binding, northern Europe vice president at Magirus, agreed, saying virtualised business continuity should prove strong.

“Companies will want better datacentre use and enterprise-class business continuity, all at a lower cost,” he said.

Emerging markets
New offerings that have not yet matured in the market are going to provide growth opportunities. For example, Pierre Gillet, vice president of European sales at Roku, noted that the embryonic digital signage market will go on expanding in 2009 as the technology’s advantages become known.

“More people are interested for advertising or just displaying information. So that is a large factor. Yes, there is an economic downturn, but this market is still moving up,” said Gillet.

Couple new offerings with a focus on adding value and solution provision, and the channel could see real benefits in 2009.

Simon Jackson, northern Europe vice president at NEC Display Solutions, concurred.

“Next year will be difficult, but we are focusing on what we call tangible added value,” he said.

In a credit crunch, profit will help most, not volume sales. VARs need to re-emphasise margin opportunities and avoid the temptation to discount, added Jackson.

Clare Barclay, partner head at Microsoft, said such resellers and those that help customers spread payments will see sales pick up speed again.

“The market will be tough until mid-2009. However, sustained growth is expected with recent forecasts indicating six per cent year on year.

“There are opportunities out there and feedback from our partners is encouraging,” said Barclay. “For partners able to adapt to changing customer requirements there are opportunities to seize.”

Government initiatives and public sector sales should remain strong while corporates decelerate, but consumer sales should recover quicker.

“In boardrooms, they are asking: ‘How do we save money and how do we find new customers to increase profitability?’ Channel partners need to answer these
questions,” Barclay added.

IT will become more affordable as subscription models emerge and enterprise-grade collaboration technologies become available to smaller businesses. The difficult economic conditions will expedite interest in services.

“There are already lots of examples of UK partners creating software-plus-services solutions for customers,” said Barclay.

Subscribe to the cloud
Cash-strapped customers like subscription services because hardware maintenance costs can be slashed and partners get the security of regular earnings around incremental implementation, integration, customisation, and managed services.

Neil Watson, channel director at Viatel, said it is a sure bet that companies will want to save money and increase efficiency.

“Although market opportunities will not dry up entirely, core revenue streams will come under pressure,” he said.

Watson said leading resellers will find ways to secure more of their customers’ spending. One way of doing that is to diversify one’s offering, for example, data resellers taking on voice services and vice versa.

Next year, companies will be looking at streamlining and making even more cutbacks, which may force many companies to update their offerings and pricing structures.

“Incumbent operators may find themselves losing custom on leased lines, as businesses realise they can use ADSL2+,” he said.

More efficiencies mean many companies will take remote working and mobility strategies more seriously. With that in mind, secure virtual office offerings,
especially if hosted, could become popular.

“There will almost certainly be a surge in software-as-a-service (SaaS) adoption,” he said.

Watson also said that partner relationships will become even more important this year.

His comments are backed by PricewaterhouseCoopers (PwC) research that indicates the rate of UK business-to-business deal closing, especially in software-focused firms, is extremely low.

Jass Sarai, head of software and IT services at PwC said: “Only one in five business-to-business deals ever get closed in the UK.”

“Following 40 years of IT growth, sales and marketing for [successful] UK software firms has been easy. However, as Western Europe enters the recession, the industry needs to start selling more with less.”

Sales strategies need to cost less and be more effective, especially as industry consolidation ramps up during the downturn, Sarai noted.

Further consolidation is also expected in the downturn as larger, opportunistic companies acquire smaller companies, add value to the product and service capability, and offer SaaS.

“Smaller software companies are likely to still find themselves the target of a merger approach enabling them to gain ground in Europe and the potential to emerge as bigger players,” said Sarai.

Companies that seize the opportunities offered in 2009 will emerge stronger as the market reshapes itself, he added.

Roger Levenhagen, EMEA sales director at Motorola, said vendors and channel partners will need to work closer than ever to tap all relevant markets. Motorola
struggled in 2008, but is focusing on identifying new and developing opportunities alongside VARs.

“In the mobility industry, resellers should be looking at opportunities in sectors such as healthcare and finance,” he said.

Most firms only take on mobility projects to improve productivity and cut costs, so resellers must present cost savings and return on investment from the get-go.

“As companies realise that they can no longer afford to have their delivery drivers take wrong turns, wrongly schedule a gas meter reading or lack the right tools to maintain a roadside cabinet, mobility projects will be increasingly important,” said Levanhagen.

And then there is that long-time staple of the channel diet: security offerings.

Security issues, again, are expected to get even more challenging this year.

Paul Wood, senior analyst at MessageLabs, predicted that security channel players
will increasingly struggle to differentiate both themselves and their offerings.

“Companies need to stand out from the crowd and add some value. Yet the landscape has changed so much, there is no way to say what is really going to
happen,” he said.

“But finding the balance between costs and provision of information is going to be a lot more important.”

Malware attacks will be increasingly customised and distributed, according to MessageLabs’ research, making it extremely difficult for traditional security approaches to defend businesses.

Larger customers are going to invest more and more in security to comply with regulations and protect their respective customers ­ but smaller firms are going to find compliance increasingly onerous.

Channel players that can take on either of those angles next year could find themselves some serious, consistent revenue, Wood said.