New business challenges and maturing technologies will offer plenty of opportunities for the seaworthy, but stragglers and strugglers risk being wrecked by the credit crunch, preyed on by takeover sharks, or their crews jumping ship to join more buoyant enterprises during the next 12 months.
“We saw a lot of consolidation among distributors and VARs in 2007 and we’ll see more in 2008,” said Nitin Joshi, director of ChannelMoney. “There’s still an appetite for good VARs.”
A strong customer base is attractive to would-be acquirers, said Joshi, especially if there are support contracts guaranteeing ongoing revenues. Free assets that can be used to finance growth are also appealing to acquirers, such as a clean sales ledger that has not been factored or invoice discounted.
Innovative start-ups will attract larger players keen to boost their flat revenues, claimed Alistair Forbes, chief technology officer at tools vendor HoundDog. Established but stagnating resellers could be snapped up by others looking for economies of scale through increased buying power and efficiency gains in the back office.
However, small resellers in commodity markets may suffer. “With an increasing number of distributors selling directly to the end user, the channel will continue to consolidate, with the big players getting bigger,” predicted Jon Blows, chief executive at specialist memory distributor Catalus.
Any VAR that is struggling could find itself at risk. “We’ve seen some resellers and distributors getting into trouble only to be snapped up by those on the acquisition trail, and I see no reason why this will not continue into 2008, particularly if there is an economic downturn triggered by the credit crunch, which many are predicting,” said Anthony Norman, business group director at market research firm GfK.
Norman said of communications convergence: “With many data and communications resellers increasingly looking to offer total converged IT solutions there can only be more activity in this area.”
However, Peter Titmus, managing director of network support services provider Networks First, believes there could be fewer niche markets as “good specialist players are acquired by larger companies and the less good simply fold”.
Consolidation may be grim for those being consolidated, but it can have advantages for customers. “One trend we’ve seen is that end users would like to consolidate the number of vendors they deal with because it is expensive and time intensive to manage multiple suppliers with different contracts,” said Mike Chambers, UK managing director at independent reseller PC-Ware. “This makes merger and acquisition even more appealing in 2008.”
On the prospects for credit, opinions vary. “Credit is always an issue, but I think the credit crunch is slightly overplayed,” said Joshi. “There’s a massive percentage of unexploited credit available from distributors that VARs are not using to the full.”

Credit where it is due
A credit squeeze among customers may force them down different routes, such as virtualisation, software-as-a-service (SaaS) and open source, which could be good for channel companies operating in these fields, said Dominic Sartorio, president of the Open Solutions Alliance.
Other observers are less optimistic, however. “If anything, credit will become an even more important topic throughout 2008, although it will not be a problem for everyone,” said Lee Perkins, business unit director at distributor Computacenter Distribution.
“The resellers most likely to be hit are those dealing in over-distributed, highly commoditised products. Competition is going to be fiercer than ever in this space, and the availability of credit will become a pass-or-fail issue for many, especially as the cost of borrowing for some is likely to become higher while they continue to have to compete on price.”
“We will see more implications of credit limits being reduced,” said Blows. “While this can open up opportunities for some bigger players who can use it as a tool, smaller companies will over-trade. This will inevitably result in insolvencies.”
Joshi believes channel insolvencies will continue in 2008. “We saw about a dozen quite high-profile VARs go down in 2007 and I think we will see a similar or marginally higher level in 2008.”
Joshi also expects at least one well-established distributor to fail.
Resellers most at risk will be straight box shifters trading on wafer-thin margins, such as system builders and web-based dealers, Joshi believes. The ‘nerd’ market of high-end PCs and components could be difficult and all eyes will be on systems integrators after some high-profile failures in 2007. In distribution, broadliners will be fairly safe, Joshi anticipates, but those with weak franchises or in low-margin niches such as consumables will find life tough.
David Hobson, managing director of security integrator and consultants Global Secure Systems, thinks the market will be toughest for mid-market VARs. “Small players should be able to cut overheads and survive in their niche, and the larger players will be favoured by the enterprises, but the guys in the middle could be squeezed.”

Pushing for reseller growth
Norman reckons the losers will be small resellers who do not adapt and get into e-commerce and services. “Customers are likely to focus even more strongly on measurable business benefits, so resellers unable to demonstrate these will be in trouble and increasingly that means delivering value-for-money services.”
“Customers now want more than just the hard sell from a reseller,” said Chambers. “Adding expert consultancy and exceptional service to the offering gives customers the trusted partnership they need to feel confident.”
Tom Gutteridge, head of marketing and business development at VAR Damovo, believes that convergence will create a demand for similarly converged resellers.
“A smarter supplier model that consolidates ICT support makes sense,” he said. “This becomes even more attractive as businesses look for increased service-level management and performance reporting across their infrastructure. Therefore, suppliers that are able to support
communications and networking infrastructure in addition to applications and devices are likely to thrive.”
Maximising routes to market will be key to reseller growth in 2008, according to Paul Kirk, a hardware sales specialist at specialist distributor XMA. “Online trading will again see an increase in traffic and ordering and must be addressed by all in the channel,” he said.
SaaS looks set to be a key focus for many this year. “There is still a huge opportunity for smaller resellers to offer SaaS and managed services to SMEs and this is getting easier with some vendors bringing modular solutions to market that reduce the risk and complexity for smaller resellers,” said Norman.
“An economic downturn may actually give a boost to managed services and SaaS as more companies will look to cut back their own IT departments and outsource.”
But he adds that the prospects for spending on hardware are not good.

Adapting to change
“SaaS is an area where our business grew in 2007 and we plan to increase our involvement with it further in 2008,” said Chambers. “Many organisations are realising the benefits of SaaS, in particular outsourcing IT buying to minimise the risk of licence compliance and reduce licensing costs.”
Partnerships could be a success in the coming year. Sartorio believes information sharing among partners will increase in 2008 to the benefit of smaller resellers who lack the time and resources to stay on top of the latest technology trends.
“We expect a trend towards consolidation of information sources in 2008,” said Sartorio. “Expect companies such as Tech Data and Ingram Micro to provide more information and tools to help channel partners evaluate and train themselves on more software products.”
Flexibility and adaptability will continue to pay dividends in 2008, believes Mark Boyt, office product marketing manager at Xerox. Now that the web makes specification and price comparison easy for customers, salespeople will need other approaches.
“New areas including solution selling and advice on carbon footprints will put the savvy salesman back on the customer’s wish list,” Boyt suggested.
“The environment will continue to become more important and it will soon be seen in most invitation to tenders,” said Jason Fazackerley, sales and business development director at enterprise resource planning reseller Qurius.
Gary Fowle, marketing director at Fujitsu Siemens, agreed that “green IT is a massive theme for 2008 and customers will start to scrutinise the credentials of suppliers much more.”
But he cautions that not all suppliers are doing as much as they claim, so resellers must ensure they have all the facts and have their own environmental policy in place”.
Green concerns could spawn marketing opportunities for eagle-eyed resellers, from electronic document management and server virtualisation to power management and video conferencing.
Many observers believe skills and recruitment will continue to be a concern in 2008. “The skills crisis is an important issue for the whole IT industry and is largely driven by the convergence of technologies across many areas, creating demand for multiple skill sets,” said Clare Barclay, director of partner strategy and programmes at Microsoft UK.
Titmus believes the worst shortages will be in sophisticated, high-end skills, exacerbated by the breadth and rapid change.
“Resellers will have to ensure they have good staff incentive and retention schemes to keep the staff in whom they have invested for training,” warned Forbes.
As for the perennial tug-of-war between vendor and reseller, in 2008 the advantage could go either way. Titmus believes vendors could try to improve their own margins by putting more emphasis on services. But Joshi points out that resellers could benefit from the increasing interest shown in the channel by the likes of Dell and Acer.
VARs face rocky times as credit fears escalate