Expanding universe
In part two of our Channel Universe research, Paul Bray looks at which products and services pushed net growth
James Ward: The complexity of businesses and the ever-heightening threat of disasters mean that storage and backup are paramount
According to CRN’s Channel Universe survey, the channel has reached a point where services and consultancy account for 45 per cent of revenues, compared with about a third in 1998. Although the general principle comes as no surprise, this is the first time anyone has produced hard numbers to demonstrate the extent of the swing.
“I was very interested to see that there are companies that cover as much ground as possible to provide maximum flexibility for their customers,” says James Burckhardt, associate director of ICM Research, who designed and managed the Channel Universe research.
“The range of services was wider than the range of products, perhaps because it is easier to move into a new service area without too much outside support, and it was not uncommon to find resellers offering three, four or even five different services. It is accepted that resellers are chameleons that respond to customer requirements, but this research demonstrates how much they can change.”
In every one of the 18 services categories in the Channel Universe survey, at least half the resellers said their sales were growing and expected this to continue. And in all but three categories the net growth (the percentage of resellers experiencing sales growth minus the percentage experiencing decline) also exceeded 50 per cent.
Among core services those offered by at least 50 per cent of survey respondents the most successful were consultancy and support, with net growth scores of 63 per cent and 62 per cent, respectively. Almost three-quarters of resellers are offering these, although Burckhardt cautions against reading too much into the terms. There are a lot of very small channel players, so these services often consist of informal help and advice rather than armies of technicians or teams doing business process re-engineering, he says.
Other thriving core service areas were integration and networking services, each with net growth of 56 per cent, and installation and maintenance at 53 per cent apiece.
Training was the only core service where growth was more modest; 13 per cent of resellers said sales were actually falling (the highest in any product or service category) and net growth was 37 per cent, second lowest in the survey.
“However”, says Burckhardt, “what is interesting is that the most optimistic growth predictions are in specialist areas, such as telecoms convergence, mobile and managed services. As core areas become very competitive and highly commoditised, resellers are looking at more specialist fields where often the product alone is not enough and users need services and so on around it.”
Managed services topped the poll in specialist services with net growth of 72 per cent. Second place went to wireless services, now offered by just over a third (35 per cent) of resellers and recording net growth of 66 per cent.
“There is definitely a massive uptake on wireless services and wireless consultancy, and we have seen voice over wireless growing in importance,” says Ash Hussein, sales and marketing director at VAR Axial.
“Wireless sales and applications are on the increase,” agrees Kevin Collins, joint managing director of VAR ComputerWorld Wales. “The mobile workforce used to relate to pagers and telephony. Nowadays users expect the same level of service away from the office as they do when they are at work.”
In some ways resellers are batting on an easier wicket with wireless services than with managed services, says Burckhardt, since wireless networks are now well established and relatively easy for end users to
understand, and the appetite for remote working and home working solutions will continue to drive demand. On the downside, wireless tends to be more commoditised so big profits and gains in market share are less likely.
Software development and application services proved to be among the most popular of specialist services, being offered by 40 per cent and 36 per cent of resellers, respectively. Both are also experiencing respectable net growth 56 per cent for software development and 54 per cent for application services.
The importance of software proved to be another interesting revelation of the Channel Universe research. Resellers rely on it for a quarter of their revenues; almost as much as hardware, which accounts for 28 per cent. Some of this is made up of operating systems, middleware and other system software, but applications software is becoming a major revenue earner and nearly three-quarters (71 per cent) of VARs said they develop or tailor applications.
“Margins in software and services are still relatively healthy,” says Burckhardt. “And demand is still there; it is less affected by the extended replacement periods that affect hardware.”
He says the growth in resellers’ software revenues could have a lot to do with the fact that users are waking up to the idea that the complexity of modern software is something they do not have to live with.
Another factor could be the vendor-led move away from long-term contracts to regarding software as a utility that can be purchased on demand.
“Resellers are realising they can play a more important role between vendors and the users who do not yet realise this flexible model exists. This applies to a wide range of resellers and software. It is too early to tell the effect of the on-demand model, but it is an interesting space to watch.”
The growth in software development bodes well for resellers’ ability to differentiate themselves and maintain customer loyalty; it is much better than discounting, says Burckhardt. A healthy software market also fuels a requirement for support and services hence, perhaps, the 56 per cent net growth in integration noted above, a service now offered by more than half (53 per cent) of resellers surveyed.
Among the more niche services the research looked into, outsourcing was offered by slightly less than a quarter (24 per cent) of resellers, with a net growth of 58 per cent. More than a quarter (27 per cent) of resellers said they offer web services, which scored a respectable 53 per cent net growth, and 22 per cent offer e-commerce services (57 per cent net growth). However, web site design and development and web site hosting lagged behind in the net growth stakes, scoring just 43 per cent and 47 per cent, respectively.
When it comes to product sales, storage proved to be the most buoyant core category; offered by exactly half of resellers surveyed, it registered net growth of 61 per cent, with just three per cent of resellers reporting a decline in sales. More than a quarter (28 per cent) of resellers were also offering storage services, which showed net growth of 59 per cent.
The continued growth of SANs and virtualisation, combined with the ongoing switch from tape to disk for backup, should help ensure storage keeps on growing for some time, says Burckhardt.
“I am not surprised that the storage sector performed well,” says James Ward, managing director at storage distributor Hammer. “More and more people are using digital storage, which means data is more critical. And the complexity of businesses and the ever-heightening threat of disasters mean that storage and backup are absolutely paramount.”
Collins adds that email archiving, richer documents and increased information capture and storage have all led to a requirement for increased storage. “We are implementing far more D2D2T solutions than ever before and NAS sales have dramatically increased,” he says.
Of the other core product areas, networking was both the most widespread, offered by 66 per cent of resellers, and the most healthy, with net growth of 58 per cent.
Applications and client/server each scored a relatively modest 48 per cent net growth, while the category of operating systems, middleware and infrastructure scored just 40 per cent, the third-lowest net growth in the entire survey.
As with services, resellers seeking growth might be better off exploring niche categories. Telecoms and convergence recorded the highest net growth in the entire survey at 77 per cent (see box, 23); and mobile products, offered by a third of resellers, recorded net growth of 71 per cent.
“Sales of laptops and PDAs have increased and continue to do so,” says Collins. “This is fuelled by a number of things, not least the reduction in the cost of laptops combined with an increased level of working away from the office.”
Security is offered by nearly half (47 per cent) of resellers and scored an impressive net growth of 67 per cent, while a third of resellers also offer security consultancy, which scored net growth of 63 per cent. Although mainstream areas such as anti-virus are heavily commoditised, Burckhardt believes some niche areas could offer great potential, notably ID security and ID protection and systems defence against denial of service attacks for example.
Of the two remaining product categories, audiovisual, offered by 29 per cent of resellers, scored net growth of 50 per cent. Only printing and imaging showed real signs of being in trouble, with 11 per cent of resellers reporting declining sales and an overall net growth figure of just 25 per cent, easily the lowest in the entire survey.
Interestingly, nearly half (45 per cent) of resellers were still selling printing and imaging despite the sluggish market evidence, perhaps, that some resellers are reluctant to abandon a sinking ship.
Next week, Channel Universe will take a detailed look at who today’s resellers are and how they operate.