All wrapped up

Few channel firms took a real rap in 2008, but the industry is waiting to see what is beneath the paper in 2009, says Fleur Doidge

Clare Barclay: we have continued to see areas of real growth this year and feedback from our partners is that they remain optimistic

It is a wrap: it was not the easiest of years, but the channel can feel justly satisfied with its strong performance throughout 2008.

Despite this year’s ever-insistent warnings of approaching economic doom, service and solution providers across the UK need not dispense with the traditional tinsel and cosy joy of Christmas for a hair shirt and self-flagellation ­ not just yet, anyway.

Although cost-slashing, acquisitions and restructuring tales appear more common, many technology providers have posted strong results, with certain types of technologies and solutions leading the way as a shining hope through the year and beyond.

This may also be the year when more traditional resellers finally bid farewell to box-dropping business models to concentrate their efforts on the sophisticated provision of solutions, crammed with value-add.

There is also strong hope for developers and other providers focused on innovation. According to December figures from PricewaterhouseCoopers (PwC), UK software providers are centre-stage in Europe. British firms make up 15 per cent of the top 100 software companies in Europe, with worldwide revenue of €13.3bn (£11.9bn) or 2.5 per cent of the overall revenue generated by the entire top 100.

These UK companies created significantly more wealth than their western European counterparts. The German and French software companies that featured in the EuroSoftware100 generated €4.3bn (£3.8bn) and €1.2bn (£1.1bn) respectively, according to PwC.

Sage topped PwC’s UK chart, with Misys and Logica in second and third place respectively, for combined revenues of €1.5bn (£1.3bn). German provider SAP led Sage overall, earning €8.9bn (£7.9bn) in 2008.

Jass Sarai, head of software and IT services at PwC said: “The UK’s strength lies in the number of smaller companies ranked in the top 200.

“In fact, 33 UK businesses were ranked on this extended list, producing a total global revenue of €26bn (£23bn), four per cent of the €617bn (£551bn) produced by the top 200 companies in total.”

Software behemoth Microsoft has a vast and diverse channel with the broadest of portfolios. Clare Barclay, director of partner strategy and programmes at Microsoft UK, said the economic
conditions have challenged its partners to adjust their offerings in line with customers’
changing priorities.

“That said, we have continued to see areas of real growth this year and feedback from our partners is that they remain optimistic,” she said.

Barclay said partners that have focused on addressing customer concerns about saving money and sourcing new customers have mainly had a good 2008.

Virtualisation has started to show great profit potential for partners with related expertise, with customers showing interest in virtualisation at infrastructure and application levels.

Computing in the cloud was one of the biggest buzz phrases for last year and, according to Barclay, this is being translated into profits as customers alter their understanding about
technology ownership.

“We are also seeing significant year-on-year growth in the hosting arena. Our expectations are for further and rapid growth in this small but expanding segment,” said Barclay.

“Estimates suggest this area will grow at four to five times the rate of the traditional software
market,” she added.

The IT infrastructure sector also continues to be strong. Projects that are business-critical may be delayed but are not being axed, and deals are taking longer to close as credit availability becomes an issue, she said.

Customers increasingly want a transparent and tangible return on investment (RoI) as well as to understand exactly how IT can cut costs and boost profits.

“We saw uptake of Office Communication Server 2007. This demonstrates great customer awareness of the cost-saving and productivity gains through unified communications,” said Barclay.

Businesses have also shown that they prefer to maximise existing technology investments rather than rip and replace. They are looking to avoid buying unnecessary software licences. Resellers that offer asset auditing services and can pinpoint which IT components drive most immediate value are likely to do well next year too, added Barclay.

James Hall, marketing director at application optimisation reseller Teneo, said 2008 has shaped up as a “really good year, despite everything you read”.

He agreed that RoI and efficiency are increasingly the name of the game, so channel players able to offer those ­ in whatever form ­ are finding at least parts of their portfolio in hot demand.

“We are an infrastructure optimisation company. It is all about helping customers make much more out of what they already have in their IT,” he said.

Customers often opt for bandwidth maximisation before considering technology upgrades and that trend has continued to play into Teneo’s hands.

“That is leading to some fairly strong demand,” said Hall. “By the end of June, we pretty much
doubled our previous year’s revenue. Last month [November] was our best revenue month since we started in 2004.”

Robin Edwardes, senior vice president at print specialist TallyGenicom, said he has seen the beginnings of a market shift away from consumer-type offerings to demand for comprehensive tailored print solutions targeting back-office functions.

IT purchasing this year has been increasingly about maximising efficiency and saving money, and the printing sector is no exception.

“The year for us was actually pretty good, especially up until about July. But September to October was very quiet, although we had a strong November ­ a lot of which was about our export
business,” said Edwardes.

“The market now is under huge price pressure. Lots of OEMs are selling well below cost.”

Resellers need to maintain margins to do well and focus more on finding that elusive but
compelling value-add. Performance and print audits appealed to customers that want to streamline and optimise for what is widely predicted to be a difficult 2009, suggested Edwardes.

Many companies were acquired and are finding their feet under new structures. But, even so,
opportunities existed and growth happened. Duncan Ellison, business development director at Sarian, bought by Digi for $30m (£19.6m) in April, said advanced cellular technologies, especially if they offer fast upload speeds, are proving more popular after years of hype.

Again, it is about savings, with users choosing to control and monitor technologies remotely using higher-speed networking.

“We are seeing interest particularly in the remote CCTV space,” said Ellison.

Pat Dunne, senior sales director for the UK and Ireland at Websense, said that the web-filtering vendor grew through 2008 on the back of its acquisition of SurfControl.

A strong channel has been and will continue to be key although it went from four distributors to three this year as it sought greater reliability and focus for customers.

Websense is set to add another six salespeople giving a total of 34 by the beginning of January. The skills are still available if needed for growth, although pre-sales technical staff have been hard to come by, added Dunne.

“We are going to put more resources into the channel,” he said. “We have done very well on the subscription side, although not so well with new business. We want to generate subscription and new business through partners.”

Jonathan Hughes, channel sales director at Sophos, agreed, saying last year was a great year throughout for internet security sales, despite interesting times generally. He put that down partly to its no-distributor model, which means that Sophos can save money and deal directly with 1,300 resellers.

“For the partner community, it has been an interesting year ­ it was a game of two halves. The first half saw everybody brimming with optimism. However, it sobered in the second half, in line with the
broader economy,” he said.

Sophos too is aiming to add sales staff, and expects to maintain its channel next year as security requirements will continue, added Hughes.

Leon Mangan, indirect channel sales director at Siemens Enterprise Communications, confirmed that RoI has become a major theme in most IT sales discussions now. “What we are now seeing is organisations making their decisions based on sound RoI,” he said.

“Unified communications as a technology has been bandied around a lot as the next big thing for years, but we were starting to see it coming through at the back end of 2008.” (CRN, 17 March 2008.)

Any technology that can promise fast and noteworthy RoI is coming to the top of chief information
officers’ (CIOs’) must-have lists, even those have been relegated to merely nice-to-haves. Those that offer environmentally friendly aspects ­ at least if they help save on overheads ­ are also becoming higher priorities for companies of all sizes.

Siemens introduced a partner scheme about 10 months ago and hopes to lift its market development funding ­ something the firm says is critical for resellers to get the most out of these turbulent times.

“People just want to cut costs,” Mangan said. “Resellers can not sell on features ­ they must sell on generic business values. Stuff that has been around for a while.”

With 2008 in the can, the channel of 2009 begins its first scene. See CRN next week for a look ahead.