The year of debts and deals

The past year has been a time of pulling back and planning next moves as the market teetered, writes Nick Booth

Nick Lowe: Events this year showed that resellers have a fantastic opportunity with security, which is why we bought Pointsec at the start of the year

The channel is always unpredictable. So the events of the past 12 months, when everyone seems to have followed a script, appear to have broken the pattern somewhat.

The IT industry tends to move so fast these days that the man who says something cannot be done, is generally interrupted by someone doing it.

However, there is a school of thought that nothing dramatic happened in the wonderful world of IT this year. Virtualisation is still the future. Some say it always will be.

The Waste Electrical and Electronic Equipment (WEEE) directive lived up to its name with a tiddling impact, and even the credit crunch has not crunched too many people yet. Although, it could be that no one is owning up to it.

It is almost as though the IT industry has not advanced, although Simon Pearson, a consultant with Calls on the Internet, disagreed. “You cannot say the competition in this industry has not advanced, because every day they find a new way of killing you.”

A lot of strong competitors were put out of business this year. Audiovisual distributor Maverick, which had been going great guns a few years ago, suddenly found itself in a position where assets were being auctioned off by the receivers. Who would have thought a few years ago that Watford Electronics – and even Evesham – would end up going under? Even the supposedly lucrative security market - where once you could create sales with the slightest hint of a panic story - has seen the bottom fall out of it. Maybe end users have realised that if HMRC and Peter Mandelson do not get prosecuted for serious compliance breaches, why the hell should they take security seriously. Maybe that is the reason Sentryst did not thrive in this market.

So was 2007 the year when the market turned bad? Was it the credit crunch or the impending market meltdown that saw companies driven out of business?

Stewart Hayward, commercial director at VAR WStore, commented: “If you are a strong performing company with a good model and you communicate adequately there is no reason for these things to
be an issue.”

So what went wrong for some channel players?

“It is not enough to be in the right market, you have to follow a profitable, tight model, and communicate with the people and companies with which you work that support you,” said Hayward.

“Any missing element is enough to drive a company into a downward spiral. Ultimately, there was no need for any of those companies to go under, but someone at the top did not have a handle on what was going on and let them down.”

Warren Bone, managing director of telecommunications dealer Liberty Bell, agreed. Liberty started the year with no credit after the company bought the assets of a discredited rival and found the stigma of
its takeover target attached to them. “Now we have distributors banging on our door offering us credit,” said Bone.

“The credit crunch should be no excuse for the channel,” he added.

Even this year’s security failures do not have a valid excuse, according to some. “Too many people are trying to play in the security market,” said David Hobson, managing director at security VAR Global Secure Systems.

According to Hobson, although everyone thinks security is massively profitable, the market is changing. “Security is moving into the mainstream. More people are trying to get into the market, squeezing everyone. The vendor space is also due to change - security is becoming part of the infrastructure, not a bolt on.”

However, Ian Kilpatrick, chairman of security distributor Wick Hill, feels that if channel players are half-way competent, they should have been able to do well in a strong security market during 2007. “Sentryst had issues related to changes in its legacy connectivity business, which affected its business,” explained Kilpatrick. “So this was not really a security market issue.”

Two of the big growers were encryption and end-point security, according to Nick Lowe, regional director at security vendor Check Point. He puts this down to companies beginning to realise that security is no longer about fortresses and walls, but about securing sensitive data wherever it is.

“Events this year showed that resellers have a fantastic opportunity with this, which is why Check Point bought Pointsec at the start of the year,” said Lowe.

The trend continued with McAfee buying SafeBoot recently (CRN Online, 9 October): all indications are of a distinct migration from firewalls in the data security sector. Increasingly, it was securing the data that became crucial.

Generally, distributors reported growing interest in a few key security markets. Active web content security saw exceptional growth. Significant criminal attacks on web content and the popularisation of the likes of YouTube have focused users and the channel on the risks associated with using signature-only web content systems for protection.

Single sign on (SSO) was another area of massive growth, claimed Wick Hill’s Kilpatrick. “There is a considerable unfulfilled need for SSO. With automated systems from the likes of Imprivata providing rapid installation, the traditional barriers to purchase were removed this year.”

However, authentication never generated the sales it promised. “It has great potential, but it is only installed in about seven per cent of organisations and the growth does not yet match the promise,” said Kilpatrick.

Manageability was another important growth market this year. Systems management and auditing companies, such as Tideway Systems, have experienced phenomenal growth thanks to the unmanaged chaos created by unchecked growth in corporate IT infrastructures. One big bank this year found its networks contained 180 servers that were completely redundant. It calculated it was spending £20,000 a year on maintaining each server, so the cost savings on auditing software - such as that provided by Tideway - proved an investment with an obvious return. Tideway became one of the 10 fastest-growing UK technology companies last year and embarked on a channel recruitment drive.

Meanwhile, the traditional giants, such as HP, have been no slouches in this area. This year saw enterprises start to deploy HP’s vPro management and security suite to cut IT costs.

IT is now the biggest source of capital expenditure in the average corporation, it emerged this year. Meanwhile, it emerged that IT is now a bigger cause of greenhouse gases than air travel.

“There has been a real opportunity for resellers on that front because to deploy vPro customers need hardware but also software,” said Steven Gales, HP’s senior category manager.

Resellers were able to use vPro like a Trojan horse to offer software services, such as HP OpenView or Microsoft SMS, which typically offer much richer profit margins for resellers.

The good news this year was that companies were intent on spending money to rationalise their IT infrastructure. The better news for the channel was that companies were spending ever more money
on mobile computing, creating even more rationalisation projects for the channel.

“We experienced strong notebook demand as many business customers have been going through
big desktop refresh cycles and decided to replace them with notebooks, reflecting the general shift
in demand we have seen happening for the past two to three years,” said Gales.

Over the past year fierce competition among mobile network operators and better integration of HSDPA connectivity by notebook manufacturers, continued to drive down the cost of high-speed HSDPA connectivity. This meant more and more businesses gained from anytime, anywhere access. Meanwhile, advances in Solid State Drives (SSD), faster dual- and quad-core processing or use of new materials, such as alloys, made the argument for using notebooks even more compelling. Notebooks became lighter, with better batteries and longer duration.

Meanwhile, software as a service (SaaS) was taken more seriously this year. “Although SaaS was relatively unknown at the start of 2007, organisations are now beginning to realise its benefits. More companies are becoming aware of the advantages that outsourcing IT buying offers,” said Mike Chambers, managing director of PC Ware.

Resellers found they could offer services that minimised the risk of licence compliance and the ability to budget more effectively for licence costs.

Talking of services, another significant trend that emerged in 2007 was resellers showing end users how to squeeze vendors on pricing and secure optimal discounts on software. This consultancy dimension is a service offer that many organisations have come to expect from resellers.

Another market where service became increasingly vital is the voice and data sector. Incredibly, given the nature of its business, people in the communications market have never been particularly great at listening to customers. There are signs, though, that this may be changing.

As data and telecoms converged, everyone expected the IT industry players to take over. They were far better at offering services, ran the logic, and were better at adapting. As soon as it became obvious that telephony could be offered over the internet, the usual experts and market analysts predicted that the fixed line telephony traditionalists were doomed.

How could the telephony industry, which grew out of a state monopoly, ever compete with the aggressive invaders from the datacomms industry, which instinctively knew everything about survival in a free market jungle? Telecoms companies only knew how to make hardware, while the geniuses of IT knew it was their software that would give them the fluency to offer the versatile range of voice and data services that would be typical of the new communications industry.

This year saw the dinosaurs fight back. While lumbering telecoms giant Mitel swallowed upstart Intertel, which was doing some impressive numbers in the SME sector, a number of the brave new datacomms players who were going to revolutionise business actually went out. With a whimper.

Contrary to received wisdom, the traditional telephony players seem to be doing better out of convergence than the IT experts moving into the same space. “It has been a lot easier for us to adapt to new technology than for the IT crowd to adapt to an entirely new business culture,” explained Mike Ballantine, business development manager for phone system maker Aastra.

“We have learned the lessons of the IT industry and the mobile phone crowd, and made our systems far more user friendly. And we have adapted our pricing models, to match anything the IT crowd can offer. Meanwhile, they have an awful lot more to learn about this business than us.”

But the telecoms vendors will not have it all their own way for long. As in all mergers and acquisitions, Mitel took on the challenge of realigning its portfolio, consolidating its product lines and keeping all its dealers - both new and old – happy.

Meanwhile, this year saw two IT giants – Cisco and Microsoft – redoubling their efforts to take over the convergence market. While Cisco threw far more effort and marketing millions into capturing the SME audience, Microsoft’s plans for Open Communications Convergence sounded a lot more ominous for the telco crowd. It remains to be seen if they can pull it off, but they could draw more flotsam and jetsam into the unified comms market, which would muddy the channel for 2008.

“May you live in interesting times” is an ancient Chinese curse, which is apt to the security and convergence markets in 2007. Even storage is not the safe option it once was.

Is there not anything dull but safe for companies to get involved in, channel players might ask? There is indeed. One company that dared to be dull this year, and did very nicely indeed, was C2C, which saw some good growth in email archiving. “Everyone knows email archiving is hot,” said Dave Hunt, C2C’s chief executive. “We saw that integrators are tired of complex projects that are difficult to budget and want solutions designed and delivered for ease of implementation.”

This, he said, has meant that C2C – and its channel partners – have shared more revenue and less risk than in most sectors.

Well, we are glad someone is happy. Here’s to the new year.

Summary

* There were high-profile failures among big players, even in relatively safe areas such as IT security

* Sales of software as a service began to take off after years of trying.

* Notebook computer sales boomed again this year to the point where they now over-shadow desktop sales in volume and revenue.

* Data centres and IT infrastructures offered some of the most lucrative opportunities for rationalisation.

* The telecoms industry is still living through the Chinese curse of “interesting times’.