We all think that we understand the channel, but most of our opinions are
just that: opinions based on personal experience, hearsay and snippets of what
we read in the press. Everyone knows their own piece of the jigsaw, but no one
has the complete picture.
Ignorance may be bliss, but it is not good for business. Without detailed, up-to-date knowledge, resellers cannot benchmark themselves against their peers and may miss out on lucrative opportunities to move into growing markets or get out of declining ones. Vendors and distributors may be making and stocking the wrong products, wasting their partner budgets or failing to link with emerging niches or thriving sectors of the channel.
The last organisation to conduct detailed research on the size and state of the UK channel was CRN’s predecessor, PC Dealer, in 1998.
In the intervening decade a huge amount has changed. To be certain that CRN is still delivering the right content to its readers and providing them with a detailed picture of their environment, we decided to conduct an extensive research project called Channel Universe. Over the next four weeks we shall be revealing the results.
“This research was aimed at giving us and our readers an insight into exactly how the channel has changed, the new trends and the latest technology that our readers should potentially be selling,” says CRN’s editor, Sara Yirrell.
“By finding out exactly what the channel is about in 2008 our readers will be able to redefine their own business strategies for the coming years.”
CRN’s research will have several benefits for the entire channel, and not just in the UK. Vendors at home and abroad will gain an idea of the exact size of the UK market, helping them to plan budgets and partner programmes. They will know where to inject marketing development funds and it may help them to plan product road maps.
Distributors, too, will gain a better understanding of where they need to place funding, which technologies they should be stocking and where resellers are aiming their businesses.
Digging deep into the channel
For resellers the research will be invaluable, says Yirrell: “No one since 1998 has dug so deep into the channel to be able to predict what the next hot topics for resellers will be.
“Not only can this research help VARs to align their business to growth areas, but it will tell them what areas are falling away and becoming commoditised.”
The Channel Universe research was conducted by market research company ICM Research, which interviewed more than 700 channel firms by phone and online see box, How the research was carried out.
“Our aim was to segment and profile the different types of companies that make up the channel and to identify key trends,” says James Burckhardt, associate director of ICM Research, who designed and managed the research. “We hope it will raise the profile of the channel.”
So what did we discover? In terms of population, the typical reseller (about three quarters of those questioned) has fewer than 50 employees and is based at a single site; more than half of resellers have fewer than 10 staff.
However, the largest 10 to 20 per cent segment of resellers generate more than 80 per cent of channel
revenues, with the top nine per cent turning over in excess of £50m each.
The overall number of resellers has declined since 1998, from 23,500 to about 17,000 according to our estimates no surprise, perhaps, considering the consolidation of the market after the millennium bug bulge and the tough economic conditions of the early 2000s.
But the survivors appear pretty confident.
“They are more bullish than perhaps I would have expected,” says Burckhardt. “The outlook for the channel is a lot more positive than people might suppose. Resellers have faced challenges in their core areas. But they have managed to change their business model to adapt to these.”
We quizzed resellers on 10 product areas and 18 types of services. In all 18 services and all but two product areas, more than half of resellers said they were experiencing revenue growth. Net growth (the percentage of resellers experiencing growth minus the percentage experiencing decline) exceeded 50 per cent in half of products and the great majority of services (15 out of 18).
It was no surprise to learn that services have become much more important since 1998, though the research enables us to quantify how much more important.
But the research was also able to provide a detailed picture of precisely which sectors are thriving.
“I think one of the most vital things we have discovered is the rise and rise of managed services,” says Yirrell. “At CRN we have been covering the topic for some time, but it has been slow and cumbersome to get off the ground. Now, however, our research shows it is one of the fastest growing sectors.”
Managed services topped the services net growth table with 72 per cent. In product-related sales, the most bullish sector was telecoms and convergence with net growth of 77 per cent. Fixed and mobile along with voice and data convergence seem to be driving growth in this sector, offering genuine cost advantages and economies of scale to customers and lucrative opportunities for crossover resellers that are able to offer skills on both sides of the line.
The mobile sector is almost as bullish, with net growth of 71 per cent, while wireless services is achieving net growth of 66 per cent evidence that it is finally gaining momentum.
Security and security consultancy are also strong, with net growth of 67 per cent and 63 per cent respectively; while core products like anti-virus are commoditised, hotspots such as ID protection and systems defence (particularly against denial-of-service attacks) continue to offer good prospects for the channel, says Burckhardt.
Niche and core growth
The aforementioned are all niche sectors i.e. sold by fewer than half of resellers. Among core product sectors, storage proved the most successful with net growth of 61 per cent, while consultancy and support led the growth table in core services, both in the low sixties. Since three quarters of resellers offer support and consultancy, this augurs well for the health of the channel as a whole.
Hardware still accounts for 28 per cent of resellers’ sales, with software making up the other quarter. Software sales have undergone a significant change since 1998, says Yirrell: “Surprisingly, the study found that software has become of paramount importance.
“While hardware has often been condemned as commoditised and margin free, it was still a surprise to see how many channel players have turned to developing or tailoring software. More than seven out of 10 VARs are developing or tailoring applications for their end users an evolution that has kept many resellers alive.”
Resellers reported net growth in all customer segments, with corporate customers (500 or more employees) the surprise leader at 61 per cent. The public sector was the least buoyant with 45 per cent net growth, despite, or perhaps because of, the sharp rise in public sector sales over the previous few years.
“The fact that the enterprise sector has shown the most growth is surprising because according to other research it has slowed right down,” says Yirrell. “This definitely shows there is hope that this market is beginning to pick up again.”
Despite the growth of electronic channels in the last decade, the survey showed that reselling remains a people business, with 84 per cent of respondents selling face to face and half relying on this as their primary sales method.
Personal recommendation and networking is still the most common way of generating leads, twice as widely used as any other tactic.
However, things are changing. More than half of respondents said they collab orate with other resellers, and for one in eight this is the primary method of selling.
Collaborative selling is here to stay and resellers may increasingly have to rely on it to plug gaps in their core skill sets, says Burckhardt.
Overall, the Channel Universe survey found the channel to be in pretty good shape. “It confirms that things may not be as bad as other research has predicted,” says Yirrell. “Most respondents said they were pretty content and were prepared to innovate by expanding into new technology areas or new sectors.
Strategies for the future
“We have found that there are a lot of small, lean, agile resellers who operate very effectively, providing products and services designed to mirror the requirements of their
target customers, who tend to be a
similar size to the resellers themselves,” says Burckhardt.
The key for resellers, says Yirrell, is to get out of hardware and into software, consultancy and services. “It is not a new strategy, but this is the first time we have been able to say that with some confidence, backed up by independent research.”
Flexibility, a willingness to collaborate and the ability to seize opportunities will be the critical success factors for tomorrow’s resellers, says Burckhardt.
“The last decade has been a period of significant change and all the indicators are that this will continue,” he says. “This latest research shows that resellers must evolve in order to survive.”
Over the next four weeks we shall be looking in more depth at the results of the research and assessing what resellers, distributors and vendors can learn from it.
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