Network integrators are under threat from many sources. In fact a business model which combines the complexities of product logistics, man-in-a-van services and consultancy charged by the man-hour was always going to be challenging.
To counter these threats network integrators have turned to services. Over the past five years we have seen services revenue for network integrators rise from 31 per cent to 37 per cent of sales.
Now part of that service revenue is under threat from traditional audit-based service companies with consultancy divisions, such as Accenture. However, such companies have lost credibility since the Enron scandal.
Then there are the specialist consultants, such as LogicaCMG or Cap Gemini Ernst and Young. There is also the threat from the networking vendors themselves, which offer their own consultancy services. They pose possibly the greatest immediate threat.
The large networking vendors offer large companies pre-sales consultancy services ranging from project definition, network design and network configuration.
These are precisely the skills in which network integrators have specialised, and in which they have made substantial investments of both time and money.
The integrators have often operated at a loss in offering pre-sales services and are therefore relieved to let the vendors offer this assistance.
However, this is the network integrators' core competence that is being undermined, albeit unintentionally, by the vendor.
The vendor is keen to work directly with the large companies to ensure maximum penetration within large networking projects.
Network integrators have the additional problem of relying on networking vendors for 'making the market'.
It has become clear during EuroLAN Research interviews that network integrators expect the vendor to perform all marketing activities.
While it may seem to reduce the companies' marketing costs, there is a great deal to say for controlling one's own destiny.
John Chambers, chief executive of Cisco, recently stated that the High Touch model has a dramatic effect on Cisco's gross margin, as integrators would never propose the full Cisco model and sell the company's products end to end.
Cisco takes this to the logical conclusion by using its consultants to perform the services for this High Touch sales force, rather than relying on partnering to ensure that the full Cisco model is delivered.
The South African group Datatec, which has network integrator Logical and distributors Westcon and Comstor in its fold, paid £19m for a 75 per cent stake in the telecoms consultancy Mason Group in 1999 but has left it as a separate entity.
Late last year KPMG Consulting changed its name to BearingPoint, but before this Atos Origin had bought KPMG Consulting in the UK and The Netherlands, and Cisco had invested $1bn in 2000 to gain access to 4,000 of its consultants.
Lucent Technologies had gone even further when it bought INS for $3.7bn. The fact that Lucent had just spun it out again may indicate a market trend, as well as salvation for the networking channels.
Consolidation, such as IBM Global Services' acquisition of PwC Consulting, may well keep the consultants inward-looking for a long time.
Salvation for integrators may be found in partnering, not only with vendors but by concentrating on the network integrators' key strengths and partnering with peers that have specialised skills. These include consultancies.
Keith Humphreys is managing consultant at EuroLAN Research.
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