In the past, customers intending to install a converged voice and data network always faced a dilemma: they had to go to either a voice specialist or a data specialist, but neither of these alone could supply a truly converged offering.
"The stumbling block to the take-up of convergence has been the differences in the channels," says Nigel Jones, business development manager at networking vendor Alcatel. "But resellers are now bringing in the skills they need."
The distinction between voice and data resellers is starting to blur. This is partly because flexible resellers are willing to learn new skills to move into the convergence and voice over IP (VoIP) markets.
It is also partly because a number of acquisitive resellers - backed by external funding - are buying up the skills, and the companies, they need to put together a complete converged solution.
"Convergence is a hot market for investment, particularly at the channel level," says Keith Humphreys, managing consultant at EuroLAN Research.
He says the combining of voice and data resellers through external funding is a "blessed relief". It means resellers will have the skills to support their customers as they move towards converged networks. Without the funding, he says, there is no way voice and data resellers would be working together so closely.
"There is no question that convergence has been held up by the separation of the two channels," says Humphreys.
The most acquisitive of the new breed of convergence resellers is Azzurri Group. It has snapped up Everlogic, Convergent Systems, FH Brown, Smart Connections, ATC Networks, Netwise, Focus Communications, Xstreammedia, Kilbryde Communications and Gemini Trading. A number of other resellers have also gone down this route.
John Scholes, chief executive of The Catalyst Group, which advises on mergers and acquisitions, says investors have spotted the impending dominance of the network, and are keen to back resellers that want to develop skills in this area.
"A lot of resellers that are not generating organic growth on their own need to grow by acquisition, and they need to get external funding to do it," says Scholes.
He says resellers are being helped by fundamental changes in the way the IT sector receives funding. In the past there was more 'risk' cash available for start-ups, and companies could go public at an early stage. Now there is less early funding available and companies have to wait longer to go public.
The resulting funding gap is being filled by public equity money, helping innovative companies grow. Channel players that want to acquire specific skills in convergence technologies are beneficiaries of this cash, says Scholes.
"It's a question of consolidating islands of expertise," he says "Small VARs have niche skills, and if they are to provide convergence solutions they need to partner with others."
Creating reseller groups skilled in combining voice and data technology at the network level is the missing link in providing effective convergence solutions.
Fausto Amoroso, marketing vice-president at systems integrator Omnetica, says: "In three years' time the landscape for voice resellers will be very different, with the voice and data channels much closer together. Convergence is happening now, although many users do not know it is called that. It is being done in a piecemeal way."
Amoroso thinks customers need to work out their overall convergence strategy. "It is not just about replacing the dial tone on the PBX," he says.
A survey by Omnetica earlier this year found that 94 per cent of UK companies were already implementing at least one element of a converged solution, but many were not aware that was what they were actually doing.
It based its survey on the eight industry-recognised convergence elements: IP voice trunking, IP telephony, personal productivity, contact centres, conferencing over IP, storage on IP, mobilising the workforce, and integration/networking and middleware.
The survey showed that the channel has not been effectively selling the business benefits of convergence solutions. Many users perceive IP telephony as being much more expensive than a conventional PBX, which suggests resellers have not succeeded in convincing them of the business case for convergence.
The survey also found that convergence was being implemented in a way that ignored important wider issues, such as business continuity. The survey results seemed to show the pressing need to bring voice and data resellers closer together so the customer can get a comprehensive solution from a single source.
The merging of the two different categories of reseller throws up some interesting questions. How easy is it to fit together a voice reseller and a data reseller? And as the convergence trend develops, will the distinction between the two disappear?
"In terms of logistics, there is not much point in just acquiring a portfolio of resellers," says Scholes. "You have to get some operational advantage by getting them to work more closely together."
At the basic level merged resellers can benefit by stripping out operational costs. More potential savings come through extra purchasing power, and there are the benefits of cross-selling to each other's customers. The final level is integrating skills. "This produces a series of business gains," says Scholes.
When deciding which resellers to acquire, Scholes says the big question for the venture capitalist (VC) is whether the VAR has any replicable business processes that can be scaled.
"It is not just a case of selling kit, but of managing the complete network infrastructure," he says. The VC is less likely to be concerned about the size of the reseller or its location, although these are also factors."
Integrating voice and data resellers to offer end-to-end convergence solutions makes sense in principle. But there can be problems in merging the two channels because there is a historic cultural difference between them.
"Voice and data resellers have different business models," says Humphreys. "Voice resellers do not like the data side because of the low margins, and data resellers see voice as a step back into the old world."
Research by EuroLAN shows voice resellers typically earn more of their sales from IP telephony than data resellers do, mainly because three-quarters of the convergence systems currently being implemented are hybrid ones operating alongside a conventional PBX. This approach tends to favour the voice reseller that has installed the PBX.
EuroLAN also found that voice resellers often had relationships with just two vendors, compared with an average of six for data resellers. It concluded that the data or networking VAR is far more agile than the voice reseller in selecting and recruiting vendors and reacting to new markets.
The two types of resellers also tend to rely on different vendors, with Cisco data resellers doing best in selling convergence systems, followed by resellers selling Avaya and Nortel solutions.
Among voice resellers the vendor focus was far more on selling Avaya, and far less on selling Cisco. Mitel and Siemens kit was also a big seller for the telecoms VAR.
The EuroLAN research highlights the mountain that vendors and distributors need to climb if the voice and data channels are to move closer together.
One of the key drivers for convergence take-up is the perception by data resellers that it is a way of getting a foothold in the higher-margin voice business. Amoroso disagrees that the current state of the convergence market favours voice resellers, and says data resellers are in a better position to take advantage.
"The reseller transition from data to voice is easier than the other way around," he says. "Data resellers understand IP networks and quality of service issues better. Resellers from a voice background do not have IP skills, which makes it harder for them to offer converged solutions."
A possible alternative to the all-out mergers and acquisitions strategy would be a less formal partnership between a voice and a data reseller, although there are problems in achieving this.
"A partnership is an obvious way to provide convergence solutions in the channel," says Humphreys. "But it is not happening because customers don't like it."
Customers want one person to be responsible for their IP network so they know who they can blame if anything goes wrong. "The reseller needs to formalise any partnership, and a formal partnership ends up being a merger anyway," Humphreys says.
Jones says resellers will be forced to partner as the next phase of convergence develops and early adopters that have already implemented voice and data on their network infrastructure want to merge it with their e-business applications.
"We have already had the lower levels of convergence. For the next stage we want our resellers to form alliances, particularly with companies that have expertise in enterprise software applications," he says.
Jones says enterprise software resellers are now keen to muscle in on the convergence market, in response to their customers' demands.
"The next hurdle for their customers is getting their SAP application talking to the voice network," he says. "This is a more holistic view of what convergence is about, and it is difficult for just one part of the channel to provide it."
In a reseller partnership, the key is to build a business model that specifies which partner fronts which part of the system to the customer, making sure the customer always has a single point of contact for any difficulty that may arise, says Jones.
Despite the growing pressure to partner, there could still be good convergence opportunities for the smaller, standalone reseller.
"At the moment convergence is happening in medium-sized and larger companies," says Amoroso. "But smaller users will start to use IP-based solutions and this will create a role for the smaller reseller, which will be able to provide maintenance and support."
Humphreys believes the convergence market is still in a transitional phase, with most customers running separate telephony and data budgets.
As convergence moves further into the mainstream, however, more customers will have only one, centralised budget, and the resellers they deal with will have to offer both voice and data services.
With the boundaries between the voice and data channels becoming blurred, and the larger convergence vendors co-operating and working more closely together, what will happen to the smaller convergence vendors?
The sector is populated by a large number of small, niche suppliers that have innovative products but lack significant market share.
As convergence technology starts to be widely adopted by big business customers, it seems inevitable that there will be a major vendor shake-up.
"There is room during this transitional phase for small vendors offering, for example, gateways to PBXs," says Humphreys. "But there won't be room in the future. The need for their services will just go away." Rather than being bought up, these small vendors are more likely to just disappear.
Jones agrees that as the technology lifecycle evolves, the smaller vendors will disappear, and that the convergence market will mature around three or four major suppliers.
"But the next technology shift will bring a new set of small vendors, and they will be two years ahead of the big vendors again," he says.
For now, as the convergence and IP telephony markets grows towards maturity, significant vendor investment is needed to support resellers, and small vendors could struggle to supply it.
Alcatel (0870) 903 3600
EuroLAN Research (01344) 291 080
The Catalyst Group (01962) 840 816
Omnetica (01442) 883 300
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