Forward thinking

The IT party may be over, but there are still technologies and trends that will prove fruitful this year

We're optimistic for 2005 and feel that many areas are gaining momentum, such as security and convergence. But IT's heyday is over," says Neil Louw, chief technology officer at system integrator Dimension Data. "The industry has become more focused. The continuing challenge is to justify the spend for every IT investment."

Justifying IT expenditure will be one of the key themes of 2005 as IT directors must show they can extract value from what they have bought, according to analyst Butler Group. This means resellers will have to include return on investment in their proposals help them win sales.

Delivering business value is more and more about being able to offer a competitive advantage with what you are selling. An increasing focus on customer service means call centres, e-commerce and CRM are thrust to the top of the heap.

Wise resellers will understand the business pressures their customers face, which is something many in the channel have yet to realise. "Too many resellers still focus on selling from a product base with no true customer awareness," says Simon Darlington, managing director of reseller LSI Business Solutions.

"Resellers need to learn and understand what type of customer buys from a reseller and why."

As customers become more canny, the channel will have no option but to follow this advice. David Ellis, director of e-security at distributor Unipalm, says: "Users will continue putting pressure on suppliers in terms of pricing, with some firms trying to rationalise the number of suppliers they deal with.

"Channel partners should continue to focus on where they can add real value, ensuring they are viewed as true business partners and so are less likely to face margin pressures."

Such pressures are nothing new, and 2005 will doubtless follow the usual pattern, as last year's high-margin hot technologies become this year's commodities.

Growing use of e-procurement will quickly enable customers to find the cheapest supplier if that is all they want, so resellers will have a simple choice: keep ahead of the game by adopting this year's hot new technologies and using them to add value; or build a super-efficient business in high-volume, low-margin markets.

Both types of reseller will prosper, but those who fall between these categories may be at risk.

"Some vendors' channels are full of organisations that offer similar products and services with little to choose between them," claims Neil Robertson, chief executive of business continuity software vendor Neverfail.

"Telling customers how good they are, even with references, is now just a 'me too' pitch. Resellers that can't differentiate themselves will lose out every time to those that can."

Most resellers prefer to differentiate themselves by extending their existing business rather than entering entirely new fields. This can be done, for example, by adding software asset management (SAM) to an existing licensing offering, networked storage to their LAN sales, or mobile communications to an existing fixed-line business as reseller Chess has done.

As well as keeping margins up, this approach should enable resellers to further exploit their existing customer base by selling them something new.

The trick will be to keep both balls - existing customers and new technology or services - in the air at once.

"A reseller that either takes its current customers and business for granted, or rushes into new services or technologies without making a real investment, will suffer. You need to do both," says Mike McHugh, account manager at software distributor Sigma.

Some resellers believe the full-service model will be the way forward. "There's a growing trend of full portfolio/outsourcing/relationship-based resellers emerging at all levels, from BT Corporate through to companies like ourselves," Darlington says.

"These resellers are focusing on building business through proactive relationships and bid management instead of reacting to customer requests."

However, others take the opposite view. "The old dominance of the broad-line, generalist reseller isn't as great as it was, as the emphasis switches to adding value in meeting differing sector-specific requirements," says James Ward, general manager of storage distributor Hammer.

"Today it's more about focus, and establishing real differentiation through specialist knowledge and technical expertise."

This fragmentation of the channel will oblige resellers to form alliances. Ellis says: "It's becoming more common for channel players to forge relationships to enable them to deliver.

"For example, a corporate reseller might back off specialist managed security services to a provider that has a network operating centre and specialist staff, rather make the big upfront investment required to deliver it themselves."

The growing SME market may be served by networks of independent resellers, according to Ian Snadden, director of channel sales at Fujitsu Siemens.

"I think there's an opening for such networks to share easily replicated value proposition and solutions building, and combine back-office functions to reduce overall costs," he says.

"Networks of independent businesses operating under a single brand framework, such as Sony Centres, Apple Stores or the old Apricot Computerworlds, are viable businesses once again."

For some, the ties will be closer still as small resellers merge or get snapped up by rivals, a trend already apparent last year as companies such as Matrix, Azzurri, Morse and Chess went on shopping sprees. Acquisitions and mergers may be used to gain specialist skills in higher-margin fields, or simply to buy new customer bases or boost economies of scale.

Voice and data convergence will prompt resellers on one side of the divide to acquire or merge with those on the other, while ISPs may acquire their way into managed services and outsourcing.

Consolidation will not be confined to resellers. "Mergers and acquisitions will continue among distributors. We've already seen Tech Data buying Azlan and Bell Microproducts buying OpenPSL," says Nitin Joshi, a partner at accountancy firm PKF.

Vendors, too, will feel the squeeze. According to Butler Group, wise IT directors will standardise on a small group of key vendors that can act as partners in delivering business solutions. This will lead to further consolidation among vendors.

Sun, for example, should making acquisitions this year, according to Butler Group, and the increasing complexity of threats will encourage security vendors to use acquisitions to add to their portfolios and create all-embracing security packages.

Customer pressure will cause mainstream vendors to expect more value-add from their channel, McHugh says, while Ward believes vendors will want to consolidate their distribution networks and work with less channel partners.

If they cannot find suitable partners, vendors will fill the vacuum themselves, according to Darlington. "The channel is maturing slowly and only in certain sectors, yet customer expectations are moving more rapidly," he says.

"If expectations exceed delivery, customers will eventually look for an alternative source, and vendors will have little choice but to provide it."

In the large corporate market, vendors may increasingly bypass the channel and sell direct, Joshi says. But at the other end of the scale, vendors will have no choice but to delegate responsibility to the channel in order to grow their SME sales.

In storage, SMEs are taking more interest in SANs, Fibre Channel and iSCSI as they become simpler and cheaper. Vendors are keen to exploit this market but lack the resources to service it themselves.

"Fibre Channel and iSCSI need a route to market where the unit price would make it difficult to support a direct sales person creating direct relationships with a mass of smaller users," says Sam Samuel, director of storage strategy at distributor Zycko.

"The only way to reach this volume market will be through the channel."

Acting on compliance

SMEs will not be the only customers flourishing their chequebooks this year, as a combination of business pressures and regulatory deadlines obliges organisations in many sectors to invest in IT.

The most significant driver, according to Butler Group, will be compliance with financial and other regulations, ranging from the Data Protection Act and the forthcoming Companies Act to specific legislation relating to banking, pharmaceuticals, medical research and other fields.

The rules are many and varied, but most of them require organisations to preserve large volumes of data, often for considerable periods, and to have clearly defined operating procedures and watertight IT systems for managing them.

Many organisations are aware of the issues, but few know what to do about them. Storage and security sales will benefit, but helping customers get their management and policies right will be just as important as products and services.

"Research predicts that in 2005, half of major organisations will invest significantly in technology to address new compliance imperatives," says a respresentative for business process management VAR Netcomm Systems.

"There's about 15 per cent growth potential for resellers that can help with their clients' compliance issues."

The public sector offers rich possibilities this year. The Freedom of Information Act, which came into force on 1 January, gives individuals and organisations the right to request information from public-sector bodies. Many may find that their information management and retrieval processes are not up to scratch and need to be upgraded.

Education and health offer strong prospects. Schools are buying laptops for teachers and interactive whiteboards, while the NHS is spending billions on IT upgrades and training. Spending could increase if the government seeks re-election this year, says Steve Dracup, managing director of audiovisual distributor Promethean.

"Children and hospitals are a vote-winning combination, so investment in education and health will help resellers in these markets," he says.

Going public

This year is also the deadline for all contact with public-sector organisations, from replying to a contract tender to renewing a library book, to be possible by electronic means. Much investment is still required.

For example, it is estimated that only one-third of English local authorities have full electronic capabilities, another third are developing solutions, while the remaining third are still staring at the drawing board.

This promises rich pickings in markets such as e-commerce, procurement, CRM, contact centres, IP telephony and email management.

Private-sector companies will be investing in similar customer-facing and supply- chain automation technologies, simply to remain competitive. The financial services market should pick up nicely, thanks partly to increased competition, and partly to new rules such as the duty on professional advisors to record all of their phone calls.

Medical research is growing very rapidly, with increasing use of data-intensive methods such as simulation testing. Channel companies are also reporting sales growth in sectors ranging from legal, retail and construction to travel, sports, leisure and video animation.

Abroad, the eastern European market is strong and the newly-enlarged European Union continues to offer potential.

Of course the picture is not all rosy. Internationally, the strong pound will make exports tougher and open the door to cheap imports, and the implications of the tsunami disaster are hard to comprehend. At home, high levels of debt and falling house prices could dent consumer spending.

More offshore outsourcing could reduce headcounts and hence IT requirements among UK firms. And the skills shortage usually worsens as the economy picks up, so if your chief salesperson keeps nipping off to visit vendors, advertise for a replacement quickly.

But the channel will cope. "In my recent experience, the UK channel is nimble enough to adapt to future opportunities," says Richard Bradley, channel manager at Computer Associates.

"The key to resellers' success in 2005, as with all of us, will be to predict, listen to and fulfil the needs of their target customers so that no opportunity for growth is missed."

CONTACTS

Chess (0845) 612 7000
www.chesstelecom.com

Computer Associates (01753) 577 733
www.ca.com

Dimension Data (01932) 726 666
www.didata.com

Fujitsu Siemens (01344) 475 000
www.fujitsu-siemens.com

Hammer (01256) 841 000
www.hammerplc.com

LSI Business Solutions (01209) 313 575
www.lsisystems.co.uk

Netcomm (01342) 337 900
www.netcommsystems.co.uk

Neverfail (0870) 777 1500
www.neverfailgroup.com

PKF (020) 7065 0000
www.pkf.co.uk

Promethean AV Distribution (01254) 676 921
www.prometheanworld.com/distribution

Sigma Software Distribution (01364) 655 200
www.sigmasd.com

Unipalm (01638) 569 754
www.unipalm.co.uk

Zycko (01285) 868 500
www.zycko.com