Positive Fourcast
Users are finally giving in to pent-up demand in all sectors of the IT industry. Or so say many analysts in their predictions for 2004, writes Paul Bray.
Don't throw away the lucky rabbit's foot just yet, but it looks as though resellers can approach 2004 with genuine, if cautious, optimism.
Recently analyst IDC upped its worldwide IT spending growth forecast for 2004 from a promising 4.9 per cent to a positively glowing six to eight per cent-plus. This signals the first significant uplift in IT spending for several years.
Software and services revenues are expected to more than make up for fierce price competition in hardware, although telecoms will experience slightly lower growth, IDC predicts.
The UK's prospects are particularly good, says analyst Forrester Research. It forecasts that UK IT spending will grow by 6.2 per cent in 2004, while France will also experience growth (3.6 per cent).
However, spending in Germany and the Netherlands will fall slightly. In the developing world, China alone will consume nearly $30bn of IT products and services in 2004, IDC claims.
Part of the growth impetus will come from a general uplift in the world economy, boosted by specific regional events.
These include the US presidential election, the enlargement of the EU to include eight more east European countries plus Cyprus and Malta, and the ongoing drive to meet the UK government's 2005 target for e-government.
Added to this, a dam of pent-up demand is waiting to burst. Organisations that have been nursing empty wallets since the dotcom meltdown are realising that technology has significantly improved in the past three to four years, making reinvestment worthwhile.
How much this will benefit resellers depends on their attitude and expertise. "There certainly will be casualties, as the market is over-serviced, margins are lower than ever and sales teams are tired of the long downturn," says Shaun Frohlich, executive chairman of reseller Teksys.
Frighteningly efficient direct vendors, epitomised by Dell, will be ever keener to eat the reseller's dinner, and at the trencherman end of the market they look likely to succeed.
Richard Young, chief executive of Prior Analytics, a FrontRange and Microsoft reseller, predicts: "Vendors going direct will continue to be the largest issue for the channel. Customers are increasingly using the web to shop around, so resellers must offer better and more consistent levels of expertise and customer service."
But online selling by itself is unlikely to make this worse, claims David Freedman, IT sector head at sales and management training specialist Huthwaite International. "Web store fronts per se don't add much value, so resellers who could achieve value-add before should continue to maintain differentiation with web store fronts in place," he says.
Resellers who play to their strengths will thrive. Paul Sangster, joint managing director of storage distributor Hammer, maintains: "I believe there will always be sectors where direct vendors will struggle to provide the level of sector-specific understanding the channel can deliver.
"So resellers will increasingly have to provide upfront consultancy, recommend scalable solutions, and supply wrap-around products such as maintenance, training and support."
Analysts are predicting a change in attitudes to IT, from cost reduction and efficiency improvement to gaining competitive advantage through transforming business processes, such as enabling the business to do new things, not just do the old ones better.
In this environment, return on investment will become a pressing demand. David Ellis, director of e-security at distributor Unipalm, says: "Resellers will have to back up all reasonable-sized IT buys with strong return-on-investment arguments, a complete change from the channel's previous speeds-and-feeds approach."
It is not just customers who will expect to see more added value from the channel. For vendors facing dwindling prices and margins, a channel that adds little or no value will become an unaffordable luxury.
"Unless vendors can get a better overall deal via the channel they'll see it simply as an additional cost and they won't drive business through it," warns Mike Mangham, general manager of distributor GE Access.
Resellers are clearly wary of vendors' motives. Some fear they won't pull their weight. "A major issue will be vendors expecting increased business due to the improved economic environment without putting in the work themselves; for example, marketing expenditure," says Young.
Mid-market software vendors could be squeezed by the big boys as they muscle into the SME market, and will squeeze the channel in turn, dropping prices and increasing direct sales. Commodity hardware vendors may dilute their channel by signing up more resellers, thereby fuelling discounting wars.
The grey market is also here to stay.
"Manufacturers ... want to make better margins in geographies where they can get away with it and to dump inventory when it suits them, and resellers are searching frantically for deals and margins," states Frohlich. "The result is a burgeoning grey market."
The pressure to become more business process-focused will affect vendors as well as resellers, warns Gartner. The firm predicts that more vendors will reorganise themselves alongside customer sector rather than product lines, as IBM's software division is doing.
Those who fail may not survive. According to Gartner, more than half of vendor firms will no longer exist by 2005 because of consolidation.
Consolidated super-vendors will want to commoditise services in the same way they have commoditised prices, argues Steve Mackey, product marketing director at tape system vendor ADIC. "The channel must take on board that it will come under pressure as mainstream services are delivered by larger vendors," he advises.
But there are plenty of opportunities to stay ahead of the market, for example with specialised, managed services.
"It will be easier for resellers to move into managed services in 2004 because developments in remote and automated technology can drive down set-up costs and enhance the quality of the support they can offer," says Rob Drew, strategic partner alliances manager at infrastructure management company On Technology.
Resellers looking to expand their portfolio should also consider outsourcing.
"Businesses increasingly will be looking at outsourcing a lot of their core IT functions, but will be looking for just one external partner," predicts Simon Coulshaw, sales and marketing director at ISP Star Internet.
Software provision could be set for a major shake-up, as the uptake of broadband, falling storage costs, internet-enablement of core application packages and new monthly licensing models make ASP a viable proposition in the SME market.
Licensing will remain an issue. "In 2004 resellers increasingly will have to help educate support staff and users on software asset management," says Mark Floisand, UK chairman of the Business Software Alliance.
In the short term, 2004 could be a bumper year for licensing. John Mahon, vice president of sales and marketing at licensing firm Tally Systems, says: "Licensing will be an issue by mid-year as many Select 5 volume licence agreements are due for renegotiation with Microsoft."
But as seat counts proliferate thanks to ASP and ISP, licence values - and reseller margins - are likely to decline. "Resellers need to adjust their business models now if they're not to hit a brick wall in a couple of years," warns Andrew Rhodes, channel development manager at Astute Software.
Resellers who want to survive should also check their credit lines. Ian Vickerage, managing director of video comms distributor Imago, warns: "Because of the number of firms going bust a real credit squeeze is developing, and resellers are going to find it hard to get credit."
In August, the European directive on Waste Electrical and Electronic Equipment (WEEE) comes into force, making producers responsible for safely disposing of kit at the end of its life.
"WEEE will mostly impact manufacturers, but if resellers are importing goods from abroad they are responsible for disposal," explains Koby Amedume, marketing communications manager at printer vendor Kyocera Mita.
Mangham adds that some resellers are already beginning to include ultimate disposal in sales tenders.
Security in the spotlight
From the growth of always-on broadband and mobile computing to the mushrooming spam problem and international terrorism, security, business continuity and disaster recovery will be a top spending priority in 2004 - especially among SMEs, which have more catching up to do.
Security distributor equIP believes the main focus will be on mobile security, easier-to-manage Secure Socket Layer virtual private networks, email security and anti-spam, and web access controls to monitor user content and enable instant messaging.
Security distributor Unipalm thinks secure proxy appliances from the likes of Blue Coat and total network security solutions from firms like Crossbeam will be good sellers.
Antivirus remains a must-have, and vendors will be pushing proactive solutions which claim to guard against new and unknown viruses.
As spammers increasingly collude with virus writers, anti-spam and antivirus protection will need to be combined, says security vendor Sophos.
Expensive and vulnerable piecemeal network security based on point products will give way to consolidated solutions in 2004, believes networking vendor 3Com. And physical security - CCTV and access control - are increasingly being brought within converged network security solutions, creating channel opportunities, says network distributor Anixter.
Networking and VoIP
Years of under-investment have left many networks ripe for upgrades to proven technologies such as wireless and Gigabit Ethernet in 2004, according to vendor BT Indirect Channels. Forrester has found that more than a third of British, French, German and Dutch corporates plan to increase spending on network hardware in 2004.
The year will also mark a transition to integrated networking, where headquarters, regional and remote sites will share a common IP infrastructure, with web-based interfaces, reducing costs and enabling voice and data convergence, believes 3Com. Users will need to prepare for 10GB Ethernet, too.
Voice over IP and IP telephony will increasingly replace conventional technologies, and with analysts such as Gartner recommending migration as existing contracts come up for renewal, resellers can 'come out of the closet' and admit that their telephony systems are IP-based, says telephony software vendor Interactive Intelligence.
Wireless and mobile drive ahead
IDC believes wireless Lans will begin to be used for primary connectivity in small and temporary offices in 2004, although large office use will be limited to conference rooms and common areas.
The number of public Wi-Fi hotspots will triple in western Europe to over 24,000, although Gartner cautions that it is a bit early for them to be really useful.
So with Wi-Fi security issues sorted, attention is likely to shift to increased efficiency, compatibility and quality of service, says 3Com. Standards issues, which affected earlier Wi-Fi adoption, will be resolved as integrated solutions support all the main standards.
Margins on wireless Lans will be tight but there will be added value opportunities in areas such as bandwidth management and security, says distributor Computer 2000 (C2000).
The drive towards flexible and mobile working will help sales of laptops and PDAs. Even traditionally conservative sectors such as manufacturing will realise the benefits of PDAs for their workforce, says systems integrator MCS.
Make room for storage
Storage will remain a priority for all user firms in 2004; Forrester has found nearly half of British, French, German and Dutch corporates expect to increase spending on storage.
Conventional Fibre Channel will receive a boost from the new 4GB standard, predicts storage vendor QLogic, but most commentators' money is on the iSCSI standard, finalised in 2003, to drive storage sales.
VARs who combine experience of Sans, TCP/IP networking and the SME market will clean up. The San features in Microsoft Windows Server 2003 will also help.
In other storage fields, Sony believes SMEs will need to migrate from DDS to higher-capacity AIT for tape backup in 2004, and Gartner is recommending the efficiency benefits of storage virtualisation.
Top of the popular technologies
Broadband will be used in more than 40 per cent of online homes worldwide in 2004, predicts IDC, and broadband vendors will have to recognise that the channel is the only way to reach SMEs, says broadband distributor DMSL.
There will be opportunities to cross-sell hardware, software, consultancy and training, and the introduction of Symmetric Digital Subscriber Line will open up a new range of applications for VARs, says BT Indirect Channels.
Multi-function devices (MFDs) will be one of the hot products of 2004, according to C2000, with vendors such as Xerox pushing them as photocopier replacements. High-end MFDs will make a good basis for document management solutions, says Kyocera Mita.
In the audiovisual market, large-screen LCDs and videoconferencing will be increasingly popular, especially among corporates, says video comms distributor Imago. Projectors and plasma screens will become mainstream too, according to C2000. Consumers, meanwhile, will be snapping up DVD recorders, cameraphones and LCD TVs.
Linux will reach a tipping point in 2004 as a low-cost, shared R&D operating platform, as standards-based products such as Linux and the x86 architecture become central to major hardware and software vendors. Gartner suspects Microsoft may retaliate with price cuts.
PC sales will continue to climb in 2004, with worldwide shipments rising by 11.4 per cent thanks to aggressive pricing, high consumer demand and rapid portable adoption, predicts IDC. In applications, ERP, content management and web services will benefit from higher corporate spending, says Forrester.
Web services will become mainstream in fields such as supply chain automation, says BT Global Services, with concomitant channel opportunities in web services management.