Dust yourselves down and start again

After the worst year in the history of IT, Paul Bray takes a look at what resellers can expect in terms of technological and business developments in 2003.

Perhaps the best that can be said about 2003 is that any reseller that managed to survive 2002 will be well prepared for it.

Last year was the worst in the history of the IT industry, according to research company IDC. Sales actually shrank by 2.3 per cent, compared with an average yearly growth of 12 per cent over the past two decades.

Storage sales crashed by 10.6 per cent, systems hardware by 9.3 per cent and network equipment by 7.6 per cent, said IDC, and services didn't fare a great deal better.

This year, price competition and the small size of projects will continue to keep the lid on growth.

Gloomy prospects
In fact, IDC is so worried by the prospect of war in Iraq, another stock market plunge or similar economic or political disasters, that for the first time it has issued two forecasts for 2003.

The optimistic one is 5.8 per cent growth worldwide (5.4 per cent in Europe) and the pessimistic one is closer to two per cent.

So it is not surprising that even resellers that are beginning to see green shoots appear are preparing for another frost.

"Customers are now beginning to accept that the investment they were so enthusiastic about a year ago is still valid and are starting to sign off orders," explained Matt Flowerday, chief executive at systems integrator Trescray Network Communications.

"But we have been in the network infrastructure business for 26 years, and our experience has shown that recoveries are often preceded by several false starts."

Optimists hope that the year 2000 bulge will work itself out next year. "After a depressed couple of years which followed the Y2K binge, I'm optimistic that the market is lifting and that the channel should fare better in 2003," stated Gary Turner, head of sales at accounting software vendor Pegasus.

"Many systems were replaced and upgraded shortly before 2000. Hopefully that means a large number of systems are beginning to creak at the same time too."

But Gartner Dataquest analyst Charles Smulders warned: "Budget-constrained organisations are holding on to their PCs longer.

"With cost reduction the priority, and desktop performance still adequate on machines bought more than three years ago, the decision to delay replacing PCs is easy."

A lot depends on which markets you sell to. While corporate purse strings are tight, small to medium sized enterprises (SMEs) have more incentive to invest, especially as new technologies like broadband and wireless networking make IT more attractive and less problematic (although SMEs and consumers are also highly cost-conscious and expensive to support).

Education, health and other parts of the public sector also offer better prospects. IDC predicts that European spending on e-government services will grow 13 per cent to $2.8bn (£1.7bn) in 2003.

Who will succeed in 2003?
The resellers that succeed in 2003 are unlikely to be box-shifters, the widely predicted demise of which now seems imminent.

"In my opinion, there will be fewer players in the marketplace in 2003, as more companies go bust," said Lee Cox, commercial director at reseller Sol-Tec.

"People are still not offering services to accompany the products they sell, and trying to offer the best price on computer equipment to close the deal isn't going to work as a long-term strategy.

"It will eat into your profit, and in slower times you need to do business on more than just equipment."

The emphasis will be on services and total solutions, as margins on basic hardware and software remain wafer-thin, if resellers are able to sell these items at all.

"In 2003, the channel will be under continued pressure as increasing numbers of vendors look to increase their customer relationships and introduce strategies to maximise their margins," explained Lisa Dargan, business development director at reseller and managed services specialist Ultima Business Solutions.

"Strategies that help achieve and maintain strategic business partner status will be critical, and the channel must focus on achieving better relationships with a broader mix of vendors."

Many vendors' commitment to the channel appears undimmed. Chris Jagusz, head of business development at BT Indirect Channels, said: "I can't think of many vendors that have become less committed to the channel.

"There's near-universal acceptance of the value the right channel partners bring."

But the key word here is 'right'. Vendors will be increasingly unwilling to carry passengers and will demand a better return on investment.

"In a bid to increase sales, vendors will start to get tough in 2003, imposing further targets and minimum sales levels," suggested Ben Cooper, reseller account manager at vendor Albany Software.

This is not unreasonable, according to Steve Groom, business development director at document processing vendor Captiva.

"Many vendors spend huge amounts of time and money, sometimes with dedicated channel resources, supporting a channel that is not a great fit with their product range," he said.

"So vendors will take a more organised approach to how they support the channel, and in return they will want a more open and detailed understanding of their channel partners' strategy and tactical plans."

Patrick O'Connor, director of channel sales and strategic alliances at networking vendor Novell, added: "Partners will need more support and education from software vendors to drive the new model of solution selling, and a more tightly integrated relationship with vendors to ensure that they are on top of new developments."

However, IDC pointed out that the more training, marketing, technical support and so on a software vendor offers its resellers, the lower the margins will be for its products.

Licensing and leasing
Changes in the way vendors package and deliver their software - particularly licensing, software as a service and non-perpetual licences - are also likely to continue pushing down margins, the analyst warned.

Licensing will change the software landscape next year. "Instead of selling one-off products, partners are looking for some predictability and sustainability with payments," explained Eamonn Dullaghan, vice president of the indirect and partner channel at telco Cable & Wireless.

"We provide services on an ongoing monthly basis and this is becoming more and more attractive to partners and customers alike."

A similar attitude will prevail in hardware, as leasing becomes more popular, according to Tracey Rawling-Church, head of marketing at printer vendor Kyocera Mita.

"If UK trends follow those in the US, then next year will see greater emphasis on hardware leasing, rather than outright purchase," she said.

"This is an opportunity for the IT channel to strengthen relationships with its customers by providing consultation followed by an ongoing relationship throughout the period of the contract, and to up-sell into other areas of the customer's business by providing outsourcing and in particular managed services."

O'Connor agreed that licensing agreements are not enough to command loyalty. "To encourage growth, the channel needs to be rewarded for ground-breaking deals that help grow the business," he said.

"This may be the year marked by incentives to encourage a more unified model of working that reward partners for driving new business opportunities."

This attitude is symptomatic of a change in the role of the reseller. "The balance of power in the channel has moved from corporate giants to smaller, nimbler entrepreneurs. These more flexible organisations can respond more quickly to change," said Dullaghan.

Specialising in niche solutions will be a lucrative option, according to Mark Darvill, director of technology at services and network integration group Logical.

"A wireless integrator could focus on geographically dispersed companies with broadband needs and tailor a solution to them," he explained. "If you look at other verticals and technology areas, you will find other examples."

The vendors to watch this year
Among vendors, the corporate giants are the key companies to watch. Hewlett Packard (HP) seems to be the name on everyone's lips.

"HP has really focused on what it wants and has improved some of its technology, such as disk arrays," said Chris Devlin, EMEA general manager for indirect business at software giant Computer Associates.

"The reaction to the new HP from its customers and channel partners will be key. For example, the consolidation of its channel programmes could work really well, or it could really backfire."

Dell will also cast a lengthening shadow. "The spectre of Dell is already hanging over the channel in the networking industry, and its influence will extend to document imaging in 2003 with the launch of Dell-branded printers predicted for Q2," warned Rawling-Church.

Microsoft and Sun Microsystems both stand to gain from the expected take-off of web services.

Microsoft's new business solutions package, based on its acquisitions of companies including Great Plains and Navision, could have a significant impact when it appears, while Sun's Star Office could win sales if users balk at the licensing terms for Microsoft Office.

Overall, the prospect for resellers in 2003 is mixed. Those which cannot stand the pace will go under or be taken over, and consolidation of the channel is widely predicted.

But this could be good news for those which are left, especially if they take a multi-vendor approach.

"As some consolidation is inevitable, those left in the channel will actually become stronger," predicted Dave Ball, European sales and marketing manager for indirect business at Computer Associates.

"As multi-vendor solutions continue to solve customers' needs, the channel will grow as the 'trusted advisor' to a wider audience."

TECHNOLOGIES TO WATCH:

Mobility
Intel's new Banias mobile processor architecture, expected early this year, promises thinner and lighter kit with longer battery life and built-in wireless connectivity. But cost-conscious buyers may stick with Intel's existing Pentium and Celeron chips.

Alliances between vendors and telcos - Fujitsu Siemens and Vodafone, for example - will produce bundled offerings such as PDAs with GPRS technology or Tablet PCs with wireless roaming connectivity. This could mean more opportunities for resellers.

"Telcos are certainly interested in using the channel to go beyond retail and start playing in the business-to-business space," suggested Ian Snadden, director for SME and channel sales at Fujitsu Siemens Computers.

Smartphones, such as the Sony Ericsson P800, will enhance the productivity of mobile workers.

Microsoft is pushing Tablet PCs heavily in the education sector, and they could also have applications in salesforce automation, distribution, market research and financial services, although Gartner Dataquest believes that pen/tablet PCs will remain a niche item.

But Wap and third-generation (3G) technology will make little headway, according to Forrester Research, which predicts that only 10 per cent of mobile phone users will use 3G by 2007.

Broadband
After years of false starts, broadband is finally proving its worth to consumers and businesses alike.

"Broadband is the single biggest factor driving IT sales though the channel," said James Ferguson, UK country manager at networking vendor Netgear.

Current ADSL technology is mostly focused on consumers and SMEs. Next year will see the advent of Symmetric Digital Subscriber Line, with equal-width data channels in both directions - ADSL has only narrow upstream bandwidth - making it a viable low-cost replacement for leased lines.

However, margins may be tight, according to Toni Fabbricini, marketing manager at telecoms equipment vendor Westell.

"With internet service providers offering freebies here, there and everywhere, the channel is going to have to add value to make a profit," he warned.

Two other new technologies are also competing in the broadband market: fixed wireless local loop and satellite.

"Fixed wireless and two-way satellite broadband services are still in their infancy but may yet pose a challenge to DSL and cable services, because they allow data to be transmitted over a larger area, resulting in a lower investment cost per customer," said Mark Darvill, director of technology at services and network integration group Logical.

Networking
The wireless local area network (Lan) will become mainstream this year, as rising speeds and falling costs allow its advantages to overtake its drawbacks.

Speeds will increase five-fold, as the 54Mbps 802.11a and 802.11g standards are rolled out.

"In 2003, wireless Lans will shift dramatically from being nice-to-have to must-have because of the need for more mobile access to business-critical information, and lower costs for wiring or rewiring a building," explained Buddie Ceronie, area sales director at networking vendor 3Com.

Martin Cassidy, EMEA director of operations at wireless Lan security vendor Bluesocket, added: "The main issue for the channel will be one of skills.

"To sell wireless, you need to understand the radio technology, the security implications and the management issues. This will require a close partnership with wireless vendors."

Other technologies to watch include Gigabit Ethernet, CAT 6 cabling, appliance servers, blade servers, network optimisation, self-configuring products for distributed environments and multi-site IP telephony.

Linux shipments will double next year, according to Gartner Dataquest.

Web services
Web services are XML-based middleware programs that allow individual applications to intercommunicate.

For example, they might link a legacy payroll system to a new human resources portal, or allow data or functionality from one application to be incorporated into another.

This could involve linking an information website to relevant books in an online bookseller's catalogue.

Web services will simplify systems integration and could ultimately be as significant as HTML.

Web services implementations, which are mostly based on Sun Microsystems' Java 2 Enterprise Edition or Microsoft's .Net, could soon dominate the deployment of new applications, according to analysts.

Customer relationship management and supply chain automation are likely areas for early adoption.

Security
With security threats, both digital and physical, remaining unabated, security should be a strong market in 2003.

Everything from intrusion detection, penetration testing and managed security solutions to virtual private networks, firewalls, smart cards and CCTV cameras will be in demand.

"Distributed denial-of-service [DDoS] protection is one of the technologies to watch in 2003," predicted Ian Kilpatrick, managing director of distributor Wick Hill.

"During this year, 38 per cent of British companies will experience some kind of DDoS attack. Most customers don't have DDoS protection, so it's a good opportunity for the channel."

Many organisations lack in-house security skills and will outsource, according to Buddie Ceronie, sales director at 3Com.

"Firms will increasingly turn to third parties, including resellers, to develop comprehensive security policies," he said.

CONTACTS

3Com (01442) 438 000
Albany (01420) 547 600
Bluesocket (01256) 475 744
BT (0800) 085 0264
Cable & Wireless (0800) 092 1800
Captiva (01483) 460 500
Computer Associates (01753) 577 733
Fujitsu Siemens (01344) 475 000
Kyocera Mita (0118) 923 0720
Logical (01753) 696 699
Netgear (01344) 397 021
Novell (01344) 724 000
Sol-Tec (0118) 948 2848
Trescray (020) 7680 7200
Ultima (0118) 902 7500
Wick Hill (01483) 466 500