That was the year that was...

Bankrupt companies, security scandals and the emergence of ‘VARmageddon' made for an action-packed year in the channel

From the collapse of 2e2 in January to the accounting farragos that rocked several of the channel's top names and the blockbuster M&A moves, 2013 was packed full
of incident.

But as the last remnants of this year's customer budgets are flushed out, many channel types will be reflecting on how 2013 will be remembered and what lessons should be taken into 2014.

This year may have been a year of cautious recovery, but it will also go down as one of seismic change as the vendor landscape shifted beyond all recognition and end users abandoned their age-old procurement patterns.

Speaking at the Canalys EMEA Channels Forum event in October, Canalys chief executive Steve Brazier said that relative newcomers to the enterprise market such as Google, Facebook, Amazon and Apple had seen combined growth of 320 per cent over the past five years.

During the same period, the "incumbents" such as Microsoft, Cisco, Dell, HP, IBM, SAP, Oracle and EMC grew just 15 per cent, prompting them to ride roughshod over 20-year-old partnerships in a quest to grab market share.

"We are seeing dramatic tension increase inside the industry and the IT world is restructuring," Brazier declared, perhaps the most obvious example being Microsoft's repositioning as a "devices and services" firm.

The fact that a company many regarded as merely an online bookseller five years ago is now the world's leading enterprise cloud computing vendor typifies this changing of the guard.

The rise of Amazon Web Services may echo the shift that is occurring in the way end users are procuring IT, but 2013 also served up several stark warnings over the limitations inherent in the cloud computing model.

Indeed, computer security expert Graham Cluley recently voiced fears that the "trendy" use of the term "cloud" had been responsible for a certain carelessness by organisations as they ship their data off to cloud providers without considering the security implications. Talking to our sister publication Computing, he advised that replacing all instances of the word "cloud" with "somebody else's computer" might make organisations stop and think about how sensitive data could be vulnerable if secured this way.

Cluley's point was hammered home by the Edward Snowden affair, which opened up US tech giants such as Google, Microsoft, Apple and Facebook to accusations they had allowed the NSA access to their customers' data.

Big brother

In August, think tank Information Technology and Innovation Foundation estimated that security concerns stirred up by the saga could cost the US cloud computing industry as much as $35bn (£21.3bn) in lost trade from European clients over the next three years.

Jason Holloway, managing director of UK security VAR Bridgeway Security, said the way not only the IT security industry, but also wider society, "casually accepted" the revelations brought to light through the NSA snooping scandal had been the biggest disappointment of 2013.

"Leaving aside the civil liberties aspect to [the Snowden affair], it also highlights some of the weaknesses in the core internet system we have come to rely on," he said.

"Next year we will see attacks of a similar ilk from criminal gangs trying to reuse some of these attack methodologies."

Although cloud may have moved from hype to reality, the jury remains out on whether the other industry buzzphrases that dominated vendors' marketing pitches this year lived up to expectations.

But a renewed sense of optimism spread through the channel in the autumn as the UK moved from recession to becoming one of the world's fastest-growing developed economies, sparking hopes that IT budgets - whether they be allocated to BYOD, big data, wearable tech, software-defined networking, 3D printing, or just plain old hardware and software - will rise next year.

1+1 doesn't equal 2e2

Official statistics suggest UK corporate insolvencies - both inside and outside the IT industry - also stabilised this year, but perhaps 2013 will not be remembered in such a glowing light following the largest reseller bankruptcy in memory.

The collapse of 2e2 in January led to the loss of hundreds of jobs and left 47 suppliers all with debts of more than £100,000, with eight owed more than £1m. But 2e2 was not the only "buy-and-build" VAR to go out of business in 2013, with £50m-turnover outfit Trinity Expert Systems succumbing to cashflow issues in October.

Trinity's business was subsequently snapped up by Liberata in a pre-pack deal but the largest M&A moves occurred in the distribution space. Computerlinks followed in the footsteps of fellow pan-European VADs Magirus and SDG by selling up to a global rival, while Cohort Technology and Interactive Ideas were snapped up by UK distributors Exertis Micro-P and CMS Distribution respectively.

If the reputation of the British IT industry wasn't enhanced last year by HP's -as yet unproven - accusations of financial jiggery-pokery at UK acquisition Autonomy, events of 2013 hardly improved matters.

In March, the world's second-largest IT distributor, Tech Data, revealed it had uncovered "accounting improprieties" at its UK business that could lead it to wipe $33m off its previously reported net profits. And in January, the UK's largest printing and copier dealer, Danwood, restructured its top management amid revelations that six years of accounts were being restated following the discovery of "accounting weaknesses".

Elsewhere, a debate about whether channel firms should set mandatory phone-time targets for sales staff reared its head after an internal video by reseller Misco briefly made it online. In the tongue-in-cheek clip, a spoof of the Liam Neeson film Taken, Misco director Richard Logan promised to "hunt down" staff who do not do their two-and-a-half hours of "talktime". One commenter on our story argued that such policies - if enforced too strictly - could stifle productivity as staff waste energy hitting targets rather than pushing a sale towards closure.

"There is really only one effective metric in sales, that being sales," they said.

But for other channel businesses, 2013 was less about increasing sales and more about transitioning to a services-led model. As signified by the emergence of the term "VARmageddon", many traditional VARs now want to be known less as peddlers of third-party products and more as mini-vendors in their own right.

Getting tough

This was also the year the big vendors finally got tough on top partners judged not to be playing by the rules, with Cisco booting Gold partner Phoenix IT off its partner programme in November.

Traditional laptop and desktop vendors - most notably Acer - endured another tough year as Microsoft's Windows 8 launch failed to resuscitate a PC market that is now on "an ever-declining trend", according to Gartner. The new operating system, along with the free Windows 8.1 update, accounted for a feeble 10.2 per cent of the install base of all Windows-powered computing devices by November, according to analyst Net Applications, less than half the share Windows 7 had bitten out at the same point in its life.

Elsewhere in vendorland, Michael Dell took his eponymous firm off the stock market in the largest public-private takeover in corporate history, while arch rival HP showed signs of stabilisation as chief executive Meg Whitman declared its five-year turnaround plan is on target.

Richard Holway, chairman of analyst TechMarketView, said: "We suggested that both HP and Dell would have ‘make-or-break' years as tablets eroded their marketplace and problems of their own internal making persisted. Dell went private as a result and HP saw its sales decline. However, the market loved the cost cutting that Whitman put in place and HP shares doubled in the year. [But] both are far from fixed yet."

There was also a backlash against flexible working led by Yahoo, whose chief executive Marissa Mayer decreed that all staff working remotely relocate to its office.

Finally, if there was one story that underlined the enduring value of the channel, it was IBM's decision to toss its entire hardware business - barring about 25 accounts in the UK - the way of its partners.

Wherever 2014 takes us, it's safe to say next year has a lot to live up to.

Channel heads reveal their top stories of 2013

2e2 and Windows 8.1 dominated the agenda as we asked some of the channel's top figures to pick out their biggest news stories of the year

Colin Brown, managing director, Softcat

"The 2e2 story really was the biggest shocker, both in terms of the speed at which it unfolded and also the misery it caused for many people and organisations: customers and partners. It seemed to be a case of Icarus flying too close to the sun. [Another] surprise for me was Steve Ballmer resigning. Having seen at first hand how passionate he is about Microsoft, I didn't expect him to walk away gracefully, but fair play to him as I'm sure it's best for the company."

Richard Holway, chairman, TechMarketView

"Windows 8 did not provide salvation for Microsoft - indeed, it had to produce Windows 8.1 in response to all the criticism. Tablet sales now exceed PC sales and Ballmer is departing too. Although we would never describe Microsoft as ‘broke', it has been far, far from the ‘make' year it wanted and the new CEO now has an even more difficult job to fix it."

Paul Sweeney, managing director, ANS Group

"The biggest news was the demise of 2e2. When you look under the covers and see how much debt the company was trying to service, it is no wonder it ran into difficulties. Customers are now taking a much keener interest in the financial structure of their suppliers, which can only be a good thing. The biggest surprise has to be Phoenix IT being stripped of Cisco Gold status - I have never seen anything as dramatic as this in my time in business."