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Every VAR dreams of highly profitable projects with huge and respected clients, but such plum engagements are usually few and far between. Keep your networking knowledge strong and stay alert for smaller clients where opportunities abound and it's easier to demonstrate your added value.
Networking projects are the most popular for VARs
End users engage IT VARs primarily for networking, server, storage and security projects. About 72% of end users involve VARs for networking projects, 68% of respondents use VARs for servers (compared to 46% for desktop projects), 61% use VARs for storage projects, and 50% use VARs for security. SaaS, applications, virtualization and telecom projects also appear as potential VAR projects, but only received a small number of responses.
While SaaS and other managed services didn't resonate with end users in this survey, experts like Zuk strongly underscored their growing importance. "The emergence of more managed service offerings is also a potential avenue for the VAR to generate more business," Zuk said.
VARs are favored by smaller clients and end-user organizations
The majority of end users that actually engage VARs are small to medium-sized businesses or enterprises (SMBs/SMEs). About 25% of respondents reported from a company size smaller than 50 employees, while a total of 55% indicated a company size smaller than 500 employees. The remaining respondents reported organizational sizes ranging from 500 to 50,000 employees.
Budget information also reinforces the spotlight on smaller clients, where 23% of respondents indicated they plan to spend under $1 million with VARs in 2008 (a total of 29% of respondents will spend less than $2 million), while 25% of respondents noted no change or only up to a modest 5% to 10% increase in the 2008 VAR budget.
At least part of this can be attributed to the layered management and other logistical difficulties of working with large organizations. "VARs should strongly consider the small deals and projects as these are more likely to get approved for action versus a large complex project that will always draw more scrutiny and, more often than not, get cancelled," Zuk said.
VARs can also face financial challenges when working with larger organizations, making larger customers less desirable. "There is very little margin left after the larger companies have flexed their purchasing muscle," Plato said.
VARs are used mostly by smaller clients, typically with small, tight budgets and few (if any) in-house IT resources. So assigning VARs to key IT projects, initiatives and ongoing management tasks can provide a far more efficient and cost-effective benefit to clients than hiring, training and retaining in-house IT staff. Larger organizations will also engage VARs, but usually for very specific projects such as infrastructure updates or new product deployments. Consequently, VARs searching for new business opportunities should attempt to reach smaller clients and niche markets, highlighting their expertise with critical business solutions (such as backup, archiving and e-discovery services). "You need to have a technical specialty, and you need to have a vertical focus," Sobel said. "I think both are key to success of solution providers moving forward."
End users spend half or less of their equipment/service budget with resellers
Client budgets are tight, especially with smaller organizations. About 55% of respondents spend only up to 30% of their equipment/service budget with VARs; 77% of all respondents spend only up to 50% of their equipment/service budget with VARs. This leaves only 23% of respondents spending more than 50% of their equipment/service budget with VARs. This reinforces the notion that VARs are engaged to address specific projects or supply a limited number of services for the client.
VARs can potentially capture more of a client's annual equipment and service budget by actively working to understand the client's business and presenting specific solutions or value added services that address those needs. "VARs need to extricate themselves from their alliance with the vendors and present themselves as a trusted advisor to the client," Zuk said. "These activities will definitely lend credence in their ability to demonstrate real value-added services." Show the client how those new proposals would free existing IT staff, reduce spending, or position the client to forestall or minimize future spending (e.g., reduce storage costs through capacity planning).
VARs might also become involved with their clients' business planning process. "Being involved in the ongoing budget process is critical when you're not getting enough of the budget," Sobel said. "Quarterly business reviews and other methods for engaging with customers to have business discussions are critically important."
Experts like Zuk emphasize the need for VARs to remain flexible and adjust to changing market demands more quickly than they do today. "I have dealt with several VARs in the past where they refused to adjust their approach to the deal because they didn't want to lower their margin points," Zuk said. "This has a negative impact because sponsoring vendors/clients tend to stick with a particular VAR if they approach the business with the intent of becoming a trusted advisor."
End users engage manufacturers or vendors far more than VARs
Our end user survey results show that 95% of potential clients work directly with manufacturers or vendors, but only 52% work with VARs. In some cases, the end user simply doesn't need the experience or services that a VAR provides, instead relying on the manufacturer or their own in-house staff for installation and support expertise. End users may view the VAR as an unnecessary cost added to the product or services. "End users are more technically savvy today, and coupled with the advances in technology becoming almost completely turn-key, the added value from the VAR is not seen," Zuk said.
For some end users, there is an intentional choice to limit VAR interaction, instead preferring to work with a small number of strategic partners that will engage their own outside help. "This is the 'one-throat-to-choke' philosophy," Laliberte said. "It also reduces hassles in buying products from vendors that aren't in the purchasing system."
In other cases, potential end users are simply not made aware of knowledgeable and cost-effective local resellers -- sometimes overlooked by the very vendors that they represent. "VARs are notoriously bad at marketing, and thus are not working to put messaging in their target markets," Sobel said. "VARs focus too often on the technical solution and not on messaging in their market space." VARs are challenged to raise awareness of their presence among potential clients and make the strongest possible case for their value-added offerings. ***
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Or skip to the section of interest:
End user survey shows what clients want from VARs and vendors
Section 1 -- Understanding end user expectations
Section 2 -- Understanding the end user's selection criteria
Section 3 -- End user spending and engagements