Article

Economic forecast for IT VARs

Matthew Wasielewski, Contributor

As the economy shrinks like a grape in the sun, businesses are cutting costs and bracing for an open-ended recession. With less capital floating around, value-added resellers (VARs) are rushing to stake their claims in resilient markets and adding new solutions using virtualization and unified communications (UC).

For those who've specialized in construction or the automotive industry, it's time to find a new market, said

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Tim Harmon, a senior analyst at Forrester Research Inc.

Some IT VARs agreed.

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"For the commercial [construction] guys, all of their funding has completely dried up so our customers in that area have fallen off the map," said Michael Cocanower, president of itSynergy, a Microsoft partner and consultancy specializing in small and medium-sized businesses (SMBs).

Cocanower describes a grim scene in which a concrete company that itSynergy had worked with saw its revenue shrink from $100 million to $16 million, and a subcontractor client went from building 500 houses to 15 in months.

There is hope, though, in healthcare, energy, food and media verticals, according to Harmon.

With these industries experiencing modest growth, a reseller is forced to re-examine its business model and the sort of technology it's pushing to its clients.

"Software as a Service will pick up, as you're going to see customers become more cash-flow sensitive. For VARs it really means they have to go back to the negotiating table for what sort of values they provide and figure out how to package and market them," Harmon said.

Virtualization, new verticals create opportunities

Harmon added that there may be some truth to all the hype around cloud computing's storage-on-demand ability. Companies can wring efficiencies from offloading storage, although the savings could vary month to month. "The growth of that sort of information is very high and, at the same time, you don't know what compliance issues you'll run into down the line."

Others aren't so sure that security in the cloud is up to the task yet compared with traditional, physical storage. "That [cloud storage] technology is great and maybe 24 months down the road it will gain some traction, but the only people that are going to be jumping on that now are the early adopters. It's great that your information can live up in this cloud and it's elastic, but there's also an inherent risk with having all your data there," said Mathew Hegarty, infrastructure practice director at Net@Work

While gaps in security may deter some companies from virtualizing, it also creates a lucrative market for the highly adaptive reseller. "It's growing somewhere around 12% to 15% a year and right now, so we see an opportunity in the market for us to take a large amount of partners who aren't in the network security space and get them there," said Tony Vottima, vice president of marketing solutions and development for Avnet Technology Solutions, a Phoenix-based distributor focused on promoting collaboration within the channel.

In the SMB world, the converse is true as companies offload their hardware to third-party hosts. "Data center and colocation is going to become larger and larger. People in 50 to 200 user-size companies are going to start to get rid of their hardware, take it off their back and just pay monthly," said Cliff Bean, sales manager at the North Carolina-based reseller Dynamic Quest.

Businesses turn to IT VARs for UC and mobility

As their current voice and data contracts expire, SMBs that keep their data in-house are looking at unified communications that merges data and voice communications, according to Bean. There is hesitancy, though, as businesses are still unsure of things like VoIP call quality and bandwidth sharing. "A couple of years ago, they had their toe in the water and I think they've got their whole foot in it now," Bean said.

A foot is better than nothing, though, and some resellers are aggressively moving into the market. "We see that as a tremendous opportunity to take what had traditionally been data resellers and bring them into the UC world. We think the timing is absolutely right to bring traditional data center VARs into the fold," said Vottima.

Collaboration technology is also getting more attention as companies move toward UC, according to Cocanower, who described three webcasts itSynergy hosted. The first two, about Essential Business Server and Small Business Server, were flops with almost no attendance. However, when the reseller hosted one for Windows SharePoint collaboration services, it "had a lot of people signed up and just as many who contacted us afterwards saying that they really had wanted to see it."

One message resounds: Companies want to streamline their day-to-day activities and remove as much legwork as possible to cut costs. Or, as Hegarty put it, "They're looking for any solution that can let five people do the work of ten."

And as employees move out of the office and into the field, remote access to customer data and in-house applications becomes imperative. This interest, according to both Hegarty and Vottima, is forcing some verticals to go mobile.

"In the mobility market -- RFID and handhelds and all that type of technology -- our business continues to grow. Getting nurses and doctors untethered from their desk is even extending into the home now," Vottima said.

So as companies slash their budgets and the economy moves into recession, there is a shining ray of hope glaring into the eyes of resellers: Information technology isn't going away.

"People are dependent on technology and they can't cut spending on it. There are a lot of clients that have outdated infrastructure and they're looking for the smartest ways to update these without spending a lot of money," Hegarty said.

Or, as Bean puts it, "You can't just cut the IT budget in half and tell your employees that they only have email for half of the month."


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