By Yuval Shavit, Features WriterOur Channel Explained series provides targeted articles that flesh out detail on channel terminology but avoid information overload. This week we examine the question, What are the roles within the channel?
Many hardware and software companies, including all of the biggest names in the industry, use the channel to reach at least some of their business customers. The IT channel -- broadly defined as the companies that fit in between a vendor and its customers -- is often an exclusive or major part of a vendor's strategy for reaching small and medium-sized businesses (SMBs), but even Global 500 enterprises hire channel companies at times to help them deploy or customize IT software or hardware.
Within the umbrella definition of "the IT channel," companies fall into specific categories. In this article we'll explain what each of these categories mean, how they interact with one another, and in some cases the overlap between them.
- Value-added resellers (VARs)
- Systems integrators (SIs)
- Managed service providers (MSPs)
- Independent software vendors (ISVs)
- Original equipment manufacturers (OEMs)
VARs operate on a business model comparable to retail stores in other industries. They buy hardware and software from a vendor (or, more accurately, its distributor, usually) and sell it to their customers at a marked-up price. Their value is primarily as a participant in the distribution chain and as a single source for multiple kinds of products, or products from multiple vendors. Because hardware and software costs are constantly going down -- and taking margins down with them -- many VARs are expanding into more lucrative service-based models, especially managed services (see MSPs, below).
In contrast with VARs, consultants usually do not sell software or hardware, but instead provide advice to customers about what products they need and how to deploy them. IT consultants often advise on issues beyond just IT, especially with business processes. A consultant's role is similar to that of an SI, though a consultancy is often smaller -- as small as a single-person shop -- and usually focuses on a specific technology rather than the customer's whole infrastructure.
Systems integrators are like consultants in that they are often vendor-neutral and are hired by clients to assist them with setting up part of their IT infrastructure. Companies that identify themselves as SIs tend to be larger than consultancies, and they tend to have a more holistic approach to IT rather than specializing in one technology. SIs are often hired not just to deploy a system, but to make sure it integrates well with the rest of the network and IT systems. The largest SIs are global companies that work with some of the world's largest enterprises, often significantly customizing the software they work with for their clients. If, in the scope of this customization, SIs also develop software for their clients, they are often also classified as ISVs.
The managed services model is one of the biggest trends in the channel right now, with many VARs looking to it as an opportunity to gain recurring revenue from services instead of relying on shrinking hardware and software margins. An MSP provides remote IT monitoring and maintenance to clients from its central location. Most MSPs' clients are SMBs whose IT staff is strained; the MSPs' value proposition is to handle day-to-day management of IT resources, freeing the client's staff to pursue other projects. Many MSPs contend that for a company to truly be considered an MSP, its maintenance must be proactive -- that is, instead of waiting for a client to report a problem, it should monitor the client's systems so that it is notified as each problem arises and can immediately take steps to fix it.
An ISV is essentially any software developer that writes for a platform that another developer has created. For instance, a company that writes software that runs on Windows is an ISV, because the software's platform (Windows) is written by Microsoft. Most software companies are ISVs.
ISVs play many roles in the channel. They are often the vendor of software that a channel partner works with. An ISV can also be another vendor's channel member if the ISV's product embeds the vendor's software -- for instance, if an ISV's software embeds another company's database, it is often referred to as part of the database company's channel.
Some ISVs also provide deployment services for their software, in which case they can also be considered SIs. Other times, an SI will develop enough software for its customers that it can also be considered an ISV. In an interview with SearchITChannel.com in February 2007, IBM's director of strategy and emerging business for ISV and developer relations, Rado Nikolov, estimated that about 30% of the ISVs that IBM partners with can also be classified as SIs. This confluence is also common with Software as a Service (SaaS), where SIs frequently carve a niche by developing add-ons to the core service for a vertical company as well as providing deployment services for the software.
The term "OEM" can refer to two roles that are in some ways opposites.
The core definition is the vendor that first manufactures hardware, which members of the channel then use. For instance, if you purchase a server for your clients, that server's manufacturer is the OEM. In this sense, the OEM is the first part of the production and delivery chain.
But OEMs can also refer to companies that take hardware from another manufacturer and modify it, usually by coupling it with another piece of hardware or software to create a single appliance. For instance, a company may buy a hard drive from one company, a computer from another and an operating system from another, and bundle them into a single appliance that acts as a plug-and-play file server. Such a company is called an OEM and may sell its product through a channel, but it is also part of the channel for the companies whose products it incorporates.