The Economies Of Success
12:00 AM EST Mon. May. 19, 2008
Many channel companies have already survived harsh market downturns, whether after the Sept. 11, 2001, terrorist attacks or the burst of the dot-com bubble in the 1990s. While a good many businesses--channel, vendor and non-IT--burned up or faded away after those two events, many made it through. Some actually thrived. In some cases, integrators can fill needs that crop up as companies lay off employees and need to fulfill some of these ex-hires' job functions.
"We definitely have seen an impact in parts of our customer base and none on the rest of our customer base," said Ken Yanneck, president of IPLogic Inc. (VARBusiness 500 No. 432), an Albany, N.Y.-based communications technology solution provider. "The upside in being in upstate New York is we don't get too impacted by an economic downturn. [But,] we don't get the benefit of an economic upturn, either."
The Upside
There is a silver lining for solution providers and vendors that are able to save companies their hard-earned money. Many VARBusiness 500 companies saw double-digit growth in 2007, and public companies' stocks continue to see up days.
"We have seen our business growing recently," said Lenley Hensarling, group vice president and general manager of JD Edwards at Oracle Corp., Redwood Shores, Calif. "We haven't seen a drop-off yet. We can't see into the future or where the economy's going, but a lot of companies are dealing with the need to be more efficient. The bar to being more efficient and efficient enough to survive has gone up, not down. To date, we're still seeing a good deal of flow, both midstream and up."
Where The Dough Goes
IT spending is definitely under a microscope. However, analysts predict organizations will continue to invest in certain technologies.
"Outside-in pressures on the business, such as customer demand and increased competition combined with internal pressures to increase efficiencies and decrease costs, are prompting U.S. small and midsize businesses to increase their IT budgets in 2008," said Simon Jacobson, senior research analyst at AMR Research Inc., Boston.
No matter how harsh the economy becomes, organizations must achieve regulatory compliance, which often requires an investment in security, storage, risk management, asset management and other related technologies. In fact, companies are expected to spend more than $32 billion on governance, risk management and compliance this year, up 7.4 percent compared with 2007, according to AMR. Executives are more aware of how IT and business risks can and do affect their bottom lines and are prepared to spend on strategically planned technologies to mitigate and prevent this risk, AMR found.
Businesses also are looking to temper the costs of creating and delivering their goods. Spending on supply-management solutions that fill gaps in visibility into supplies, contract management and connectivity with suppliers is expected to increase 14.5 percent in 2008, another AMR report found.
"Even in a time of economic uncertainty, companies understand that supply-management applications can bring more to the bottom line," said Mickey North Rizza, research director at AMR. In the United States, 24 percent of this money will go toward hardware and application infrastructure, 22 percent to software licenses and 22 percent toward maintenance, he said.
There is even more good news for solution providers adept at customizing applications, because organizations are expected to move away from enterprise resource planning (ERP) applications in favor of best-of-breed, custom applications, AMR's report predicted.
"Companies can't have any waste. More and more customers understand what they want to do with business processes," said Oracle's Hensarling. "The companies who get it and understand how software delivers specific values are the winners. The box movers don't do so well."
Next: World Of Opportunity
The U.S. economic situation is mirrored in some, but not all, parts of the world. Certain regions are growing and a number of developing nations are investing heavily in IT, said Mark Hanny, vice president of strategic partners at IBM Corp., Armonk, N.Y. (VARBusiness Vendor 40 No. 1), which garnered 65 percent of its 2007 revenue outside the U.S.
"I think you're very quickly going to see ... quicker adoption in other countries such as Vietnam," Hanny said. "Last year, 35 percent of businesses in China were buying [IT] systems. We are helping ISVs and partners in the United States sell into these high-growth countries."
Smaller solution providers can partner with larger integration or consulting firms such as IBM or team up with in-country providers to address new geographies, Hanny said. IT buyers in less developed lands generally are looking for open standards and open-source solutions, he noted. IBM is heavily increasing its presence as a consulting firm and as a vendor partner to other integrators in areas such as Vietnam, China and South Africa.
"They are working with IBM to operate in global markets," he said.
Recurring Revenue
Closer to home, a number of solution providers are heeding the lure of ongoing revenue that managed services deliver. Xerox Corp. (VARBusiness Vendor 40 No. 10) has focused much of its funds and marketing energy on promoting managed print services, said Tom Gall, director of value channel marketing at the Stamford, Conn.-based print vendor and services firm.
Hosted services such as Software-as-a-Service continue to grow, fueled partly by corporate downsizing that eliminates or reduces IT departments. In fact, hosted services are expected to grow at a compound annual rate of 7 percent through 2012, increasing not only in frequency, but also in complexity and scope, according to In-Stat Inc., Scottsdale, Ariz.
Already in use by midsize firms, enterprises are expected to adopt this approach to technology, benefiting both solution providers accustomed to serving this market and MSPs looking to break into large corporations, experts said.
Being Prepared
Through September 10, 2001, IPLogic garnered almost 80 percent of its business from the public sector and had little to no presence in the small- and midsize-business arena, Yanneck recalled. "Before 9/11, most of our business was public sector," he said. "After 9/11, we made a decision, for the safety of the business, to diversify."
The solution provider extended into health care and reached out to the more than 90 higher education institutions in its geographic region. In 2005, IPLogic acquired a solution provider that focused on SMBs, which almost immediately transformed the firm's customer-base breakdown, Yanneck said. "Our three core verticals--public sector, health care and education--probably account for less than 70 percent of sales," he added.
"We've already suffered. The benefit of being in this [geographic] market is we've already been through the down times," Yanneck said.
Wherever they call home and no matter the state of their local economies, those channel professionals able to adapt and prove the value of their solutions and services should be able to weather the storm.
Alison Diana, a freelance writer in Merritt Island, Fla., has been reporting on the channel for more than 19 years.