Top 10 Takeaways From The CRN State Of The Market Survey4:00 PM EST Wed. Feb. 02, 2011
The 2011 State of the Market survey, conducted in November, asked 384 senior level managers at solution providers in North America about business issues and trends in 2010 and business projections for this year.
Most solution providers saw their businesses turn around in the second half of 2010, ending a two-year period beginning in late 2008 when sales plunged and new customers were especially hard to find.
The survey also turned up some interesting facts about North American VARs, such as how long they've been in business, and their customers. Here's what we considered the more salient findings:
Most VARs weren't born yesterday. Or even in this century, as a matter of fact. The survey found that two-thirds (66.2 percent) of North American solution providers have been in business for 10 years or more and another 19.4 percent have been in business between 5 and 10 years. Less than 15 percent have fewer than five years of experience under their belts.
Many solution providers have built their businesses around servicing a relatively small number of customers, many of whom are small businesses themselves.
Nearly 30 percent of surveyed solution providers have fewer than 25 customers. At the other extreme are the 20 percent of solution providers with 250 or more customers. The remaining 50 percent of VARs are fairly evenly distributed between having 25 and 250 customers.
And those customers are overwhelmingly small. A whopping 43 percent of VARs said the gross revenue of their target customer was less than $5 million while 10.4 percent put that number between $5 million and $9.9 million, That means the target customer for more than half of all solution providers is less than $10 million.
Another 9.4 percent said their target customers' revenue was $10 million to $49.9 million. Only 17.1 percent of solution providers target customers larger than $50 million. (Nearly 20 percent weren't sure.)
The recession might be behind us and the economy is on the mend. But ever-cautious solution providers see plenty of potential dangers for their businesses in 2011.
One potential obstacle is economic trouble in specific target markets, vertical industries and/or geographies, according to 60.9 percent of those surveyed. Customer inability to justify IT investments is cited by 55.7 percent, while 45.6 percent point to competition from other solution providers.
Other potential pitfalls are customer inability to pay or finance (cited by 38.3 percent), competition from vendor service organizations (30.2 percent) and lack of effective marketing and demand generation activity (28.9 percent).
While finding skilled workers has been a major problem for solution providers in the past, only 26 percent saw that as a problem in the current economy.
Solution providers are always on the lookout for new strategies and 46 percent say it's likely or extremely likely they will expand their solution offerings this year into new emerging technology areas. Another 25.3 percent said the same about forming new strategic supplier partnerships.
But while 11.2 percent said it's likely/extremely likely they will acquire other businesses to expand into new emerging technology areas, 46.4 percent called such a move unlikely or extremely unlikely.
In the first half of 2010 solution providers spent 18 percent of revenue on investments to add to or improve their services capabilities or services profitability
Topping the list was services offerings to customers, which accounted for 31.7 percent of service investments. That was followed by investments in technology to improve services capabilities (17.7 percent), training and education for staff to increase services revenue and focus (12.8 percent), and spending on services-focused resources such as additional staff (11.1 percent).
Solution providers make their living selling a broad range of information technology. Asked what percentage of their revenue in the first half of 2010 came from selling, recommending and/or supporting specific technologies, business application software came out on top (see chart), followed by branded systems and servers, custom systems, software infrastructure and middleware, and security.
Those top five were followed by voice and data networking products (6.8 percent of revenue), data center technology (6.3 percent), printing and imaging products (5.3 percent), storage technology (5.3 percent), displays (3.0 percent), unified communications and VoIP systems (3.0 percent) and other peripherals (2.8 percent).
Solution providers see consulting and managed services as the biggest potential growth areas with 38.3 and 36.1 percent, respectively, expecting revenue increases in those offerings in the first half of this year. Those are followed by software (33.2 percent expect increased sales in 2011), technical services (31.1 percent) and hardware (25.5 percent).
The percentage of solution providers expecting revenue in each segment to be the same this year as in 2010 ranged from 43.9 percent in managed services to 56.0 percent for hardware. Those expecting decreased revenue were just over 10 percent for technical services and hardware and in single digits for consulting, managed services and software.
Solution providers think health care will be a hot market through the first half of 2011. More than 45 percent of those surveyed expect revenue from health-care-related products and services will increase, compared to 40.4 percent that expect it to stay the same and only 3.8 percent who expect it to decrease.
Financial services and manufacturing were cited by VARs as the second and third most promising markets with 33.1 and 28.6 percent, respectively, expecting increased revenue from those markets. But in both cases more VARs expected revenue to stay the same rather than grow.
VARs expected health care to account for 11.9 percent of their sales in the first half of 2011, followed closely by manufacturing (11.2 percent of sales) and financial services (10.1 percent of sales).
Solution providers say they expect cloud-related services to account for 36 percent of their revenue in 2012, up from 24 percent in 2009.
Surveyed VARs said they expect 40 percent of their 2012 cloud-related sales to come from Software-as-a-Service offerings, 24 percent from Infrastructure-as-a-Service, 20 percent from Platform-as-a-Service and 16 percent from other cloud models.
Solution providers anticipate that private cloud systems will account for 55.3 percent of their cloud-related revenue by the end of 2012 while public cloud systems will account for 44.7 percent.
But some solution providers remain dubious about the whole cloud thing. When asked why they do not anticipate selling or influencing cloud computing solutions in 2012, a whopping 42.1 percent said they do not expect any customer requests for cloud computing.
Another 16.8 percent said there are too many risks associated with cloud computing and 10.5 percent said their business would not be aligned with the cloud computing model.