Tackling IT Myths: Get Ready for a Realiity Check

Myth: A massive number of VARs have gone out of business because of the poor IT economy and pressure from direct marketers, like CDW.
Reality: The industry has had its share of casualties,maybe more so than in previous years,but there is no evidence that thousands of former VAR owners are now flipping burgers.

If a local VAR closed its doors in 2002 because of competition from a direct marketer, then it lacked a clearly defined business strategy wrapped around providing value to its customers. We track Chapter 11 filings and liquidations, and glean insight from our circulation files and the VARBusiness State of the Market study, so we would be the first to notice if the channel was in trouble. Sure, 2002 tested our resiliency. Gross margins declined by a couple of points, but for the most part, VARs tweaked their models, diversifying more into software development. In many cases, they are specifying brand and configurations for customers and having them order through a direct marketer. VARs also partnered more than ever. As one longtime channel veteran told me, "If CDW put you out of business, you had no business being in business in the first place."

Myth: Comdex will go away,someone needs to save it.
Reality: The show's value proposition is ill-defined in a maturing market, and its future is definitely in doubt.

The show's producer, Key 3 Media, recently posted a large deficit and might have to file for Chapter 11 bankruptcy protection. Insiders say the company is even up for sale. Industry pundits claim the show should be saved as if it were some national treasure. It's not. Anyone around the industry long enough will remember the National Computer Convention (NCC) show, which went under some 20 years ago because there was little value in attending a broad industry show with everything from mainframes to PCs. NCC was displaced by Comdex, which was PC-centric and focused on bringing vendors and computer dealers together. Today, solution providers prefer events built around individual vendors, such as IBM PartnerWorld. The largest problem Comdex has is that the second- and third-tier PC market has dried up.

Myth: The PC market will come down to Dell and white boxes because HP is incapable of making money selling PCs.
Reality: That just may be the future.

Yes, HP is struggling to approach breakeven in the PC business. Its channel policies have generated tremendous controversy, and many VARs are growing disenfranchised. There is no doubt of the momentum behind the system-builder community. Intel is nurturing it, and it accounts for a substantial portion of the company's sales these days. Microsoft generates much higher profits from white-box builders than it does from sales to large OEMs. Neither company wants Dell to have too much power, so it is in their best interest to have thriving alternatives. Do not discount IBM's PC business. Its notebook business is strong, it's gaining favor among VARs that serve small and midsize businesses, and its channel leader, Frank Vitagliano, is gaining a strong following for his frankness in dealing with partners.

Myth: The channel lacks a leader.
Reality: The VAR community may be too diversified for one leader, but there are some candidates who might be able to speak for the indirect market the way Dell speaks for the direct one.

Every segment of high-tech needs a leader,an outspoken person who is willing to challenge the status quo. In the PC-centric days, the channel had leaders in the form of Compaq's Ross Cooley and IBM's David Boucher. Sam Jadallah built Microsoft's solution-provider community, and when distribution was king, no one ruled the roost more so than Ingram Micro's Chip Lacy. They defined the value proposition for the channel and believed passionately in the indirect model. Among several individuals managing channels today who could be the sector's next leader: HP's Kevin Gilroy, IBM's Vitagliano, Microsoft's Allison Watson and Cisco's Paul Mountford.

So there you have at least a few of the big myths in the marketplace today. Let me know what you think at [email protected].