Taking Stock: How Will You Fare In 2003?

existence. We get to the bottom of their bottom and top lines, the customers they focus on, the services they offer, the companies they partner with and the vendors they are looking to add or drop. Just about any question you have about today's VAR businesses is answered in our comprehensive survey, the results of which are interpreted in this issue. We aren't boasting when we say the State of the Market is the definitive study of the solution-provider community and the only one of its kind.

To obtain all of this wonderful data, we surveyed more than 1,100 solution providers, many of whom were happy to spend nearly an hour completing an extensive Web-based questionnaire about how they manage their businesses. I have had more than a few VARs tell me that answering our survey gives them the opportunity to really analyze their businesses and compare themselves to other VAR organizations. In some cases, it validates decisions they have made; in other cases the results offer them a chance to adjust their business models to embrace a new opportunity.

Such was the case with services several years ago, when our survey revealed a segment of the VAR community was successfully branching out beyond product sales to offer professional and consulting services. When we presented the research to solution providers and showed them that, on average, solution providers were generating nearly one-quarter of their revenue from services, many became defensive or disputed the results because their internal metrics were showing that a small percentage of their sales were coming from services. But turns out our survey served as a leading indicator, and those VARs soon had some difficult decisions to make.

As difficult as it is to boil down the key findings of our 2003 study, allow me to offer you some insight into what I found rather illuminating.

• Economic conditions in the IT market have clearly impacted solution providers, and their reactions match their scrappy personalities. With IT spending down, the practice of VAR-to-VAR partnering has soared. As I said, we don't often see huge swings in our State of the Market results, but a year ago, 64 percent of solution providers were partnering; today, it's three out of four. Clearly, solution providers trimmed payrolls or transitioned out of certain businesses, opting to partner with another organization instead. A good example may be a networking VAR that partnered with a CRM specialist.
• The bond between the solution provider and the customer is stronger than ever. Nearly 70 percent of a VAR's revenue comes from its existing customers, our survey found. They are either maintaining what was installed or cross- and upselling new technologies inside the customer. Most VARs said their existing customers either spent more in the past year or kept spending flat compared with the prior year. The remainder said spending dropped, though not quite as severe as you would think.
• Revenue from services surged to an all-time high and now represents 42 percent of a VAR's revenue, while software brings in some 24 percent. The average solution provider is clearly leading with software services and dragging in desktops and other hardware after the fact.
• Software development is becoming more important to today's VAR, with revenue from application development coming in at 24 percent and producing healthy margins. However, solution providers believe the two software firms with the worst prospects for the coming year are Novell and Sybase.
• Despite all the media hype about competing with the direct sales arm of a vendor, solution providers actually view rival firms as more of a threat to their businesses than, say, IBM Global Services. The primary reason a VAR lost a customer in 2002 was because of IT budget cutbacks, but a close second to that was because of another VAR.
• Finally, there are distinct differences among small, midsize and large VARs,and that is the beauty of our study. We not only present the overall results of our findings, but we also slice and dice the results by size of VAR organization. Of our many findings demonstrating the distinctions, one in particular really stands out: Overall, midsize VARs are more optimistic about the first half of 2003.
• How optimistic are you about your company? Let me know at [email protected].