State of the Market: Are You Fit As A Fiddle?

We often say that many of the findings in the State of the Market issue are the result of evolutionary forces at work in the market. But changes within this community occur at their own pace--although not quite as slowly as the movement of geological plates or the decision-making process at IBM. The State of the Market is more about market subtleties vs. market drama. Sure, there are some surprises, but the study is an indicator of how our readers are shaping their businesses based on where they would strategically like to be, while at the same time grounded in the reality of serving their customers today.

One of the adjustments we made was to dump our longstanding practice of looking at the integration community as a single, thriving entity. Instead, we now examine small, midsize and large VARs as markets unto themselves, while attempting to contrast the differences among the three camps. For instance, we wanted to find out which segment is most prone to specialize and which one is more focused on services. What did we learn? Turns out far more large VARs (those with sales exceeding $10 million) intend to remain specialized in their vertical markets as the economy recovers than their midsize or small counterparts. Our readers, and the vendors that serve them, have been asking us to focus on the diversity of the channel for years, so we are delivering such analysis in this issue.

At the same time, we capture the macroeconomic picture of the integration community. Without bogging you down with all the numbers, we found that integrators today have diversified their revenue streams, with more than 40 percent of their sales coming from services. The majority of their revenue comes from their existing customers, although they are more active in recruiting new customers than ever before. In addition, gross profit margins are slightly up despite the economic pressures, and most are also bullish on the outlook for IT spending next year. Specifically, midsize VARs ($1 million to $9.9 million in revenue) are the most positive about increasing sales in the first half of 2004, followed by the big boys and the small VARs.

But examine the optimism for the coming six months based on the performance of the past two quarters. Yes, a majority of VARs said their past sales were ahead of or in line with their expectations, but a large segment missed their sales goals, especially the small VARs. Forty-five percent of the small VARs we surveyed said their sales in the past six months were below expectations.

As far as my expectations go, I believe you will enjoy this issue and keep it on your shelf for months to come. Let me know what you think at [email protected].