Assessing The Profit Potential Of The Three Major Solution Provider Models
There are a multitude of approaches for solution providers. In general, you can fit yourself into one of three categories: fulfillment house, technology integrator or solution provider. The solution provider is probably better described as a business technology integrator, but that term doesn't exactly roll off the tongue.
Any of these three models have and will continue to have a role in the channel, and there certainly is nothing that says you can't have a hybrid strategy. Whatever model you choose, however, one thing is certain,the three approaches lend themselves to far different profit margins. And in the end, people are more willing to pay a higher margin to solution providers than they are to fulfillment-based players.
If you look at the fulfillment model, the value-add in the simplest terms is tied to price, delivery and asset management. You don't need me to tell you that margins based on best price are always going to be thin, unless the product in question is in short supply or there is no competitive alternative. Even then, the manufacturer will get the bulk of the profit, while the channel captures a few points. There are certainly players that continue to make a respectable profit in this area. Dean Bellone, president of CompSource, is a classic example. His Cleveland-based company has a national customer base, better than $12 million in revenue and a profitable business based on a Web site that drives the bulk of sales.
The technology integration model was a very lucrative business model prior to the recent economic downturn,especially during the dot-com bubble. Any time there is a rush to deploy infrastructure, this model is particularly lucrative.
In a climate of stalled technical innovation like we are currently experiencing, however, the solution provider model provides the greatest opportunity for margin.
All three models are important to vendors and end users, but the solution provider model, I believe, will be the most lucrative one for the foreseeable future. That's because true solution providers are viewed by vendors as budget creators, as Cisco's worldwide channel chief Paul Mountford told me last week. More important, these players satisfy customers' needs to either drive costs lower or productivity higher.
Certainly fulfillment players and technology integrators have influence over the brand of product used in a particular deployment. However, in the case of the full-fledged business technology integrator,by this I mean the solution provider that can sell a company on how technology can allow it to change business processes that will drive direct revenue benefit,there may not even have been a budget earmarked for the effort in the first place.
The need to be able to sell a customer on what technology can do is nothing new, but historically that sale was largely about infrastructure. In the emerging model, the sale is more about adding process changes enabled by some new application development or other technology that leverages the current infrastructure to meet business goals.
This is not an easy sell and can only be accomplished if you concentrate on a few vertical markets and drive very deep into the processes that make companies in those disciplines most profitable.
None of these approaches are right or wrong, but each requires you to dig deep into the particular skill set you will need to be most profitable in whatever approach you take.
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