Exclusive research bears out the overwhelming anecdotal evidence: The percentage of solution providers' revenue attributable to emerging technology vendors is on the rise.
Close to 57 percent of the 476 solution providers responding to the first CRN Emerging Vendors Survey said they had added upstart vendors during the past 12 months. What's more, 63 percent of those VARs and resellers daring to forge these new relationships with untried vendors report that their revenue from these partnerships has increased during that same time frame.
Indeed, Brian Gregory, president of Network Innovations, Olathe, Kan., doubts his Fast Growth 100 company would be profitable if he couldn't count on the margins he earns with vendors such as Altigen, a longtime partner that provides the foundation technology for Gregory's VoIP practice, or the feeds for the services he can add to them. "With an emerging technology vendor, their products are typically more open to services that we can add. There's a lot more opportunity there," Gregory said.
"The benefit is that we really get to have a voice in the company," he added. "It feels a lot more like a true partnership that works in both directions."
Gregory estimated that approximately 60 percent of his roughly $1.5 million in 2005 sales were related to emerging vendors.
In that respect, Gregory is unique. The CRN Emerging Vendors Survey found that the majority of solution providers, about 31 percent, generate between 10 percent and 19 percent of their overall revenue from new and emerging vendors. Another 24.5 percent said 5 percent to 9 percent of their existing sales came from upstart suppliers. Only 6.5 percent of the respondents said they realized 50 percent or more of their revenue from emerging vendors.
So why does a solution provider consider a lesser-known vendor in the first place? According to the survey, it comes down first to the appeal of a unique product, usually one that is a complement to an existing practice. Often, this product meets a need that the solution provider has seen or anticipated at one of their customers—a need that has not been met by companies with legacy technology.
"We've never wanted to cram new products or technology down our clients' throats," said David Dadian, CEO of Powersolution.com, an IT solution provider and managed services company in HoHoKus, N.J. Still, Dadian has a long history of success with smaller companies, one reason he recently decided to become the first reseller for Sendio, which offers antispam appliances tiered for different enterprises.
"One of the things that I learned long ago is that you should never close your mind or shut out a solution," said David Hall, senior vice president and CTO of Dallas-based CompuCom.
Hall is especially open-minded to products developed and sold by industry executives who have previous experience and a track record with the channel. He points to three of his newer vendor partners as examples: disaster-recovery vendor Mimosa Systems, which has past connections with Cheyenne Software and has a thumbs-up from Microsoft fields sales people; Sourcefire, a company founded by the creator of the well-respected Snort detection technology; and application continuity appliance vendor Teneros, which is run by executives with ties to Da Vinci Systems and All Covered, the SMB IT services organization.
After technology, the top two considerations for respondents willing to add emerging vendors were "complement to existing practice" and "higher margins," the survey found.
"Other than that, it's tough to look at new technologies, unless it's so bleeding-edge that I have to check it out," said Stacey Spencer, vice president and CIO at Uni-Data & Communications, a managed service provider in Flushing, N.Y.
Concern over long-term viability, the cost of training and the lack of field engagement are the main reasons that a solution provider will pass on forging a relationship with an unestablished vendor, according to the survey results.
CompuCom's Hall said newer vendors could help get a leg up by modeling their certification requirements after one in which their ideal partner already has invested.
Jennifer Shine, president of eMazzanti Technologies in Hoboken, N.J., said the training element limits the number of smaller vendors with which her team can work, because the engineers must invest in learning about the technology on an individual basis. That said, her company represents about 60 different vendors and talks to about a dozen on a regular weekly basis. This lack of structure does have an upside.
"These vendors tend to have more room for innovation on our part. ... You can assert influence in a way. When our engineers have come up with fixes, at least they will listen," Shine said.