Go-To Technologies Of The VARBusiness 500

Storage may not be sexy, but you know what? It sells. Yes, It's true that in the sizzle department disk arrays, tape libraries, even more modern SANs don't get the juices flowing the way a cool speech application or handheld IP device might. But that lack of sparkle is more than made up for in steady sales.

Consider the following: An exclusive survey of VARBusiness 500 companies indicated that four of the top five most popular technologies sold today are servers (74 percent of the companies surveyed), storage hardware (73 percent), networking equipment (73 percent) and security software (70 percent). But in terms of what's driving new business, the creme de la creme of the largest North American VARs identified storage as their No. 1 growth technology for 2005. In fact, nearly three-quarters of VARs surveyed already sell and implement storage solutions. And of that group, 41 percent said they expect their storage sales to increase by 5 percent or more this year. Compare that to the more tempered optimism around servers: Though nearly three-quarters of VARs say they sell x86-based servers, only 20 percent of these companies anticipate their sales in that arena to jump by 5 percent or higher this year.

If you think about it, the storage trajectory makes sense: Electronic data is multiplying in galactic proportions. This, of course, leads to the question of where to put it all so that users can access it in real-time. Even Microsoft, the world leader in software that is now hell-bent on achieving additional gains in security and business applications, concedes that storage is where the action is. At a recent press event designed to update the market on progress made with Sun Microsystems, Microsoft CEO Steve Ballmer said, "If you look at a part of the market that's really booming and growing, it's storage." You can bet that some storage companies are wondering what that means for the future of their bottom lines.

Compliance mandates are forcing corporations worldwide to provide for long-term archiving of e-mail and other electronic information and documents. At the same time, users are producing more spreadsheets, PowerPoint presentations, digital recordings and video clips than ever. Even if companies purge all the copies of Jib Jab's rendition of "This Land Is Your Land," featuring the "voices" of George W. Bush and John Kerry, from their hard drives, there is still more content than ever to manage and protect. This perfect storm has dramatically upped the demand for storage capacity, performance and management, turning a once ho-hum afterthought into one of the IT industry's hottest markets today. Just think about the growth of vendors like stalwart EMC and upstart Network Appliance, and you will understand the demand.

"Clearly, one of the reasons we are experiencing growth to the extent that we are is the traction we are enjoying with the VAR and solution-provider community," says John Koury, vice president of global channel marketing at EMC, Hopkinton, Mass.

While the company continues to refine and improve its programs and benefits for solution providers, EMC has yet to crack the list of the leading vendors relied upon by VARBusiness 500 companies. Microsoft once again ranks No. 1 as the vendor 58 percent of VARBusiness 500 members say is essential to their businesses. That's a 5 percent gain over last year. Hewlett-Packard ranks as the second most important company (52 percent), up from fourth last year, in spite of recent setbacks. Conversely, IBM slips from second last year to fourth this year, with close to 50 percent. Cisco Systems stays the course at third for two years in a row with 52 percent. Rounding out the five most important vendors for the VARBusiness 500 is Sun, finishing a distant fifth (27 percent of those surveyed named it as important), but making the list just the same.

As for the technologies those companies produce, clearly the numbers suggest that unheralded, unsexy storage is translating into serious business. And, like other great opportunities, VARBusiness 500 companies say the technology is evolving.

"Storage isn't that expensive relative to what it used to be, but it has grown like a weed and needs to be better controlled," says David Nolan, senior vice president of professional services and network solutions at Forsythe Solutions, a Skokie, Ill.-based solution provider that ranks No. 95 on the VARBusiness 500 list for 2005.

Nolan says that the "need to control" is driving sales of storage-management solutions, such as software products from Veritas, in addition to traditional storage hardware systems. Of all of Forsythe's IT practices, which range from security to IP communications, the company is generating the most business from storage opportunities today.

Alas, venerable storage isn't the only technology with the wind at its back. Security, a perennial hot tech, along with Voice over IP (VoIP), which is (finally) leading the convergence charge, rank Nos. 2 and 3, respectively, on VARs' growth lists for 2005. Not surprising, security and storage were the leading technologies cited by VARs in last year's survey. This year, security makes two appearances in the Top 10 list of most carried technologies: security software, which 70 percent of VARs resell, and security appliances, a burgeoning business where 59 percent of solution providers play.

Let's take a deeper look at some of the top-selling products and solutions that VARs are counting on to drive business in 2005, and to identify those technologies that appear--for now at least--to be on the downswing.

Some Top-Line Notes

Infrastructure remains a major business-segment for the elite solution providers on this year's VARBusiness 500. Of the top 10 technologies they sell and service, seven can be considered some form of IT infrastructure: x86 servers, storage hardware, networking equipment, RISC- or Itanium-based servers, PCs, printers and application infrastructure.

Some infrastructure products also made their way to the list of technologies declining in importance to a segment of VARs surveyed. Thirty-eight percent of respondents said monitors were less integral to their businesses in 2005, while 37 percent said the same of printers and 30 percent for peripherals.

Security, however, is not on the decline at all. Fact is, it remains a never-ending battle for IT departments, and a ceaseless opportunity for the solution providers who serve them. In the past few years, savvy VARs have feverishly built up lucrative security practices, knowingly concocting more sophisticated solutions from an ant colony's worth of security-vendor point-products on the market. Tackling everything from user authentication to antivirus and password protection, these VARs have thrived.

Take Secure Computing (No. 227 on the VARBusiness 500), for example, a San Jose, Calif.-based solution provider working exclusively on security. The $100 million company has experienced 23 percent growth per year for the past five years by combining its own internally developed technologies with other vendor products to meet a cornucopia of security needs.

Vince Schiavo, senior vice president of worldwide sales and marketing for Secure Computing, identifies three hot-button aspects of security, all of which his company addresses: Unified threat management (UTM), secure content management and strong user authentication.

The biggie is UTM, the company's fastest-growing solution. UTM involves the packaging of multiple security applications, typically antivirus software, a firewall, URL filtering, antispam and Secure Socket Layer, onto one appliance. That way, customers don't have to manage a herd of individual servers for each application. Secure Computing sells a branded UTM appliance called Sidewinder, which combines the company's own intellectual property with such technology as McAfee's antivirus software and Cloudmark's antispam solution.

"These are not trivial products," Schiavo says, extolling the implementation and services opportunities inherent in Sidewinder, both for Secure Computing itself and its own set of channel partners. "There is a lot going on in the appliance. It all needs to be set up, along with doing network-vulnerability assessments for customers."

Seemingly, UTM is not to be ignored. The analyst firm IDC released a report last year that said this technology niche is growing at a compound rate of 80 percent per year--that's good business.

Another scorcher is strong user authentication. Secure Computing sells a solution that issues one-time password tokens to users for authentication. Use it once, then the password becomes invalid. While obviously cutting down on stolen-password abuse, this technology is also particularly effective against the latest security devil in our lives: phishing.

At Forsythe, a variety of security products are woven into larger, more comprehensive solutions. For example, the company will take a Nokia or Check Point firewall and blend it with RSA's strong authentication software and F5 Networks' TrafficShield product to create a solution that helps companies enforce application-usage policies.

Forsythe's Nolan understands that security threats are constant, which, to VARs, can translate into coveted recurring revenue. Yet he is also realistic, recognizing that customers' increasingly tight budgets don't allow them to swat every fly. So, instead of administering scare tactics, Forsythe's consulting team assesses network vulnerabilities and breaks down a customer's security loopholes into the most pressing and mission-critical, understanding that some lesser items will not be addressed due to price concerns.

"Basically, customers want to make sure that client or employee information is not compromised, or that a virus can't bring down the entire enterprise," he says. "And they don't want to be on the front page of The Wall Street Journal because of a privacy breach."

The positive news for solution providers is that the security market is so fragmented from a product and solution perspective (Nolan says he tracks 350 individual vendors in 45 different industry categories) that VARs have myriad options for specialization, including working such niches as e-mail-security gateways, database encryption and application security.

Converged At Last

OK, we've been hearing about VoIP for how long now? Breathe a sigh of relief; today, VoIP is more reality than fantasy, and VARs are taking full advantage.

In our VARBusiness 500 survey of solution providers, 30 percent said that VoIP is expected to grow in importance--translation, sales--in 2005. Companies such as Needham, Mass.-based Brooktrout Technology, which works on VoIP-enabling components, says that it is the move to IP communications, in general. Its lure of integrated functionality and lower cost is driving demand for a whole new set of applications, such as speech recognition, combined with basic infrastructure. Industry standards are a major force behind the momentum, according to Peter Vescuso, vice president of market development at Brooktrout.

"The industry is moving from proprietary solutions to things like Voice XML and Microsoft's [competing standard] SALT [Speech Application Language Tags], which is really bringing speech recognition to a broader audience," adds Scott Wieder, director of market development at Brooktrout. "The economics are much better."

In terms of VoIP adoption, Vescuso says it is nearing the 15 percent installation level needed to start seeing rapid growth in terms of applications and usage. Brooktrout expects to get half of its revenue in the IP arena during the next five years. For solution providers, that sets up a huge opportunity for this year and beyond.

So with opportunity in mind, what about storage? Just what solutions are hot?

David Hibbish, a vice president and general manager at Edison, N.J.-based Innovativ (VB500 No. 169), cites compliance mandates such as Sarbanes-Oxley and HIPAA, and the demand for rich-media storage, as key drivers for solutions. Other percolating technologies include SANs and hybrid storage solutions that incorporate both disk and tape backup to enable information life-cycle management.

"We have requests from customers to come in and evaluate their storage environment, look at the current architecture and then add to it," Hibbish says. Adding to that can run the gamut from disk to tape to management software.

Hibbish says the biggest frustration at present is the lack of "consistent management software" for storage environments. Point releases rule the day. And, while Veritas does a great job with some of its portfolio, there are still components lacking to comprise a full suite, he says.

He notes that a lot of storage demand is being driven by nosediving prices. For example, a terabyte of storage cost millions of dollars five to seven years ago. Today, that same capacity can be bought for $1,000, and, furthermore, can reside on a desktop.

Innovativ counts enterprise accounts such as Rubbermaid as a customer. Part of its mission is to take the pain out of the storage-assessment and implementation process as it relates to meeting compliance objectives. It partners with such vendors as Hitachi, StorageTek and Veritas for a range of hardware, software and management products.

"You know, we are seeing a lot of growth, and the interesting driver is compliance," he says. "It's onerous to do it, and we are trying to make it as simple as possible."

Simplifying and easing pain points are critical capabilities solution providers can bring to the table, and what customers crave. To achieve this, VARs should take note from the top folks in their businesses: those featured in our VARBusiness 500 list for 2005. They say that what drives the sale of certain products and technologies over others--be it storage, security, servers or applications--is the business problem du jour of their clients, be it is regulatory compliance or the rising cost of the monthly telecom bill. Your challenge is to match the day's technology tools to those ubiquitous business problems.