Margin Makers

Scanners
Stand-alone scanners, like almost everything else in IT, have seen vast improvements in performance and functionality. And as with other peripherals, margin opportunity is like automobile mileage: It can and does vary.

Take Visioneer, for example. The Pleasanton, Calif., manufacturer of scanners offers a variety of medium-priced, sheet-fed document scanners targeted at small or midsize businesses or workgroups. While a typical margin on a $1,000, 33-ppm scanner might be 3 percent or 5 percent, Visioneer recently instituted a Volume Incentive Rebate for its Elite VARs that provides 3 percent rebates for VARs that sell between $12,500 and $24,999 worth of eligible Visioneer products in a quarter; 4 percent for between $25,000 and $49,999; 5 percent for between $50,000 and $99,000; and 7 percent for $100,000 or more per quarter. The company also adds MDFs after the first year for VARs that sell $25,000 worth of eligible products.

Beyond the box, the company also packages Kofax VRS 4.1 software in with some units, which offers an extra opportunity to add document and workflow training into the hardware sale. Bill Kouzi, Visioneer's vice president of sales and service for the Americas, said VARs have the chance to extend their earnings by selling warranties as well.

Kodak, which began working with partners about 18 months ago with the introduction of its ScanStation 100 network scanning device, has mapped out a strategy for helping solution providers grow their profit margin, said Don McMahan, general manager and vice president of sales for Kodak's digital imaging organization in North America.

"We put some back-end dollars to these guys that really help them with margin; it has helped them to see a 25 percent better margin," McMahan said. Kodak, Rochester, N.Y., also recently rolled out deal registration for solution providers, which has helped stabilize margins in competitive situations. And, in August, it launched a higher-end solution—the Kodak s1740 Capture System—which scans, sorts and analyzes different document types in high-volume environments.

"It absolutely requires professional services," McMahan said. The solutions themselves, including hardware and software, are street-priced at between $68,500 to $93,400.

That makes it more than a routine peripherals sale, and it is largely targeted at institutions like banks that need to scan, sort and analyze detailed documents such as checks.

UPS And Cooling
As with other peripherals, solution providers find that there are two ways to increase margins for uninterruptible power supply (UPS) and other power and cooling peripherals: Add services and grow volume.

"We know that if we do the work, and if we register the project, we can probably make about 10 points on the deal," said Paul Robinson, network sales manager at Carlyle, a Seattle-based solution provider that resells American Power Conversion products including its InfraStruXure lineup. "So the question is, is 10 points good? If it's 10 points on a $50,000 job it's not that good. If it's 10 points on a $250,000 job, it's better."

Over the past two years, APC, West Kingston, R.I., has rolled out additional functionality and encouraged solution providers to take a holistic approach to data center design when including peripherals like UPS boxes as a way to increase value to the customer and margin opportunity for the VAR.

"On the one hand, our [average selling price] on InfraStruXure has gone up over 35 percent over the last two to three years," said Rob McKernan, APC's channel vice president. "We are taking a solution and a set of products and, continually, adding products to that solution set.

"The major story [solution providers] are seeing is they can make more money off this," McKernan said. "It's not taking years and years to get certified. There's such a strong demand today for power protection and cooling of data centers."

Tripp Lite, MGE and Liebert have also spent time focusing on power and data center efficiency and management as an end-to-end solution. To get there, these vendors are increasingly talking about the whole margin of a project as being greater than the sum of piece-part margins.

"You're not selling it individually; you're attaching it with some bigger spend," said Jonas Lehman, director of vendor programs at JDMI, a Chicago-based solution provider.

Tripp Lite, Chicago, is getting set to launch the SU80000RT4u Hot-Swappable Modular UPS system, a spokeswoman said. The device will have a bypass switch that will allow solution providers or IT managers to replace a battery without shutting a system down. The company believes the system's 4U size will allow it to integrate well in small closets or data centers where VoIP servers or other critical hardware is running.

Add-On Storage
Dave Mohyla, president of DTI Data Recovery, a South Pasadena, Fla.-based solution provider, said that both Seagate Technology and Western Digital have worked hard to create opportunities for solution providers to drive added value to even basic desktop, add-on storage solutions.

"Western Digital does try to [add value opportunities] as much as they possibly can," Mohyla said. "Seagate is taking a lot on themselves. They are packaging a lot of different VAR opportunities with their label on it. Both companies are very much in tune with working with the VARs to try to package their storage, or add value to their storage."

Perhaps as much as any segment, add-on storage has seen erosion in average selling prices as capacities have skyrocketed.

For its part, Western Digital, Lake Forest, Calif., provides add-on storage in different segments but is drawing attention with the launch of its 2-Tbyte MyBook products for Windows and Macintosh systems. The list price is $799—lower even still when you consider 2 Tbytes was, not that long ago, considered supercomputer-like capacity. Seagate, Scotts Valley, Calif., recently added a 750-Gbyte desktop storage product, FreeAgent Pro which, among other things, provides remote access and a five-year warranty. It sells on the street for $230 to $300. But the list and street prices only tell part of the story, Mohyla said.

"What I see is people are looking for redundancy. They're looking for something that would be a basic backup, and they'll pay for that type of solution with redundancy built in," Mohyla explained. With solutions added onto the basic hardware, he said, double-digit profit margin is absolutely possible.

Sandisk also has stepped up by providing APIs and SDKs to other manufacturers as well as solution providers, Mohyla said, so basic hardware can be fine-tuned for different applications or functions. The math does, in fact, work both ways when factoring value-added offerings and profit margins, he added.

"You also have to take into account, 'How are we going to get return on investment? How long will [the solution] last after we've coded our software?' " Mohyla said. "You absolutely can bring a basic storage device well into double-digit [margins], but you also have to take into consideration the cost of application development and solution development."