10 Bright Ideas

Each year, VARBusiness examines dozens of vendors across the technology spectrum and identifies 10 trends taking hold in the channel. This time around, sales growth, an smb focus and increased channel investment are but a few of the trends we've identified that are likely to impact solution providers in 2006 and beyond. If you're wondering what's going on, keep reading:

1. SMB Mania

"This is the year of the SMB," says Bill Haas, owner of Computer Backup Group in Boston.

It's hard to disagree. Leading vendors have made substantial progress within enterprise businesses by leveraging the channel. Now they have their eyes on the small to midsize business (SMB) market. Cisco Systems, for example, has made as much effort as any vendor to tap into the SMB market, revamping its product line and launching its SMB Select partner program last summer. Little wonder, then, that it posted record SMB growth for fiscal 2005, fulfilling more than 1 million orders via distributors.

A reflection of SMBs' importance to Cisco is its adding D&H Distributing to its ranks of distributor partners that include Ingram Micro, Tech Data and Westcon Group. D&H has deep SMB ties. "We're going after the SMB market, so this is a great match," says John DiLullo, Cisco's vice president of worldwide distribution.

Dan Schwab, D&H's vice president of marketing, says the Cisco deal is indicative of big vendors' paying more attention to small VARs. "What's happening is that technologies are becoming more affordable and less complex for SMBs," Schwab says, "and we're helping the vendors bring the technology to the VARs."

2. Unthinkable Alliances

Time was the industry's largest IT product makers preferred to go to market as lone wolves. No more. Today, tough competitors are as friendly as the kids in a Barney video, at least with like-minded allies.

Take IBM's OEM pact with rising storage star Network Appliance. While the vendors hope to dethrone storage leader EMC, there's another positive effect for VARs. With IBM's market-leading server line and NetApp's SAN and NAS technology, partners for both vendors will be able to increase their server-storage attach-rates and offer a more complete infrastructure solution to customers.

In fact, just about every major hardware vendor has some type of alliance around storage, be it EMC and Dell or Hewlett-Packard and Hitachi-- which makes this one heck of a trend to watch.

3. A Revolution in Pricing

You'd think getting a better deal on pricing for systems would be a good thing. Not so, according to leading distributors.

That's because the administrative costs and headaches that come with last-minute discounts and price adjustments create a nightmare for many. Special pricing, as it's known, seemed to be a conundrum without an answer. Until now, that is.

Recently, Hewlett-Packard and IBM launched new programs in conjunction with distributors, such as Ingram Micro and Tech Data, aimed at eliminating special pricing. For example, HP's SmartBuy program offers consistent low pricing on in-stock systems for all VARs, thus eliminating pricing discrepancies for the same SKU that often arise from various discount offers and logistical inefficiencies.

"It simplifies the process for VARs, and it drives cost out of the supply chain," says Paul Bay, senior vice president of vendor management at Ingram Micro.

4. Dream Teams Abound

Rich Tear, CEO of CSCI in San Diego, never had much interest in Juniper Networks, feeling that the networking company didn't have a strong channel presence. But when NetScreen, one of CSCI's top vendor partners, was acquired by Juniper last year, Tear began to see a company that wanted to create a true partner program and grow its indirect sales. Moreover, he also saw some familiar faces--Cisco channel veterans Bob Bruce and Tushar Kothari--leading the effort. That led him to give Juniper a closer look.

Other vendors have also picked up well-known channel veterans to revamp their partner programs. SAP, for one, brought aboard former Veritas channel executive Michael Sotnick, while Gateway hired Tiffani Bova, formerly of Interland. And it's a good bet that ex-HP channel chief Kevin Gilroy will turn up somewhere soon.

5. Blockbuster Deals, New Options

Symantec's huge acquisition of Veritas is likely to reshape how customers think about security and storage technologies. That much is obvious. But what has not been clear is how new product combinations are going to be brought to market. No more.

"It used to be that corporate solutions from Veritas and Symantec were just too big for us and were sold direct," says David Lair, an IT consultant at Xpedeus of Brandon, Fla. "But now they're doing a better job communicating with us and getting robust products in our hands."

HP has also taken some steps to move some high-end business to its VARs. Late last year, it began to migrate approximately 30 percent of its named, direct enterprise accounts to some of its largest and most trusted partners.

6. Distribution Rebounds

Not long ago, the notion of distribution was in question; Cisco Systems seriously wondered if FedEx and UPS could handle its needs. And Oracle couldn't make heads or tails of some partners. Now, vendors can't seem to say enough nice things about them, as they return to two-tier distribution to reach the SMB market. For example, Oracle--which was once fired by Access Distribution as a customer--has struck deals with Ingram Micro, Tech Data and Avnet. The first two were perhaps the biggest surprises: Both Ingram Micro and Tech Data have been enlisted to supply VARs with Oracle Database and Oracle Fusion Middleware.

As for Cisco, it, too, is getting closer to its largest partners. It has signed up D&H and is evaluating others to determine if they can help it reach new customers.

7. Channel Investments Rise

Vendor companies often talk about how much they invest in partners. But this year, they have put their money where their mouths are. Take Citrix, which has upped the number of people it employs in channel management, channel recruiting and channel-training roles. It has also increased its budget for systems that support deal-registration programs and the amount that it spends on co-op and MDF programs.

Almost everywhere you look, companies are spending more money on channel activities. Avocent has upped investments in lead generation for partners. FalconStor has increased spending on telemarketing and technical training. Gateway has added one-third more people to its internal channel team so that it may achieve its indirect growth goals. And let's not forget Hewlett-Packard, IBM and Microsoft, which continue to spend "hundreds of billions of dollars" a year on business partners.

8. Embracing Simplicity

Hewlett-Packard's PartnerOne may seem like it has been a work in progress since its introduction in 2001 because of numerous overhauls and alterations. But partners say many of those changes have been positive because HP has simplified the program and improved the ease of doing business, a trend that many VARs have seen take hold of other vendor partner programs.

HP isn't the only major vendor that has reduced the complexity of its unwieldy and murky partner program. For example, Xerox recently consolidated all of its channel operations, according to CEO Anne Mulcahy, in an effort to increase channel sales.

Here's to more vendors doing the math and making the partner-program equation easier on resellers.

9. A Few Good VARs

From Apple's alliance with Ingram Micro to aggressive campaigns like Oracle's triple-play distribution deal, IT vendors want you to boost their partner ranks.

NEC, for example, launched the NEC Express Partner Program in July and teamed with Avnet Partner Solutions to attract enterprise solution providers. The strategy shift essentially moved much of NEC's server, storage and software products to a channel-only model. To fulfill those sales, the company began courting enterprise resellers across the country, says Efrem Z. Stringfellow, vice president of North America sales for NEC's Solutions Platform Group.

"We're looking for a select number of VARs that can deliver the value message," he says. "We're investing a lot of dollars in the strategy, and we're very excited and confident."

10. Channel Growth

For all its troubles, Hewlett-Packard's channel sales have increased for seven consecutive quarters. Symantec's CEO John Thompson says approximately 95 percent of the company's $2 billion in annual sales is touched by the channel. IBM added $3 billion in new channel business in 2004.

In other words, despite tepid IT spending, indirect sales are enjoying substantial growth.

According to VARBusiness research, the 25 largest IT distributors saw their collective revenue increase from $10 billion in 2004 to more than $75 billion, and many continue to enjoy double-digit sales growth. That means many VARs are getting a bigger piece of the IT spending pie. For now, many leading vendors are poised to continue moving into the SMB market while trying to get closer to their top-performing enterprise partners. Will the trend continue? Come back next year to find out.