Midmarket Prospects

A funny thing occurred to D&H Distributing not too long ago. The small to midsize business (SMB) distributor realized it didn't know enough about the identities of its VARs and their customers. So, the company began to dig by researching the SMB market and profiling its solution providers.

The exercise yielded some valuable data, which helped D&H better serve its VARs. For example, the distributor discovered that 73 percent of its resellers had between one and 15 employees, and conducted the vast majority of their business in the small-business market (between one and 99 employees).

D&H's research produced some compelling and surprising findings, too. For instance, Dan Schwab, vice president of marketing at D&H in Harrisburg, Pa., says the level of technology being deployed at the small-business level was much higher than the distributor had previously thought.

"It was clear that higher-end, server-level solutions were much more prevalent," Schwab says. "Our VARs have moved to a server platform instead of staying on a desktop model and are building more advanced solutions."

VARBusiness has done some digging, too. According to our annual State of the Market survey, 40 percent of VARs' 2005 gross revenue came from customers with fewer than 50 employees, by far the highest percentage for any customer segment (see "Small But Powerful," above). And while 28 percent of solution providers said their enterprise sales increased during the past 12 months, nearly 37 percent said their midmarket sales have increased in the past year (see "Midmarket Muscle," right). Breaking the data down even further revealed that more than 53 percent of VARs with between $1 million and $10 million in annual sales said their midmarket sales increased this year.

Clearly, business continues to shift toward the lower segments of the user market (see "Enterprise Slide," page 54). But what's driving solution providers' success? VARs, vendors and distributors offer some ideas on why the SMB market is healthy, vibrant and growing.

Adding Vendors, Large And Small

John Gunn, president of Integrated Solutions Group (ISG) of Salina, Kan., was looking for a way to increase his SMB storage business. Despite a strong partnership with Hewlett-Packard, Gunn believed his company needed to add more products beyond HP's slipping storage line.

ISG turned to an unlikely source to generate a vibrant SMB storage business. "We just signed up with EMC," he says, "and they've been a joy to work with."

Come again? Not only is EMC primarily known for its enterprise focus, but it is also infamous for its aggressive direct sales force. Even though EMC has made strides to build a money-making channel during the past two years, starting with the introduction of its Velocity Partner Program in July 2003, it wasn't until recently that solution providers like ISG saw the storage leader as a legitimate channel player.

So, what made EMC such a joy? "It was the fastest authorization process we've ever had," Gunn says. "We had all our people trained and ready to go in 45 days. Besides Claarion products and ISCI technology, we also got VMware authorizations for server-consolidation software, which was a great fit for our midmarket business."

Gunn says EMC has established a personal relationship with both ISG, and they're mutual clients.

"They've already sent a bunch of people out to our offices to work with us, make sales calls, and bring us leads," Gunn says. "It has been great."

The State of the Market survey shows that VARs added an average of three new vendors to their lineups in 2005 and six new product lines. When solution providers were asked about their plans for 2006, those numbers went up: Respondents expect to add four new vendors and seven new products next year. While the trend is not exclusive to the SMB market, the flood of products with pricing and functionality better suited for smaller companies certainly has been beneficial to solution providers.