The Channel Still Rules

Every VARBusiness 500 has a surprise in it. Frankly, the first year we published the VARBusiness 500, I was surprised we were able to accomplish it. Most of the companies were private, and getting their executives to share financial and strategic information with us has always been a challenge. More than half the companies are still private, but the status of being on the VARBusiness 500 has made it easier to get the information we need each year.

This issue marks the fifth year for the VARBusiness 500, and it's no longer a surprise to accomplish it. What continues to surprise me, though, is how much it changes from year to year. New companies are always showing up, many replacing companies that have been acquired or have changed their business models and are no longer appropriate for the ranking. Many have been catapulted onto the ranking by explosive growth.

Digital River Inc., Eden Prairie, Minn., for example, reported growth of more than 700 percent from 1997 to 1998, jumping from $2.5 million in revenue to more than $20 million to earn the rank of 468. Web integrator USWeb/CKS claimed the second spot in our Fast 50 list this year, jumping from a rank of 424 with $19 million in 1997 to a rank of 141 with $228 million in 1998. Web integrators, in fact, dominate our Fast 50 this year. (Check out the complete list on page 60.) Many of them didn't exist a few years ago and are now riding the e-business tidal wave that is sweeping the entire industry into a whole new era.

Many companies that were already big also enjoyed monumental growth. Keane Inc., for example, grew 68 percent from $654 million in 1997 to $1.1 billion in 1998, landing on our elite

Billion Dollar Club roster. (See page 70 for the complete list.) You can also read about Keane's "holistic" approach to technology implementation in our feature "Selling At the Top" (page 62).

Everywhere you look VARs are changing. One of the most gratifying things about working

on the VARBusiness 500 every year is seeing the dramatic ways this community of companies changes to match the changing needs of its various customers. The ability of VARs to change in this way is their ultimate security.

The past year has also been marked by poor earnings reports by several key channel vendors, and the rush of those same companies to establish direct sales programs became disappointingly predictable as the year progressed and seemed to cast a shadow over the channel.

It is apparent when you look at the 1999 VARBusiness 500, however, that total solution VARs, network integrators, Web integrators, e-consultants, information utilities, application service providers and all the diverse types of companies that make up the VARBusiness 500 have had a very good year,despite the trauma some manufacturers have experienced.

Most VARs are small companies, and there is a tendency to think of them as being dominated by their vendors. In fact, the cumulative sales of the VARBusiness 500 companies this year totals more than $193 billion; that's up almost 25 percent from last year. And that's $33 billion more than the cumulative sales of leading channel companies IBM Corp., Hewlett-Packard Co. and Compaq Computer Corp. for 1998.

So which is the dog and which is the tail? VARs own the customers. They understand the customers. They know them by name, by first name. They know their businesses, and they probably know their families. This knowledge is their power. And it is formidable. As you read through the 1999 VARBusiness 500, feel the power. Enjoy it. You've earned it.

Let me know you thoughts. Contact me at mkindley@cmp.com or (516) 733-8557.