The VARBusiness 500: A Year Of Tumult And Growth

If 2000 was indeed the year in which buyers of IT products and services closed their checkbooks and brought tech spending to a screeching halt, then someone forgot to tell the members of this year's VARBusiness 500. Because it's clear the majority of companies included in this, our 13th annual ranking of North America's largest solution providers, is still growing--despite a slowed economy.

How fast did they grow? Collectively, the members of this year's VARBusiness 500 generated more than $278 billion in 2000 revenue, some $30 billion more than they brought in the year before. (The mean revenue for this year's VARBusiness 500 was $557 million, up from $502.8 million last year.)

Once again, IBM Global Services VB1 generated the largest single chunk of that revenue total. Building on its strength in areas like e-services and outsourcing, the perennial VARBusiness 500 leader easily defended its No. 1 ranking with $33.2 billion in fiscal 2000 revenue, up from $32.2 billion the year before. To put IBM's performance into perspective: The difference between its revenue and that of its closest competitor, EDS VB2 ($19.2 billion) is more than the total revenue of the third-largest company, Accenture VB3 ($10.3 billion).

Looking beyond IBM, the rest of the VARBusiness 500 companies carried their weight as well in 2000. The Billion-Dollar Club grew as 52 companies reported revenue of $1 billion or more, up from 42 companies last year. But perhaps the best evidence is that the entry point for this year's ranking rose by almost $13 million from last year, an increase of 56 percent. So while a company needed at least $22.5 million in revenue to make last year's VARBusiness 500, this year the bar jumped all the way up to $35.2 million. Not too shabby considering so many industry watchers called 2000 the year in which IT spending, and the overall economy, took a turn for the worse.

Why the significant increase in revenue? There are a few reasons we can think of. One is the high number of mergers and consolidations that took place inside the VARBusiness 500 community last year, turning some midsize and large players into VARBusiness 500 heavyweights. The appearance of these newer, bulkier companies raised the bar for the rest of the VARBusiness 500.

For example, the merger of GTE and Bell Atlantic took two existing VARBusiness 500 companies, GTE Technology (ranked 19 last year) and Bell Atlantic Data Solutions Group (ranked 93 last year), and turned them into a new Top 10 player, Verizon Enterprise Solutions VB10, with revenue of roughly $5.7 billion in 2000. The health-care vertical saw similar consolidation activity when the merger of Siemens Medical Solutions Group and Shared Medical Systems (ranked 33 on last year's list) created a new company, Siemens Medical Solutions Health Services VB12, with $4.5 billion in 2000 revenue.

And despite all the commotion surrounding the demise of pure-play Web services companies in 2000, strong revenue growth in the early part of the year helped many of them smash their 1999 revenue totals and move up our ranking. Specifically, companies like Razorfish VB142, iXL VB118, Sapient VB88, Agency.com VB167, Luminant Worldwide VB223, Organic VB233, Viant VB235, Zefer VB257 and Lante VB330 all managed to move up significantly from the positions they held last year.

The future, however, doesn't seem as bright for some other pure-play Internet services companies that were hurt as the hype surrounding e-business shot up quickly and then sank back down even faster. For some, like MarchFirst VB45, it's clear this year's VARBusiness 500 recognition will be its swan song. Though MarchFirst's 2000 revenue of less than $1.2 billion placed it within the Top 50 of this year's ranking, its position fell to 45 from 37 last year. And its high-profile bankruptcy and sell-off of assets earlier this year makes its return to the list in 2002 unlikely. The same can be said for once high-flying services companies like Cambridge Technology Partners VB81, Proxicom VB166 and Rare Medium VB256, which made this year's ranking but will likely be leaving the VARBusiness 500 fold in the wake of acquisitions.

That's not to say 2000 was particularly kind to traditional resellers either. Bankruptcy troubles in 2000 saw companies like Inacom and MicroAge Technology Services disappear from the list after several years of holding their own in the Top 25.

Whatever happens next year, it's clear our list will see even more companies disappear. The question is whether that will make room for some smaller integrators to get a foothold on the list or help larger companies get even bigger. Only time will tell. Let me know what you think at rcirillo@cmp.com.