Things Are Never Going to Be the Same Again

After compiling and analyzing the financial resultsof this year's VARBusiness 500, you can conclude that things are never going to be the same again. Anyone nostalgic about the good ol' days of selling IT goods and services

better pack up the family van and head for a Del Webb, Fla., retirement community. I have reached this conclusion for many reasons, but it mostly comes from conversations I've had with executives from the largest solution providers in North America. Keep in mind that while we were compiling this list, which is based on revenue generated in 2001, many of the organizations involved were shedding workers, battling for survival, being acquired and competing for business more viciously than ever.

In the past, this issue of VARBusiness would thump down on your desk amid an industry growing at a 20-percent clip or more. Your phone would be ringing off the hook. RFPs would be pouring in, and vendors would be pounding down your door. Dell was the enemy. You barely got home to see the family at night. You couldn't hire fast enough, secure enough certifications or wine and dine enough customers. Life was as blurry to the average VAR as faces in the stands to an Indy 500 driver.

But, my, how things have changed. (And by the way, not just for you. In my business, high-tech magazines have been dropping faster than shares of Sun.) Just look at how the downturn has affected the list of what are arguably the most influential purveyors of processing power ever to have roamed the earth. Exit plans, for example, have been interrupted. Many owners or CEOs of VARBusiness 500 companies were planning the next chapter in their lives. That plan entailed selling the business or merging it with another operation, setting a hot-shot executive on top and taking on some kind of role like chairman emeritus of the new organization. Given the steep drop in valuations and the Sahara-like conditions for financing, many well-thought-out exit plans have been shelved and those executives are going to be running their shops longer than expected.

And they are doing so in an environment that is clearly bifurcated between the haves and the have nots. Despite the difficult economy, many of the big VARs got bigger. IBM Global Services, which owns more than 10 percent of the market, grew at 5.4 percent to $35 billion. The cumulative revenue of the VAR500 was just shy of $321 billion this year, and IBM Global Services paced the group's growth rate. To provide a more realistic view of the biggest of the big, for the first time we included VARs who focus exclusively on the government market (we treated those separately in years past), and we also dissected business-to-business solution-provider revenue from the likes of CDW and Dell. So, what you have in this issue is as comprehensive a view of today's largest integrators as anyone could possibly assemble. The average solution provider looking at this list must be contemplating just how his or her organization can compete against the likes of an IBM Global Services, Accenture or Lockheed Martin.

But before I offer some insight into that issue, there's another wrinkle to this story. Examine the list closely, and you will find it jammed with the service arms of a wide range of vendor organizations. Extracting that information is a difficult task. Vendors reluctantly disclose it, because it isn't in their best interests for their solution-provider partners to know just how much revenue they generate from competitive services. What we found was the bulk of revenue from, say, a Siebel or EMC services unit comes from work done on that company's product set,not necessarily from services performed on rival platforms or general integration work. These organizations obviously have one goal,servicing their own gear,and they are clearly biased in their approaches.

So, if you're not a member of the VAR500, don't despair because vendors and customers need you more than ever. Our list is populated with big organizations that need partnerships with smaller solution-provider organizations that can do things less expensively than they can. And, any vendor studying this list will realize it needs as deep and broad a channel as it can support, because these large organizations have already locked in their vendor partnerships and tech practices. Actually, if you back out the vendor service arms, the vertically oriented players and large consulting companies, you quickly come to the realization that vendors and customers need the thousands of non-VAR500 firms more than they do the larger companies.

Study the list for yourself and read the accompanying features. I'm sure you'll come to the same conclusion I did: Things will just never be the same. Let me know what you think at rdemarzo@cmp.com.