Where The Growth Will Be In 2008

Nearly three-quarters of solution providers expect to grow their revenue at least 5 percent in 2008 and they're preparing for the added business by looking for new technologies and new customers, according to the 2008 CMP Channel State of the Market Study.

If the projection comes true, it continues a strong market for the channel. More than 70 percent of VARs grew by more than 5 percent each year from 2004 to 2007, according to the study, and 26.7 percent grew by at least 15 percent. Many VARs of course, expect to grow at much higher levels.

"We'd be disappointed with only 5 percent, let's just say that," said Greg Knieriemen, vice president of marketing at Chi, a Cleveland-based solution provider. "That's almost like staying afloat. We're constantly striving for double-digit growth."

Traditionally, solution providers look for new business with their existing customer base because it's a less expensive sale, but that may be changing, according to the survey. More than half of the respondents said they increased their number of customers over the past year by an average of 24 percent.

Looking forward, VARs will continue to focus on gaining new customers to increase sales. The greatest share, 38.1 percent, of solution providers are putting a high level of investment toward increasing sales by focusing more on new opportunities.

That compares with 31.4 percent of VARs who are looking to increase sales by increasing focus on upselling or cross-selling to existing customers. Last year, 27 percent of revenue came from new customers on average.

"We're definitely expanding our customer base. At least twofold," said Francis Poeta, president of P&M Computers, Cliffside Park, N.J., which has a growing virtualization practice. "The hardest part of gaining new customers is literally getting them to believe you. We closed one deal with a new customer where we brought them into another customer's facility. You don't believe us? Sit and talk to them in their office."

Solution providers also see adding new technology to their portfolios (24.2 percent of respondents) and marketing (23 percent) as the most important investments they can make for 2008. Almost 15 percent chose adding salespeople as their most important investment next year.

Looking for new technology and finding other ways to win business in a competitive environment ring true for Bob Parsons, president of Automated Office Solutions, Evansville, Ind. He expects to increase sales by more than 20 percent next year and plans to hire a couple of salespeople and invest in training to get there. His sales increased more than 40 percent this year, he said.

"But in my mind we had a down year, apart from a couple of big breaks. I think different salespeople in place will help us," he said.

In addition, Automated Office Solutions will focus more on virtualization solutions in 2008, Parsons said. That technology is ripe with opportunity in the small-business market, he said.

"We're at [VMware's] lowest-level partner status. We will try to get smarter there. We're going to try to get some people sent off to school in the first quarter," he said.

It could be a pretty full class. Virtualization was chosen by survey respondents as the likeliest software-based solution to be added to solution providers' portfolios in 2008. Almost 12 percent of VARs not yet offering virtualization plan to add it next year. Already, 22.6 percent of solution providers offer it, according to the survey, and virtualization now accounts for 2.2 percent of all software revenue through the channel.

"That's not surprising at all. It's a very new market and, relatively speaking, there is much more room for growth in virtualization," said Chi's Knieriemen.

"Server virtualization is huge for us. The biggest thing obviously is the consolidation of resources, hardware resources in particular. Having a smaller footprint in the data center becomes more relevant as the recognition of greener technologies, efficiently using resources, becomes more important," Knieriemen said. "Virtualization and the desire to be more conscious of the data center environment are colliding at the same time."

Meanwhile, PC products were chosen the most likeliest hardware offering to expand in 2008, as 43.5 percent of resellers said they will increase their offerings there. The second most likely category was x86 servers, with 32.7 percent of respondents saying they will sell more.

New vendor relationships are likeliest to be formed around intrusion-detection applications. Just more than 20 percent of intrusion-detection software VARs plan to add vendors, according to the survey.

After PCs, wireless networking and data networking were the most commonly sold products among solution providers, with 60.9 percent of respondents saying they sell wireless networking and 60.6 percent saying they sell data networking. Both categories will remain hot in 2008. About 41 percent of wireless VARs and 34.2 percent of data networking VARs said they will expand their portfolios in those respective areas.

Staying within infrastructure, business-continuity and VoIP solutions should also become more popular next year. Almost 18 percent of solution providers not selling business-continuity solutions plan to start, adding to the 31.9 percent already selling them. Meanwhile, 17 percent of VARs not selling VoIP plan to start, adding to the existing 30.8 percent, according to the study.