Stimulus Opportunities, Market Challenges: Gartner Maps Out 2009 Vision

Solution providers need to rethink their value-add in order to compete in the new IT landscape. That landscape is marked by not only with a rough economic climate but also with commoditization, paradigm shifts like cloud computing, and the notion that almost everything, from mini-notebooks to applications, is available for lower and lower prices.

This much we know. So if there's one message that's taken hold at this year's Ingram Micro VTN Spring Invitational in Orlando, it's how to redefine what it means to add that value.

"VARs are continuing to move up the value chain, beyond projects and into solutions," said Tiffani Bova, vice president of research for worldwide indirect channel programs and sales strategies at Gartner. "Partners are involved in more business process consulting and product development, and the managed services model is continuing to gain acceptance in the channel and with customers."

Speaking Thursday at VTN, Bova laid out the most insistent challenges facing VARs as they try to grow their business. She touched on a number of topical trends, from the focused push into SMBs to the perceived impact of the economic stimulus.

Bova offered the following trends and advice during her "state of the market" session Thursday.

1. There will be gradual growth -- but not this year.

In an interview with Channelweb.com Wednesday, Ingram Micro CEO Greg Spierkel echoed this sentiment, saying there's "nothing specific that tells us the market is turning better."

"But the glide path is getting a little less steep," he said. "There's a general feeling that the market could be seeing the impact of the stimulus, even though there's a lot of jostling around to see how this stuff has got to be spent. But we remain profitable, we remain solid in the balance sheet, we're managing through a difficult situation and we're seeing some things starting to come back into the pipeline. And it's a different story by state or region, don't forget."

According to Bova, VARs need to focus in 2009 not on new customers but on client retention, in other words, "Keep them happy." They must find ways to add value to products and services. Be careful about discounting, she urged, and simply branding and pricing messages with a strong focus on branding association.

The latest Gartner forecast for compound annual growth rates through the next four years -- unveiled by Bova on Thursday at VTN -- predicts hardware growth down 14.9 percent in 2009 but by 2013, down only 0.9 percent. Software is expected to be up 5.4 percent by 2013, while services and telecommunications are expected to grow 3.8 percent and 2.7 percent.

"Between now and 2013 the good news is we will have positive growth," said Bova. She said that taking worldwide IT as a whole, the growth by 2013 is expected to be 2.8 percent. "So use this as a bellwether, not as a message of doom and gloom."

Bova also cited Gartner research that 80 percent of worldwide notebook shipments will have average sale prices (ASP) of less than $800 by 2012.

"Average sale price is compressing," she said. "Some of this is being driven by netbooks, and some of it's just what's happening in the consumer segment. It's important to not try to keep sales moving only by reducing price. Don't try to just hit the easy fix, which is additional discounts."

Utilities, health care and government are leading growth during the global downturn, Bova added, which means VARs need to gain a better understanding of how the American Recovery and Reinvestment Act is going to impact those markets.

2. The bulk of the stimulus impact on IT is going to happen in 2010 or later -- so prepare now.

While stimulus money for some so-called shovel-ready projects like highways and bridges is already starting to flow, the bulk of the money relevant to IT opportunities won't begin flowing until next year, Bova said.

There's time to prepare -- but not much.

"If you're not in the public sector, realize you've got about 'that' much ramp time to get yourself prepared," she said, pinching her thumb and index fingers close together. "If you are in the public sector, get into the habit of doing unsolicited bids. Go in and shake that tree ahead of the customer saying they need things. Be very proactive in 2009 for the spend in 2010 and 2011."

According to Gartner, the biggest technology-specific opportunities related to the stimulus are in ERP, business intelligence, grant management, procurement and CRM; broadband, wireless and mobile solutions; health infrastructure and health information exchanges; and education.

But the stimulus money earmarked for sectors that need these technologies is, with the exception of financial, retail and some parts of the federal government, not going to have an impact until 2010 at the earliest, Bova said.

In communications, promising areas include high-speed broadband, and in manufacturing, building materials, broadband and electrical equipment. Utilities, transportation, and state and local governments won't see much money until even 2011, and although health care will claim some of the biggest stimulus checks, it will be at least two years before hospitals and physicians start seeing money for things like "meaningful use" of EMR.

"If you're counting on money for 2009, you're being optimistic," Bova said. "But try to get ahead of the curve -- make unsolicited bids. You want these [organizations] aligned with you before they get that check."

A lot of how the government will oversee the spending of the money is yet-to-be-determined, Bova said.

"The government is saying now that they need to make an additional hurdle to get people access to the money -- some of that hasn't been decided yet," Bova said. "What do they need to do , for example, so a doctor's office doesn't spend the $50,000 or whatever to paint the building instead of on IT?"

Health care is the relative boon in stimulus-related technology opportunities.

With $17.2 billion headed for EMR implementation alone, another $2 billion in grants will be coming out of the U.S. Department of Health & Human Services. Another $12 billion is headed for broadband access, facility construction and telemedicine initiatives, and $1.1 billion will go toward measuring effectivenes. There's also money for training caregivers in some cases, developing curriculums for teaching health informaticists, and bolstering HIPAA-related security.

Again, Bova said, a solution provider's unsolicited bids will get him or her in front of health care end users who might have some money to spend.

"There's still a lot to know, but that doesn't mean you can't become the go-to guy for the 10 to 15 doctors in your area right now," she said. "Position yourself and get scaled up. Understand this vertical, and maximize those relationships and contacts you have."

Next: CIO Priorities And Managed Services Sales

3. Despite market changes, the way CIOs plan their technology spend hasn't changed very much in the last seven years.

CIOs are looking to reduce costs without reducing revenue or sacrificing the quality of services, and find new solutions even as IT resources are reduced, Bova said.

In 2009, according to Gartner, CIOs are spending 66 percent of their health care budget "to keep the lights on," 19 percent to grow, and 15 percent to transform. Despite many changes to IT and the fluctuations of the economy since 2002, the thing that throws Bova, she said, is that those percentages have stayed within a few points of each other in every one of the last seven years.

"Technology has drastically changed, so what are they not doing?" Bova asked. "You need to talk to your clients about how much they're spending on 'run' - how much to keep the lights on. You need to be thinking 'how can I help them optimize the run spend,' and tell them if you can reduce that run by 3 or 4 percent, can you reallocate that money to other projects. United communications, VoIP, virtualization -- all these things help them reduce run expenses."

Gartner recommends that the run number stay below 65 percent, Bova said. CIOs rank business intelligence, enterprise applications and service and storage technologies as the top three interests, same as in Gartner's 2008 data. Collaboration technologies are climbing up the list, as are networking, voice and data communications and service-oriented applications and architecture.

"Ask them, what are the things they put in the bucket of run, and then, tell them how you can make them more efficient," she said.

4. Selling only the delivery model -- not the solution benefits -- hampers managed services sales growth.

Data security, privacy, the high costs of outsourcing, a lack of trust in outsourcing vendors and a loss of control are all still contributors to why companies aren't buying managed services. But those barriers are thinning, Bova said, and VARs should focus not on a delivery model, but on the value of the solution.

"The first wave of ASPs [application service providers] taught us that focusing on technology and applications and not on customer needs was a failure," Bova said. "Don't say, I'm going to sell you a managed services solution. Brand the solution, not the delivery model."

5. More often, you are competing with 'free.'

In the coming years, VARs will continue to compete for IT dollars with things like telecom-subsidized netbooks -- priced, as AT&T and Verizon are now doing, like cell phone plans -- EMR solutions provided by Wal-Mart, and the idea that for $50 a year, a consumer can buy a premier edition of Google Apps to use in business.

"You're competing with 'free' or close to free," Bova said, which makes the ways in which you can add value through services and other opportunities more important than ever.

Why would a small physician practice go to you when he or she can buy an EMR solution at Wal-Mart? That is, in essence, the question you have to answer, Bova said.

"You need to look beyond cookie cutter sales training," advised Larry Hedin, vice president of sales and marketing at solution provider Heartland Technology Solutions, in an earlier session devoted to training sales teams. "Vision without execution is hallucination."