In SMB Space, Let the Good Times Roll

When Ingram Micro announced its System ArchiTECHS affinity program for systems builders in February, it wasn't flying solo. Many distributors have recently emphasized special marketing programs for VARs.

Driving them are vendors looking to reach SMBs. Betting that VARs can put them on the road to success, they're working with distributors that, in turn, say they're offering not just gimmicks but tangible discounts, support and attention. But some VARs view these new initiatives as just more of the same of what they've seen in the past, raising two questions: Is there something substantial in the works or not? And have some resellers tuned out everything, including real opportunities?

Distributors have noticed the increased interest vendors are showing in VARs and their SMB customers.

"One of the things we've really seen is this huge focus by most of the vendors on the small- to midsize-business market," says Duncan Potter, vice president of worldwide marketing at distributor Westcon Group.

Vendors look to SMBs because large corporations no longer provide the revenue growth they once did. Taken singly, smaller companies have modest needs, but there are many of them: 24.7 million in 2004, according to estimates by the U.S. Small Business Administration. That could mean a lot of routers, networks, computers and software. Factor in the expectation of Intel's Viiv technology and Microsoft's new version of Windows fueling new systems sales and there's hope that good times may roll once again.

Knowing that SMBs are out there is one thing; reaching them is another. Large vendors have so much overhead that they can't profitably sell to small customers. That's why the vendors are looking to VARs and distributors.

"We have a number of...vendors that have put together programs [for VARs]," says Dan Schwab, vice president of marketing at D&H Distributing.

Computer Associates, Sony and EMC, for example, have created special product SKUs for SMB systems builders. While white-box sales are only 25 percent of the U.S. market, half of those go to businesses with fewer than 500 employees, which is the SMB market, Schwab adds. Over the past six months, D&H has noticed significant growth in sales to systems integrators: 69 percent in servers, 67 percent in mobile computing and nearly 50 percent in application software and backup storage.

But not all VARs are going for distributor-marketing programs.

"I get an average of four or five blurbs a week from each distributor," says Stephen Moll, director of operations at Portland, Ore.-based VAR Computer Technology Link. "I know everybody is trying to get into the small-business market, but I don't see any change from the norm [in that material]."

Some VARs, such as Alternative Information Systems of Buffalo, N.Y., think distributors invest vendor-supplied funds in ineffectual programs. Referring specifically to Ingram's System ArchiTECHS, vice president Guy Marlette says, "They told me about all these perks--these free trips you can go to and network with your peers, and if I sell something [to a remote customer], another dealer could service it. I don't want one of my competitors to go into my account to service it." Marlette says he would rather see the money used differently. "[Use] that money and reduce your overhead; put it back into the product," Marlette says. "If you can knock that dollar off, that 50 cents off, that quarter off, I could be saving a hundred thousand dollars."

But again, have years of distributor marketing caused some VARs to tune out virtually everything, even when it might offer some advantages? For example, according to Mike Beyersdoerfer, Ingram Micro director of vendor management, the System ArchiTECHS program is actually trying to provide financial incentives. "We hope to bring [systems builders] discounts and other pricing from vendors that they may not have seen before," he says. Beyersdoerfer also notes that networking to provide service was an approach the company has successfully deployed in other markets without VARs effectively turning leads over to competitors. "Of course, people are going to be nervous about that," he says.

Ultimately, the most important and currently unanswerable question is what the size of the SMB opportunity actually is, or if those companies have also done much of their purchasing over the years. And if the results don't appear quickly, the distributors could find the new programs disappointing. "They typically jump into these new lines hog-wild, and then eight months later if it's not successful for them, they drop them," Marlette said of distributors picking up new specialty products. "Then the VAR is left in a pickle when trying to get support for a product; they have to go to other sources to get them."

Erik Sherman ([email protected]) is a freelance writer based in Coltrain, Mass.