Channel Consolidation Creates Stronger VARs

What's more, they say, a group of startups and consultants is springing up at a steady pace to replace the companies being acquired.

Bob Roswell, founder and co-owner of System Source, a 22-year-old solution provider and systems integrator based in Hunt Valley, Md., said his company's July acquisition of onetime rival Connected Resources has produced a much stronger partner with more breadth and depth. Connected Resource, a startup by former System Source executives, had an affiliated training company, Productivity Partners, and a services company, NetServ, both of which are now part of System Source.

The deal brings System Source an estimated $15 million in additional product and services revenue and moves the company from break-even to profitability, said Roswell.

The consolidation is being driven in part by customers looking to buy all of their IT products and services from a single partner. "Clients want one-stop shopping," said Roswell. "They want one vendor to be responsible for everything from the delivery of the product to software imaging, asset tagging and support after the delivery."

Stephen Monteros, general manager of Brea, Calif.-based GST/E-Systems, which was the result of the merger earlier this year between GST/Micro City and E-Systems Design, said mergers make for a stronger channel. "They allow a combination of the best-of-breed people and processes and make us stronger financially," he said.

"Each company has something it is good at," he said. "This is a case where one plus one doesn't equal two but instead equals four."

The larger company now has greater channel clout than either of the original companies did, Monteros said. "We originally were on the cusp of becoming a Gold partner of [Hewlett-Packard], while the other company already was," he said. "The combination pushed us into becoming a Gold partner. Now we get more attention and support from both IBM and HP. As a result, we qualify for more market-development funds and other programs."

Despite the consolidation, some industry executives said the solution provider ranks are actually growing.

Dan Schwab, vice president of marketing at Harrisburg, Pa.-based D&H Distributing,which has added 2,800 VARs to its stable in the past year, bringing its active VAR base to 24,100,said there are more VARs than ever before in the market. "When you think about the tech layoffs at companies such as the telecom companies, those people are becoming consultants or influencers," said Schwab.

Jeff Volpe, vice president of sales for the Americas at ViewSonic, a Walnut, Calif., visual display products company that has added 1,000 VARs to its partner ranks in the past year, said VARs have also been forced to improve the quality of their businesses and offerings because of the tough economic times.

"We see our VARs smarter in their business mentality," he said. "We see them with more stature in verticals. What we have seen is, culturally, the channel maturing over last few years. The economy has forced that to happen a lot quicker.

"Once the economy starts to return and IT spending turns northward, VARs are really going to benefit because they are a stronger group," Volpe said.