To Up Margin, VARs Have to Go Beyond Standard Services

As margin on commodity products shrinks to nil, the need for solution providers to focus on services has become all the more crucial to staying in business. But with the majority of midsize and enterprise firms relying on their own IT departments to keep IT environments up and running, the channel has to offer more than standard integration and support services.

According to the 2006 VARBusiness Market Insight Report, 91 percent of midsize firms and 99 percent of enterprise firms have formal internal IT departments; more telling still, 66 percent of midsize firms and 73 percent of enterprises rely on that department for their technology and support needs, compared to only 15 and 16 percent, respectively, that rely on third-party technology partners.

IT departments at these firms are becoming far more sophisticated, with many touting capabilities in project management and engineering development. That makes it harder for the solution provider to come in with a true value add.

"Most of our customers are large companies that purchase products though us, then handle all of the [integration and support]," says Stephen Johnson, a systems engineer with Canton, Mass.-based Sayers.

What kind of margin does that result in? Essentially none, Johnson says.

"We're trying to do more to generate services," he adds. "Right now that means figuring out a new strategy."

For many of the solution providers that do manage to penetrate midsize and enterprise firms with more than products, that strategy is to offer what these companies don't have: skills in niche areas that can improve processes and reduce costs. For Beaverton, Ore.-based LANtasm Networks, that means voice over IP with an emphasis on security.

"We're not in the business of order fulfillment," says Mark Peden, chief marketing officer.

For the company's area of focus, the real margin generator is in managed services -- actively monitoring their clients' network activity.

"CEOs, CIOs -- these guys like to sleep at night," Peden says. "When they outsource functions effectively, the [solution provider] offers peace of mind."