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Hardware vendors also sought out and acquired VARs, further blurring the lines between VAR and vendor.
In the printing and imaging market, for example, Canon scooped up Uinta Business Systems for an undisclosed sum in 2006, and Xerox grabbed headlines this year when it announced that it would plunk down $1.5 billion for mega-VAR Global Imaging Systems (No. 135), a company Xerox had originally intended to woo as a solution provider partner but later decided to bring in-house instead.
The deal brought Xerox an instant salesforce with expertise in selling document imaging solutions and services, which may have been a more cost-efficient route for the copier king than training thousands of VARs on selling print managed services, analysts say. Meanwhile, Xerox contends that it's still committed to driving sales through resellers, but the deal raised questions about the future of the printing and imaging channel and whether it will eventually be owned by IT VARs, copier dealers, printer vendors or copier vendors.
Storage vendors, too, wanted to be in on the M&A party. EMC snatched up Internosis and Interlink, two solution providers that offer services around Microsoft software. Such capabilities were key for EMC as it looked to expand from a storage hardware provider to a one-stop shop for storing, managing, accessing and securing data throughout the enterprise.
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| Presidio's Rudy Casasola: "Scale and size do matter." |
Many midsize and large VARs were driven to acquire smaller VARs mainly because of the latter's expertise in certain vendor products.
"It all comes down to engineering and pooling all those engineering resources. It's difficult to manage all the certification requirements manufacturers like Cisco put on the channel," says Rudy Casasola, divisional president of Presidio Networked Solutions (No. 72), which went on a major shopping spree of its own this year. (For more, read "VARBusiness 500 Power Movers.") "For example, Cisco has the new master certification, and it's a huge undertaking. A lot of the specializations have to be held by multiple engineers, and you have to have a 24/7 call center and a managed service offering. As a smaller VAR, it's very difficult to meet those requirements, but together [with another company] you can fold your resources and accomplish certifications in a short period of time, with minimal business disruption. Scale and size do matter."
Also, many smaller solution providers are finding themselves facing the cost barriers of moving into more lucrative areas of the market such as managed and hosted services.
"What's happened with vendors is that they overpopulate the channel, then find they have 80 percent of their revenue coming from 20 percent of their partners," says Joel Schleicher, chairman and CEO of Presidio. "So they try to shrink the channel to make it easier to manage, but they find it's more effective to have a consistent delivery model. One concern the vendor has with advanced technologies is if partners can properly deploy them."
That raises the question of whether or not there will be a place for smaller VARs in the channel of the future. While there's disagreement on the role of smaller players, the general consensus is that there will always be a place for them.
"I see a handful of national players, with small VARs continuing to provide tuck-in around certain geographies where local presence is important," Shain says. "It'll be a much smaller channel, but much more coordinated than ever before."
Meanwhile, there's plenty of sorting and sifting to be done. Fusing businesses is a task that requires tact and common sense, and "partner or perish" appears to be the pervading theme.
As for Shain, he expects to put a lot more miles on his car.
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