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It's not only filling a technology gap that has a lot of emerging vendors making their mark with solution providers. It's also a sharp focus on designing, building and pricing products specifically for small- and midsize-business customers.
When an emerging vendor develops products for the small-business slice of the market, for example, they mostly are focusing on 50 users and less. Those products are built and priced for that segment and are priced thousands of dollars less than comparable solutions from the larger vendors. Larger established vendors often have a daffy definition for the small- and midsize-business segment because of their enterprise-centric view of the world, solution providers say. For example, many large vendors define small businesses as 250 seats or less and then price those products out of the reach of true small-business customers.
Solution providers say another defining characteristic of emerging vendors is that they make sure their products are not overdistributed. That way, they guarantee that those solution provider partners pushing the cutting-edge technology envelope are rewarded with high margins rather than watching those margins be cut to shreds by e-tailer behemoths.
Of course, the product has to pass the high bar of technical superiority before a solution provider will look at the channel characteristics.
Jeff Donelson, president of Atlanta Network Technology Group, Roswell, Ga., decided to resell the Allworx fully integrated IP phone system and communication platform, designed for businesses with up to 100 employees, after evaluating phone systems for his own company.
"I was so impressed after we started using it internally that I decided to become a reseller," said Donelson. Communications giants Cisco and Nortel Networks simply have "no comparable offerings at the lower end," he said. "I don't consider either one of those players as addressing or competing head-to-head with Allworx."
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The Allworx solution has, on average, 30 percent to 40 percent margins, according to Donelson. One reason Allworx partners say they can command those margins is because the vendor has not overdistributed the product.
Thomas Roy, president of Spaulding Hill Networks, a Nashua, N.H.-based Allworx partner, said he is able to maintain 40 percent to 45 percent margins vs. 10 percent to 12 percent margins selling a 3Com solution because he does not have pricing pressure from the likes of CDW when selling Allworx.
"The CDWs of the world kill us," said Roy. "They really do. They are selling this stuff at what it costs us from distribution. So margins are extremely slim when we go into a deal with a large vendor like 3Com. Users go up to CDW or Google and come back with some ridiculous price. We tell them to go buy it there. Allworx isn't sold at CDW. It's great that they have protected us and we can maintain our margin."
In addition, Roy said if he ends up proposing a 3Com solution he finds himself competing against three other 3Com dealers, all of them driving down the price on the deal.
"That has happened to us multiple times," he said. "Now we are all battling it out for 10 percent, and somebody might cut it down to 9 percent, someone else might cut it down to 8.5 percent. Not once has that happened to me with Allworx."
The larger vendors "have dealers everywhere," Roy continued. "They tell all their dealers about these opportunities and they put all of them into a ring to fight it out against one another. You walk out of a deal beat up and bruised and you make 8 percent. That does not happen with Allworx. I really like that."
As for the superior technical support of emerging vendors, Roy points to a situation he encountered last year involving a glitch in Allworx's new 24x and the carrier connection.
Roy and his team worked on the issue for four days with technical support from both Allworx and the carrier. Allworx Chairman, CEO and President George Daddis and an engineer flew from Rochester, N.Y., to the customer site on a Friday morning, isolated the problem within several hours and had it fixed with a patch in no time. To top it off, Daddis put together a pizza lunch for the entire client company and apologized for the inconvenience.
"That's what I love about this company," Roy said. "They are awesome. The bottom line is, George wants to make sure he has happy customers. He wants to make sure people come away with a great taste with Allworx."
It's that kind of personal attention that has Roy looking at adding more emerging vendors, which he said currently account for about 55 percent to 60 percent of his net income. He would like to drive that to 80 percent over the next five years.
"We are on the hunt and searching for new emerging vendors," said Roy. "It really is the way to go. I am so sick of the same old, same old [with larger vendors]. With Allworx, our success is their success. I'd love to find more emerging vendors like them to work with."
For Some Solution Providers, It's All Emerging Vendors, All The Time Fueled by that kind of feeling, some VARs are moving to an an almost all-emerging-vendor model.
Jeffrey Main, CEO of Questeq, a Pittsburgh-based solution provider, said he decided four years ago to flip his business model and "ditch" most of his tier-one vendors primarily in favor of emerging vendors. "Everything we do is on the emerging side now," he said. "We turned our whole strategy upside down. We absolutely are not interested in commoditized channel products and vendors. We just don't want them. We want fresh startups."
Among the vendors that Questeq brings to the table now are N-Computing, AppStream, Cymphonix, Sendio and NetOp. Main said the key to playing in the emerging vendor space is taking on products in the early adopter stage before the CDWs of the world commoditize them. He points to CDW buying Berbee as evidence of the commoditization of the VoIP market. That is in sharp contrast to a company like Redwood City, Calif.-based N-Computing, whose technology prowess is unmatched by any and all comers, according to Main.
The N-Computing technology allows a PC's processing power to be shared by as many as 30 users and has proved to be extremely popular in lowering the cost of deploying technology in school systems, according to Main. The N-Computing product can reduce the acquisition cost for a school system's PCs by as much as 60 percent, Main said, adding that the Questeq team looked at five other PC-sharing technologies and all of them "failed miserably."
"This is the first product out there that was stable enough to introduce to our customer base," Main said. "There were a bunch of other products out there before this came out. But this the first real viable alternative we saw to split a Windows PC into multiple sessions."
With products like those from N-Computing, Main said the emerging vendor business is robust, outpacing even Questeq's thriving managed services business. The bottom line is, there is more opportunity for increased margin with emerging vendors, he said.
Of course, he points out that there is a bigger investment that solution providers have to make to drive emerging vendor solutions.
"We are always looking for companies in the first four years of their technology cycle," he said. "Before it gets to Dell, CDW or TigerDirect."
Commodity-product-oriented vendors usually want to leverage a broad customer base, he said. "With a commodity product, all the vendors want to do is leverage your customer base. With an emerging technology, it is very hard because you are only going to get early adopters as a customer base. You have to go wide and put a lot of time into the sale. You need the higher margins to offset the operating expense to sell an emerging technology."
JENNIFER HAGENDORF FOLLETT contributed to this story.
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