Page 2 of 2
When you look just at VARs not already involved in VoIP solutions, almost one in five, 17 percent, put VoIP highest on their list of technologies to add to their solutions portfolio before the end of 2008. The comparable percentage for security hardware is 13 percent and for wireless networking is 11 percent. The numbers are smaller for all other infrastructure solutions.
Of these top infrastructure solution categories, VAR offerings are expanding most quickly in the wireless networking space. Two out of five VARs that already offer wireless networking plan to expand those offerings in the next year, possibly because customers are compelled to keep up with advances in wireless networking capabilities. Just under a third plan to expand their security hardware offerings, and one in five will expand their VoIP portfolio.
Keen interest and hot growth projections don't necessarily correlate with a large share of business. For example, security hardware currently generates only about 9 percent of all hardware revenue in the channel, while network hardware brings in 18 percent. Personal computer and server systems still garner the lion's share of hardware revenue at 40 percent. Systems revenue may begin this year to slip toward networking hardware because of virtualization: Not only has virtualization started to show signs of cutting into vendor server revenue, but solution providers indicate high interest in nascent network virtualization, which moves certain services traditionally housed on servers directly into network hardware. In a separate study conducted by CMP Channel on the virtualization technology market in October, 47 percent of VARs already involved in virtualization offer or plan in 2008 to offer network virtualization solutions.
While State of the Market 2008 results indicate nearly one-quarter of all solution providers are involved in virtualization, either selling or recommending, virtualization software itself is not a rich source of revenue. Virtualization software brings in just 2 percent of software revenue. However, virtualization software can facilitate or sweeten deals by decreasing customer hardware costs, increasing availability/uptime or improving disaster recovery.
The chief source of software revenue is still business applications (32 percent), followed by desktop/productivity applications (15 percent). While Software-as-a-Service (SaaS) has posed a potential threat to this revenue, it has so far seen widespread adoption only in the relatively newer segments of customer relationship management (CRM) and Web conferencing.
According to Gartner Dataquest, in August 2007 adoption of SaaS in the enterprise applications space has been spotty and represents only 1 percent of manufacturing and operations applications but 30 percent of supply chain sourcing, a segment of supply chain management (SCM). However, Gartner projects SaaS sales will be outpacing the growth of on-premises software sales. Gartner projects sales of ERP SaaS to expand at an annual compound growth rate of 15.9 percent between 2006 and 2011.
The newest space Gartner has identified for SaaS is "office suites and digital content creation," or basically personal productivity apps, which the research firm expects will grow at an astounding rate of 95.7 percent per year compounded annually between 2006 and 2011, with sales totaling $1.4 billion by 2011. Given that State of the Market 2008 shows 48 percent of all solution providers sell these types of applications as on-premises software, many will start to notice this encroachment within the next few years.
How the solution provider is dealing with the changes SaaS is bringing is covered in more detail in "SaaS Smarts" on page 40.
One of the ways to deal with SaaS is to increase emphasis on consulting. Already, the industry has shifted significantly over the past few decades such that consulting and professional services account for a quarter of all solution-provider revenue. All services account for half of the revenue while hardware and software split the remaining half. Of services revenue, managed services are now a significant slice, at 18 percent, but break/fix still brings in more--31 percent (see "Revenue Generators" chart, this page).
What's most important to staying on top of such transitions is to really understand the customer's business well. This is the channel's strength and the reason it has grown so quickly relative to the direct side of the IT market. More and more, the channel is selling to business owners, executives and line of business managers, not to the IT organization.
And remember, averages say nothing about individual cases. While vendors are reporting trouble with the enterprise space, solution providers who know their customers well enough to find solutions they consider worth investing in can still do well with large customers in 2008.
Said Mike Thompson, president and CEO of Groupware Technology in Campbell, Calif., "Specific to Cisco, we are seeing more opportunities in the midmarket in 2008, but that is our focus with Cisco. We actually are seeing an uptick in both our enterprise and midmarket space as the end of year approaches."
<< Previous | 1 | 2