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Sensing that IT spending budgets are once again growing, solution providers in North America are becoming bolder by expanding into consulting and managed services, extending their solution offerings into emerging technology areas, and expecting increased revenue from hot vertical markets such as health care.
But despite a generally upbeat outlook for 2011, solution providers remain heavily dependent on a relatively small number of SMB customers for a big share of their business. And many say cautious customers and economic trouble in specific markets still pose obstacles to growth.
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Top 10 Takeaways From The CRN State Of The Market Survey |
Those are among the findings of an Everything Channel survey of 384 senior-level managers within IT solution provider companies in North America. The 2011 State of the Market survey, conducted in November, looked at business issues and trends in the first half of 2010 and business projections for 2011. Those statistics were supplemented by in-depth interviews with solution provider executives.
Most solution providers saw their businesses turn around in the second half of 2010, ending a two-year period beginning in late 2008 when sales plunged and new customers were especially hard to find.
And nearly all have big expectations for 2011.
“We’re thinking about 30 percent growth this year,” said Sam Biardo, CEO of Technology Advisors Inc., a Des Plaines, Ill.-based solution provider. “We had two back-to-back really slow years, so we think there’s a lot of pent-up demand. The pipeline has been fuller than it has been in the last three years.”
“A lot of people have bigger budgets this year,” agreed Ernie Yenke, president of Lighthouse Computer Services, a Lincoln, R.I.-based VAR and Premier IBM Business Partner. And there’s more talk this year about rearchitecting IT systems to improve efficiency and competitiveness, Yenke said, as opposed to the product-specific upgrades that characterized most IT spending for the past two years.
The Everything Channel survey put the available North American IT market for solution providers at $428.1 billion in 2010, up more than 6 percent from $402.1 billion in 2009. In both years, the channel accounted for 68 percent of those sales, with direct sales making up 32 percent.
The survey found that many VARs remain heavily dependent on a relatively small number of loyal SMB customers for a big chunk of their business. Nearly 30 percent of solution providers had fewer than 25 customers while 10.9 percent had between 25 and 49 customers, 9.9 percent had 50 to 99 customers and 9.9 percent had 100 to 149 customers. Only 20.1 percent had 250 or more customers.
As for customer size, 43 percent of solution providers target customers with less than $5 million in annual revenue, while 10.4 percent service customers in the $5 million to $9.9 million range, and 9.4 percent target customers with sales between $10 million and $49.9 million.
Solution providers also said that more than two-thirds (67.7 percent) of their revenue in the first half of 2010 came from existing customers while only 25.1 percent came from new customers (7.2 percent weren’t sure). Even that relatively low figure is a testament to the doggedness of solution providers in the face of “The Great Recession” when new customers were hard to find.
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