The channel is undergoing a significant evolution as VARs and solution providers morph into strategic service providers: independent trusted technology consultants that drive business outcomes with an emphasis on cloud and managed services delivered through a recurring revenue model.
Which brings us to the 2016 edition of the Solution Provider 500, CRN's annual ranking of the largest solution providers by revenue in North America. Many of these companies, which collectively generated more than $334 billion in revenue in 2015 (up 10 percent from 2014), are succeeding precisely because they are changing up their business models. They are moving beyond project-based, technology procurement/fulfillment businesses to take on a strategic service provider role.
Take Sirius Computer Solutions of San Antonio, which moved up a notch to No. 27 on the Solution Provider 500 thanks to 20 percent growth in 2015 -- about half from organic growth and half from acquisitions, said President and CEO Joe Mertens. "Our clients want us to be more business-focused and understand their industries," he said, pointing to the company's efforts to expand its services capabilities and expertise in health care and retail.
Sirius has seen healthy sales growth from its data center managed services offerings. The company also has aggressively expanded its expertise and services offerings in IT security—the March acquisition of Force 3 added to its network security skill set, especially in the federal market space. And the company recently launched a new IT service and application management practice following the addition of employees and technical resources from NorthWind Consulting Services.
Mertens sees the channel segmenting into two classes of solution providers, one focused on consulting and high-value services and the other providing low-margin IT product fulfillment services. The key differentiator, he said, will be the expertise and skill sets the strategic service providers develop or acquire.
"We believe that skills win in the marketplace," he said. "We believe that ultimately provides a competitive advantage."
FusionStorm, No. 49 on this year's list, has been leveraging its extensive engineering skills to develop new engineering services such as the Rack-Ready Integration Center and Expert Services offerings -- both of which have been growing faster than the overall market, according to President and CEO Dan Serpico.
"FusionStorm's services mix is twice that [of] last year at this time," Serpico said. "Not only are the margins terrific, but [the services] are also very, very sticky with our customers.
"Our culture is to be very entrepreneurial and that has helped us adapt, very quickly, to a quickly changing IT environment," he said, pointing to the San Francisco company's services around cloud, OpenStack and software-defined technologies. "Our ability to invest in these new opportunities, especially in expanding our sales and engineering teams, has been the engine for growth."
The Solution Provider 500 is a very dynamic list that reflects the ups and downs of the channel and the IT industry. This year's class includes 47 companies—nearly 10 percent—that are appearing on the list for the first time.
And, of course, solution providers move up and down the list as their organizations and their fortunes change.