Full Sales Ahead

With a per-partner budget that rivals any company in the industry, Microsoft is generating confidence among VARs hoping to boost their sales next year. VARBusiness' 2004 State of the Market research, in fact, indicates that more VARs expect their sales of Microsoft products and technologies to increase more than sales of any of 27 other vendors' products next year. That's true for VARs of all sizes, including small, midsize and large solution providers. According to our annual survey, more than half of all solution providers expect their Microsoft business to increase at least some next year, while nearly one-third expect their Microsoft sales to increase by 10 percent or more in 2004.

Andy Vabulas, CEO of I.B.I.S., a Microsoft Gold-level partner that sells both traditional Microsoft infrastructure products and Microsoft Business Solutions products, thinks VAR optimism hinges on two aspects. He says the company, with its SharePoint Portal product and new versions of Office, Windows and Small Business Server in the works, hit the mark with a product set that resonates with customers. And that, combined with a comprehensive plan to grow its channel sales, creates a combination that's tough to beat in the market, Vabulas says.

"We haven't gotten everything out of our relationship with Microsoft that we have put into it over the years, but expect to do so soon in spades as our business grows," says Vabulas, whose Norcross, Ga.-based company was recently honored again as a Microsoft Business Solutions' Outstanding Partner of the Year. "Any arrogance that Microsoft once had has evaporated as the company gets down to business today and tries to help. Really, it's fun to partner [with Microsoft]."

That kind of praise, many vendors are learning, doesn't come cheaply. In the case of Microsoft, it spends $1.5 billion on partners, while devoting substantial hours of executive-management time on partner issues. Furthermore, no Microsoft vice president gets paid a bonus until the company reviews internal partner satisfaction goals.

Perhaps that's why, despite being at the epicenter of a global crisis in IT security, sales and partner satisfaction remain at record levels. Allison Watson, vice president of worldwide channel marketing and sales at Microsoft, says the company is "committed to partner success and has the necessary investments in place to ensure that partners realize their potential."

King Makers 2004
A macro view of the 28 companies VARs were asked to rate in terms of sales performance in VARBusiness' 2004 State of the Market study reveals some interesting things. For example, there appears to be no discernable difference among small, midsize and large VARs when it comes to product categories. All three groups, for example, have high hopes when it comes to sales of infrastructure products, including OS and Web software, networking equipment and hardware systems.

What's curious, however, is how VARs of different sizes perceive different vendors. Take IBM, for example. A little more than one-third of small VARs with less than $1 million in annual revenue (37 percent) believe their IBM sales will increase next year. But almost half (49 percent) of midsize solution providers with sales between $1 million and $10 million expect their IBM sales to grow, while 55 percent of those with at least $10 million in annual sales expect their IBM sales to increase next year. More large VARs than other companies in our entire survey told us they expect their IBM sales to grow by a minimum of 10 percent. Quite simply, the larger the VAR, the more likely it is to believe that its IBM sales will grow.

The same is true for other technology giants, including EMC, Cisco and Veritas, that have a long history catering to enterprise customers. Large Cisco VARs, for example, rate the Santa Clara, Calif.-based networking company No. 3 when it comes to sales expectations, but midsize VARs put it at No. 5. Small VARs, meanwhile, rank the company in sixth place when it comes to sales potential in 2004.

In contrast to these companies, one company seems to do better with smaller VARs than with larger VARs,Dell. Better than half of small VARs, for example, expect their Dell sales to increase next year, while 46 percent of midsize solution providers say so. Only 40 percent of large VARs, meanwhile, expect their Dell sales to increase.

While those findings are generally good for Dell, they suggest that larger VARs are less convinced that partnering with Dell for mere convenience will lead to sales growth. Instead, they seem to have higher expectations for vendors, including Hewlett-Packard and IBM, that offer more traditional value propositions complete with formalized benefits and requirements.

While the above speaks to some sort of connection between a vendor's product focus and a VAR's business model, the data also says something about certain vendors' abilities to click with solution providers of a certain size. In several instances, for example, specific vendors resonate with VARs of one size better than VARs of other sizes.

Take Check Point, for example. The company registers less with small VARs when it comes to identifying a vendor whose products they believe will grow in 2004. Same with big solution providers. Just 26 percent and 33 percent of small and large VARs, respectively, expect their Check Point sales to grow next year. But fully 40 percent of midsize VARs expect to see growth in their Check Point sales.

The numbers are even more startling when you consider only those VARs that expect to see their Check Point sales grow by at least 10 percent next year. Among small VARs with those expectations, Check Point finished No. 27 out of 28 companies. Likewise, the company finished No. 19 out of 28 companies when it came to large VARs and IT consultants. But Check Point jumped to No. 6 in our survey among midsize solution providers.

Our takeaway: Check Point's sweet spot from a revenue and profit opportunity appears to be among midsize companies that find the company's VPN-1 Express gateway and other products ideally suited to their needs.

Bringing Up the Rear
At the opposite end of the spectrum from Microsoft are several companies that, try as they might, cannot seem to break out of a funk. For example, more VARs identified Novell, once one of Microsoft's toughest competitors, as the company most likely to see its channel sales slip in 2004. (That's the second year in a row that Novell has earned this dubious distinction.)

Midsize solution providers were more likely than either small or large VARs to forecast the company's doom: Fully one in four said they expect some sort of sales downturn next year. That exceeded the number that said they expect to see a sales increase in Novell products.

No wonder, then, that the company continues to struggle with its overall sales. For the first nine months of fiscal 2003, Novell has racked up sales of $819 million--$15 million less than the same period one year ago. Also troubling: Losses, though not what they were a year ago, continue to mount.

Partners the world over have their concerns, but they stay with the company simply because they love its technology and its partner-friendly approach to catering to customer needs.

"We simply want to be the easiest, most profitable company to do business with," says Novell vice chairman Chris Stone.

Outside the United States, that philosophy appears to be winning new business. In Europe, for example, sales were up in the past quarter by 11 percent. But within U.S. borders, the formula doesn't seem to be working. Case in point: Jesper Bergstedt, CEO and president of 2ndC, a long-standing Novell ally based in Allerod, Denmark, had to shut down his Novell-oriented U.S. venture after spending a bundle trying to get a business there going. Yet overseas, his Novell sales are flourishing, he says.

"I still have the Novell faith, but the U.S. is a tough market for Novell products," he says.

Another vendor losing ground in the United States is Nortel. The company is among the lowest-ranking companies when it comes to VARs that say they expect their Nortel sales to increase, and among the highest-ranking companies when it comes to VARs that say they expect their Nortel sales to decrease.

Like Novell, Nortel appears to have succumbed to the more powerful competitor in a two-horse race. In the case of Nortel, it has lost ground to industry-leader Cisco. While VARs have resurgent, if not high, expectations for Cisco, they expect Nortel's sales to wither. That's especially true of larger VARs. Among these solution providers, Nortel is the company second-most often identified as one that will likely endure a decrease in sales.

Also of note, two other companies whose products some solution providers expect to sell less of next year: Lexmark and Xerox.

Rooting For Sun
Interestingly, not all of the companies that VARs say they'll sell less products for in 2004 are struggling. For example, 17 percent of midsize VARs surveyed say they expect their Dell sales to decline in 2004. Only Novell scored worse in that category, with 25 percent expecting a decline. Likewise, 8 percent of small Microsoft VARs say they expect to see reduced activity with that vendor. While that pales in comparison to the 56 percent of small VARs that say they believe their Microsoft sales will increase next year, it suggests that some partners may be looking to Linux and other platforms as a way to distinguish themselves in a crowded market of Microsoft partners.

As for those that are truly struggling, there remains some optimism. By a wide margin, more VARs, for example, say they expect their Sun sales to increase than the number of those that expect their Sun sales to decrease. Although the Santa Clara, Calif.-based company continues to struggle financially--it recently reported a net loss for the first quarter of fiscal 2004 of $286 million, more than double the loss reported for the first quarter of fiscal 2003--VARs still believe in it, it seems.

Those VARs say they remain hopeful about Sun's prospects because of its continued commitment to the Sun channel and to its lavish R&D spending. They cite the new Java Desktop System, formerly known as Mad Hatter, and the $100 per-desktop price tag that goes along with it as examples of Sun's innovation.

"Despite the numbers, Sun is executing better at the corporate level," says Rob Mock, CEO of Dewpoint Inc., a long-time Sun server VAR based in Lansing, Mich. "The company, however, is challenged to stay focused."