Tech Trends
While talking with the VARBusiness 500, we uncovered four main technology trends. First, VARs are finding that partnering is becoming more essential, particularly as the technologies become more complex or their reach becomes more globalized. Those VARs who understand how to extend their own networks beyond their usual vendors and suppliers will continue to climb up the charts.
Second, the open-systems movement is taking hold; more Linux-based solutions are permeating deeper into the enterprise, reaching closer and, in some cases, touching the end user's desktop and further down the SMB food chain to smaller companies. As Novell has shown, open systems can revive even the most hidebound strategies and breathe new life into an old dog.
Third, many VARs have moved to an all-subscription revenue model in the past year. Looking for recurring revenue is just one way that many VARs have begun to realize that pushing boxes ain't all it's cracked up to be, and having a guaranteed monthly income makes perfect sense to ride out the uncertainties of economic slowdowns.
Finally, VARs are looking more carefully at how they adopt new technologies, proceeding cautiously in terms of adding bleeding-edge products, only doing so after months of careful systems and integration tests and trials.
Let's examine each of these trends in more detail.
Open-Systems Mantra
What was surprising about our interviews with leading VARs is how much Linux has permeated the fabric of customers' computing lives, and how far afield it is used these days. Linux has become a mantra of sorts for many, a more compelling choice for rolling out desktop applications.
"The old guard is dead. Linux is huge," says Bob Matsuoka, CEO of RunTime Technologies, a New York-based ISV. "Everyone is interested in the impact of open source, and no one wants to invest in anything that doesn't have a long future."
Part of the open-systems and Linux uptake has to do with wider acceptance of Web-based technologies, such as portals, service-oriented architectures and richer Internet applications.
"These standards are giving us the ability to respond more quickly and consistently," says Ned Stringham, CEO of Salt Lake City-based SBI Group VB169. "The sense we get from customers is that portals have become part of the operating-system requirements of a company."
Selling Subscriptions
Selling subscription services might sound demeaning, but many VARs have found success in this model, where monthly revenue increases stability, strengthens the partnership between the VAR and customer, and provides a cushion to ride out the riskier times. "We do about 35 percent of our business now through subscription services," RunTime's Matsuoka says. "We are making a big push to double this percentage in the coming year. A big theme in spending is that nobody wants to put any money up front into any projects these days."
David Nolan also appreciates this model. He is vice president for business development at Skokie, Ill.-based Forsythe Technology VB86, one of Oracle's largest ISVs. "Our leasing business is a recurring-revenue business and remains an important element of our business. We have a few service offerings with a recurring revenue that we will be rolling out this year as well."
Proceed With Caution
Many VARs say they are wary about bleeding-edge technologies. That means they are taking innovation slowly, doing as much due diligence to ferret out the true costs. "Selling tried-and-true technologies is about 80 percent of our business," Stringham says.
Some firms are making names for themselves at the outer limits, such as PlanetGov, VB112. "Our success has been the partnering of integrator and leading-edge devices. The effects are immediate, and the return on investment much quicker," says Kyle VonBucholz, wireless program manager at PlanetGov, Chantilly, Va.
But that doesn't mean the company plunges into the deep end of the pool all the time. "If we decide to use riskier emerging technologies, we first have to determine whether it has been validated by the appropriate federal-security institutions and whether the technology truly does what it claims to do," VonBucholz says. "Then we perform our own side-by-side comparisons with the older tried-and-true solutions."
Sometimes an ISV has no choice but to be innovative. "We can get away with a little more leading-edge product because we are an ISV," says Kevin Carlson, CEO of Atlanta-based Verteris. "When considering emerging technologies, we do a full evaluation of the technology in a prototype environment. First, we consider whether it fits the functional requirements. Second, we evaluate the solution for scalability, performance and so on. We then do a cost-analysis on what it will cost to deploy and maintain."
Some firms are steering clear of the bleeding edge entirely. "We tend to be on the leading, not the bleeding edge," Nolan says. "We do have a number of exciting new partners who are the innovators, but the bulk of our business comes from established firms."
In some cases, those VARs not always on the bleeding edge are still moving in that direction when it comes to selling SMB solutions. "I believe the 'M' in SMB is a great market to target. It's below most radars and has a huge potential to grow," says Quy Nguyen, CEO of Allyance Communications Networks, Irvine, Calif. "While we prefer our clients to not be beta-test sites, we have found that [midsize] customers are the ideal clients that will most likely deploy a VoIP solution."