The Shot Heard 'Round The Channel

In essence, it was a commercial--except for one little excerpt that appeared on several 30-foot screens flanking the stage. That excerpt contained the image of Michael Cox, CEO of integrator Logicalis US, extolling the merits of partnering with IBM. Like a Dennis Miller joke, this snippet went over many heads, though the subtlety was not lost on everyone. Logicalis had been a near-exclusive HP partner, and Cox spent 15 years working for HP. He could take you on a tour of the old Hewlett and Packard garage blindfolded. Clearly, Cox and Logicalis were sending out a calculated message about the firm's allegiance or satisfaction with HP. Either way, Cox's video appearance was the shot heard 'round the channel.

In between meetings with IBM executives, Cox was introduced to Jeffrey Teeter, COO of STI, an IBM-only shop that had built itself into one of IBM's largest VARs, generating $90 million in annual sales. So East met West, as the saying goes. Just a few weeks later, the two consummated the $15.7 million buyout whereby their operations would be combined into a whopper of a national integrator with $400 million in sales and 350 employees who could deliver HP, IBM, EMC and Cisco solutions. Of their 1,300 combined customers, the overlap amounted to a mere 40 clients.

For an industry obsessed with specialization, this certainly throws a wrench into the works. Both companies had track records that would make Adam Smith proud, but they realized the only way to thrive would be to diversify. "For our customers, we can be vendor-independent and, at least, more so than the manufacturer," Cox says. "We can offer a choice and the right solution without being limited."

Teeter and Cox encourage solution providers to diversify to avoid some of the challenges their organizations faced. Ironically, their deal was made public only two weeks after HP admitted to an embarrassing quarter-sacrificing, supply-chain snafu. HP's problems no doubt impacted Logicalis.

The Logicalis-STI deal is also the latest example of consolidation among VARBusiness 500 firms. Just a few months back, CompuCom was sold to Platinum Equity Partners, Sirius scooped up Denver Solutions and legendary reseller Barry Steinberg sold most of Manchester Technologies to ePlus. One interesting point to keep in mind is that both STI and Logicalis are below the industry average when it comes to revenue generated from services; even under their new operating model, they expect to remain focused on selling hardware and software while modestly growing their services capability. Cox isn't done yet, either. With the help of his parent company, Datatec, he intends to acquire two more HP VARs along with a Cisco shop. For a company whose future was once inextricably tied to HP, Cox wonders what the coming months will bring. "HP will be our biggest line [marginally], and over time who knows," he says.

Switching gears, VARBusiness received nearly 475 applications for its Technology Innovators awards competition. Finalists will be screened by a panel of some two dozen solution providers, with the winners unveiled at XChange Tech Innovators on Oct. 18 in Coronado, Calif. We've received an impressive array of entries across eligible categories, including security, storage, enterprise applications, wireless and networking.

Speaking of awards, by all accounts, the VARBusiness Annual Report Card event held Aug. 17 in Chicago was a smashing success. We presented ARC awards for partner satisfaction in 18 categories, along with two special honors for Channel Executive of the Year, which went to a deserving and unnerved Allison Watson of Microsoft, and Lifetime Achievement, which went to outgoing and retiring Sun channel chief Gary Grimes. For event coverage and a longer version of my column, go to varbusiness.com.

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