VARs Are Sitting On an Unrealized Goldmine: Their SMB Relationships

t's no secret that the small and midsize business (SMB) market presents an extremely lucrative opportunity for technology vendors and channel partners alike. Yet, after more than 18 months of intense SMB positioning by the likes of IBM, Microsoft and Oracle, the gains that these large vendors had hoped for aren't materializing. Going to market with scaled-down versions of enterprise-class offerings using existing channels and marketing strategies isn't working.

Trusted Adviser

So, what's the problem? Unfortunately, there are several root causes. A principal factor that most vendors overlook in their dash for a market leadership position is relationships. SMBs want to do business with those they already know and trust. New entrants into this space, regardless of pedigree, are not automatically embraced.

Enter the VAR, a key player in the trusted-adviser network of the typical SMB. We're not talking about the mammoth national VARs out there. It's those VARs that have established relationships with specific segments of the SMB market (defined by enterprise size, industry specialization and regional focus) who hold, in large part, the key to the SMB universe and are becoming the envy of the large IT-vendor community.

In a Gartner survey conducted in January among more than 140 midsize businesses, VARs ranked among the top three external influencers of technology purchases. Past studies have shown the same to be true among small businesses.

With limited IT staff (both in number and in depth), most SMBs turn to these external influencers/trusted advisers to help them make their technology-investment decisions,either on their behalf or alongside them.

The VAR-Vendor Factor

Unfortunately, many VARs do not feel as if they are the belles of the ball. Despite the fact that technology spending continues to grow among SMBs, albeit at single-digit rates, declining margins on hardware and software sales,coupled with more conservative buying behaviors,are affecting the bottom lines of the VAR community.

Two constituencies are hurting. But there is clearly a win-win situation here:

1. Large IT vendors want access to SMBs.

2. Research supports the contention that SMBs prefer to work with trusted, incumbent vendors that will manage the integration of other vendors' services and products on their behalf.

3. The VAR as a trusted adviser is seeking new ways to enhance its bottom line by providing turnkey offerings to include products and services.

In the same Gartner survey, midsize enterprises ranked VARs as their No. 2 channel of choice for technology-investment acquisitions. Although buying direct from a vendor ranks No. 1, this pattern is trending downward. SMBs are seeking integrated offerings assembled by trusted aggregators, and vendors are seeking other sales channels to exploit to incur lower costs of sale

and access to a larger portion of the SMB market.

Gartner predicts that by 2005, more than 65 percent of SMB IT purchases will be made through "trusted adviser" aggregators, such as VARs and professional services companies, not directly from vendors (0.7 probability).

Tapping the Goldmine

What's a VAR to do? Ranking very high on the list of external influencers and sales channels, VARs uniquely positioned within the SMB community must first recognize their immense market value. As hubs possessing access to a lucrative market, they have something that many want and should negotiate accordingly. The perception among VARs that they aren't being attended to, despite their efforts to develop relationships with large IT vendors, is shifting as these vendors realize that they must spend the time and money to develop hub-and-spoke-model relationships among trusted advisers.

Perhaps the most lucrative opportunity of them all in the near term is the enterprise that can play matchmaker between those large IT vendors and the thousands of regional VARs who are sitting on these goldmines.

Mika Yamamoto Krammer is research director of the small and midsize business group at Gartner, where she covers IT management strategies.