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What's Steering Emerging Technology?

A look at the prevailing technology, products and services of emerging vendors.

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Solution providers are adding emerging vendors to their product lineups at a faster clip in 2007 and ending more relationships with large established industry giants.

That's among the findings from exclusive research in CRN's 2007 Emerging Vendor Study. Seventy-two percent of solution providers polled added emerging vendors in 2007, up from 57 percent last year. At the same time the percentage of those VARs dropping established players rose. Thirty-two percent of VARs adding emerging vendors dropped an established player in 2007, up from 24 percent in 2006.

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What this means is that the emerging vendors are taking a far more prominent place in solution provider product lineups and delivering a growing percentage to the bottom line.

"It really comes down to who is paying attention to our needs," said Wes Herschberger, CEO of MapleTronics, a Goshen, Ind.-based solution provider, of the shift toward emerging vendors. "The marketplace has changed dramatically since 2000. Back then, selling boxes and servicing boxes was good enough."

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In what product categories are you looking to add emerging vendors?
Software 39.8%
Security 36.6%
Hardware 30.9%
Service (e.g. a SaaS application or a managed service that you can resell, such as remote backup) 26.0%
Storage 23.6%
Networking 20.3%
VoIP 16.3%
Other 8.9%
None 10.6%
Base: 123 solution providers

Herschberger says VARs of all stripes are going deeper with clients and doing more strategic planning with clients day in and day out. Thus, the reliance on emerging vendors. He says solution providers have moved from being providers of technology to strategic providers of services with a seat on the client's management team. "We have to know their business," he said. "We're looking at how we can make the client's business better and sitting on their side of the table. If you turn that around, that is exactly what the big boys can't do."

One sign of the tighter relationship with the clients is the dramatic rise in the number of innovative products being brought to market by solution providers themselves. MapleTronics, for example, spun off an online backup solution it had been selling to its customers for a number of years into a separate company, RBak, that is on this year's Emerging Vendor list. RBak grew out of MapleTronics' frustration with other vendors' cumbersome and sometimes unreliable tape backup solutions.

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Reasons to drop an 'established' vendor, ranked by importance
Inadequate technical support 77.3
Competition from vendor's direct sales force 76.2
Poor margins 73.5
Lack of field engagement/resources 71.0
Training costs/requirements 66.3
Overdistribution 65.8
Lack of sufficent co-op/
marketing funds
60.3
Base: 123 solution providers
Scores based on a score of 1 to 7 in 2007, both normalized to a 100-point scale for reporting purposes.

The No. 1 reason VARs are turning to emerging vendors like RBak is the technology provided by those companies is superior to other products in the market segment, according to the CRN study.

That's the reason Ron Cook, chairman and CEO of Connecting Point Technology Center, a Las Vegas solution provider, recently signed on modular SAN provider Compellent, displacing solutions from larger established players. "The product is far superior than that from any established player," Cook said of the move to Compellent. "It's almost unbelievable. I want to give my customers a better product for less money and make a margin. And Compellent has a 100 percent channel model with no direct sales force so I am not competing with them."

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Reasons to add an emerging vendor, ranked by importance
blank 2007 2006
Technology is superior to other products in the market segment 84.2 80.8
Complements existing practice areas 81.5 78.8
Provides better services opportunities 81.0 75.8
Better attention from vendor's field sales team than another supplier 76.8 67.0%
Offers high margins 76.0 78.5
Provides an alternative product choice for customers 74.0 75.5
Joint marketing program 67.7 62.5
Base: 123 solution providers in 2007; 155 in 2006
Scores based on a score of 1 to 5 in 2006, score of 1 to 7 in 2007, both normalized to a 100-point scale for reporting purposes.

One of the top reasons cited for dropping an established player is competition from the vendor's direct sales force, according to the CRN 2007 Emerging Vendor Study. The No. 1 reason for dropping an established player is inadequate technical support.

Cook, who also carries emerging vendor DoubleCheck's E-Mail Manager, says he sees the move toward emerging vendors increasing rapidly. In fact, he says two years ago less than 1 percent of his sales came from emerging vendors but he sees that jumping to as much as 20 percent this year. And the gross margin on those sales is 15 percent higher than products or services from established players.

Cook also sees more solution providers themselves spinning off companies to provide innovative, aggressively priced solutions for small and midsize businesses with a 100 percent channel-driven model. Cook and Alan McDonald, president of AllConnected, a Simi Valley, Calif., solution provider, recently spun off a business-continuity service network business, XiloCore, that is being embraced by fellow VARs. XiloCore is a SunGard-like disaster-recovery service aimed at small and midsize businesses. Instead of costing hundreds of thousands of dollars a month, the service is priced as low as hundreds of dollars a month depending on how quickly customers want the data restored.

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Percentage of those who've added emerging vendors who have/haven't dropped established vendors
blank 2007 2006
None dropped 68.2% 75.7%
Some dropped 31.8% 24.3%
Base: 88 solution providers with emerging vendor ties in 2007; 155 in 2006

Cook, who has navigated the twists and turns of the VAR channel for nearly a quarter of a century, says he sees more innovation coming from VARs themselves rather than larger established players because of the VARs' tight ties with clients. "We are the people who are out there coming up with solutions for our end users," he said.

Cook says he has few established players in his product lineup and plans to keep it that way. "Do you think I want to be put in a straitjacket?" he said. "I didn't survive in this business for 25 years by being totally crazy. Why would I go back?"

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