Special Report: Meet The Channel Contenders

With the economy lagging, many solution providers say it makes sense to look at more vendors in a given technology product category as a means to reduce costs, make more margin and provide more choices to customers.

"The government space is already price-conscious anyway, but even more so now," said Nancy Hedrick, president and CEO of CSI Technology Outfitters, an Easley, S.C.-based solution provider.

CSI Technology Outfitters is a big Cisco Systems shop, but recently became certified in HP ProCurve networking products as well. The primary reason was to offer a lower-cost alternative to customers, Hedrick said.

"The local [government] and K-12 space is very price-sensitive and they don't always need the full-blown features of the Cisco product set. Typically, if you stack them side by side, there are differences [in features], but for our clients, price is important," she said.

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Hedrick is hardly alone. CRN's 2009 Channel Contenders survey shows that solution providers consider dozens of alternatives in 14 product categories, and that they know what they want. Nearly two-thirds of all respondents said their vendor evaluation process takes less three months before adding an alternative or emerging vendor to their product portfolio. One-third of the respondents said the process takes less than one month.

Solution providers also rely on a wide variety of ways to gather information regarding alternative vendors. Trade publications, including CRN and CRNTech, was the most cited way to evaluate products, chosen by 58 percent of the solution-provider respondents. Other top information-gathering avenues included word of mouth (53 percent), search engines (52 percent), distributors (51 percent), electronic newsletters (49 percent), third-party Web sites (46 percent), trade shows (44 percent) and Netseminars (40 percent).

Joe Quaglia, Tech Data Corp.'s senior vice president of U.S. marketing, said economic pressures are forcing VARs to look for lower costs and better margins, which means more attention paid to contender vendors.

"As margins erode, there is more competition. Resellers can make more money and not pass the Cadillac pricing to their customers," Quaglia said. "Those forces are working together to make tier-two and tier-three [vendors] more valuable than they have ever been." As a result, Tech Data is looking at new vendors more than it has in the past, Quaglia said. "I work with our IT department. We have lots of companies trying to get access to our IT folks. I don't put everyone in front of IT, but where the market is corresponding, we're looking at more products," he said.

In a growth market, it's easier for companies like Cisco Systems Inc., San Jose,Calif., and Hewlett-Packard Co., PaloAlto, Calif., to maintain robust market share, but when the economy turns sour, those companies face more challenges hanging on to business, added Quaglia.

"In good times, those [leading] vendors are able to get those solutions procured. Now, the ROI timeline is much shorter. CFOs are not approving anything with over a six- to 12-month ROI. In many cases,VARs have to go with a smaller-tier vendor," he said. "The cost savings along on some of these [contender products] forces [market leaders] to come to the table with better value-to-price ratio."

NEXT: And The Survey Says ...

In the Channel Contenders survey, solution providers said their customers request a specific brand 43 percent of the time.

However, solution providers also said they can convince customers to go with an alternative vendor 53 percent of the time after the customer requests a market leader.

That's pretty clear evidence that solution providers offer influencing value to their customers, said CSI Technology Outfitters' Hedrick. "We have studied our solutions well and we're supposed to be the adviser coming to the table to guide them," she said. "They don't have time to study alternatives. Our job is to bring solutions to them. Sometimes something [they don't request] is truly the better solution."

In addition to better prices or margins, solution providers said alternative vendors can also offer more technology innovation than established market leaders. In some cases, those smaller players often end up getting acquired by market leaders down the road, but in many cases that's not until solution providers have helped generate interest in the vendor.

"We keep our eye open for alternatives for innovation. We take a look to see what's coming down the pike. The little guys are a lot more nimble with what they can come up with," Hedrick said.

She cited virtualization as an example. While CSI Technology Outfitters is using technology from VMware, the VAR is also looking at additional solutions.

"We want to match the clients' needs," Hedrick said. "They request [a brand] pretty often. Sometimes we can convince them otherwise, especially if we're not familiar with their brand. But sometimes they've been working with a solution for a long time.

They've got enough involved and we would miss out on some market share if we don't [go with their request]."

Of course, not every solution provider is looking for more Channel Contender partners. VARs like Arlin Sorensen, CEO of Heartland Technology Solutions, based in Harlan, Iowa, are looking to pare down the number of vendors they offer in this economy. "We're probably more involved with HP than we've ever been in today's tight economy. We're doing more with fewer key vendors, but the deeper we get with them, the more support, the more marketing investments, the more training they'll make in us," Sorensen said. "We're working hard to consolidate the relationships we have."

But Corinne Sklar, vice president of marketing at Bluewolf, a New York-based solution provider, said looking to provide more options and more technology to customers is a key part of winning business in today's IT landscape.

"Everybody is trying to get deals closed. For sure, there's a sea change happening right now.The status quo, the term 'business as usual,' is going away," Sklar said. "People are opening their minds. They have to look at viable cost-saving options. As cloud-based solutions gain enterprise clients, it's causing CFOs and IT departments to say, 'Just because we've done it this way for the last 10 years doesn't mean we have to continue to do it that way.'"

NEXT: Upsides And Downsides

If you want to be a Channel Contender, you better make sure you come to VARs with a pretty competitive price.

Solution providers picked better price performance as the top "upside" of working with an alternative vendor in five of six product categories. And in the sixth category, security software, it finished only slightly behind better product performance. Product performance was a top three upside in five of the categories, while higher margin opportunities and better support were also important reasons.

On the other hand, the high cost of adding a new vendor was the biggest prohibitor in considering new vendors in server virtualization and VoIP categories. In addition, VARs cited challenges in getting customers to change and poor product performance as concerns.

Laptops generated the most feedback, with poor product performance cited by 40 percent of respondents as the highest downside figure in any product category. Meanwhile, better price performance was cited by half of solution providers as an upside, the highest upside figure in any product category as well.