VARs Look For Ways To Boost Solution Sales

*Editor's Note: This is the first of 10 installments of our 5 Hot-Button Issues series, in which we spotlight five things solution providers should keep an eye on over the coming year in various IT and channel categories.

Successful solution providers have made the full turn. After years of promising to shift to solution-selling and moving more of their business from products to services, the mind-set of solution providers today is to wrap products around solutions rather than simply attaching services to a product sale.

As such, channel hot buttons for the coming year focus on how best to augment the solution sale to increase profit margins in an increasingly stingy IT economy.

1. Boosting Profit With New, Emerging Vendors
Witness the rush to add new, emerging vendors to augment existing solution practices. Solution providers say smaller software and tool vendors that fill a niche in an existing solution can dramatically boost overall profitability.

Amy O'Neill, director of vendor relations at GreenPages, a Kittery, Maine, solution provider, said adding emerging vendors that provide building blocks to larger niche solutions helps boost profit margins into double digits. She said that in each of GreenPages' solution practices there are solution architects charged with finding new vendors that offer new technologies to build better solutions. "Ultimately, it is up to the solution architects to find the best technology in their area," she said.

Not only do the new vendors help provide better solutions, but GreenPages can ultimately wrap its own services around new vendors and new technologies, O'Neill added.

John DeRocker, senior vice president of sales and marketing at Nexus Information Systems, a $30 million solution provider in Plymouth, Minn., said he's expanded the definition of storage, his most successful and profitable solution practice, to include enterprise backup, disaster recovery and e-mail archiving.

As he's done that, he's added new vendors such as XOsoft, Waltham, Mass., and CommVault, Oceanport, N.J., citing two examples. He said that Nexus Information Systems generally works directly with these new, emerging vendors and is able to set its own margins on the products. Product margins for emerging vendors in his storage business can be up to 40 points.

2. Going International
Look for solution providers to also expand their reach through acquisitions and expansion into international markets. Technology Integration Group, San Diego, for example, recently opened its first international office in Germany and acquired a $12 million solution provider in an effort to bolster its market reach.

The $285 million solution provider, with 19 locations across the United States, said its new Heidelberg, Germany, office will help it serve federal contracts at U.S. military bases in Europe and North Africa, said Technology Integration Group President and CEO Bruce Geier. Geier said the new European location should add upward of $10 million in revenue this year. "We are already developing new opportunities beyond the military contracts," Geier said.

Likewise, solution provider Camisa Technologies, Tempe, Ariz., has tapped into a significant source of off-shore CRM/ERP programming talent after striking a deal last year with the Sonora state government in Mexico, according to Warren Mills, vice president of sales and marketing.

As a result of the deal with Sonora, Camisa hired six programmers and developers for Sage CRM and four more for Sage CRM Saleslogix. And the solution provider is currently interviewing for a team for Microsoft CRM. The addition of Mexico-based CRM programming talent has given Camisa a significant competitive edge, Mills said.

"It's like off-shoring in India except that you are in the same time zone in Mexico without the language issues. These guys are coming out of what Mexico would call its MIT, and many of them have worked in the States and have excellent English skills," he said. "We can now deliver projects that were either impossible to do or too expensive to do."

3. Consolidation Craze
Technology Integration Group also purchased Network Plus Technology Group (NPTG), a San Diego-based consulting and integration company with annual revenue of between $11 million and $12 million. Geier noted that fueling many of the acquisitions are cash-flow issues for solution providers that are having difficulty building a services-oriented business at the same time they are heavily involved in product sales.

Logicalis, based in Bloomfield Hills, Mich., also joined the acquisition fray early this year when it acquired Alliance Consulting's Southwest region business, bolstering its Contract Consulting Services Group and putting the integrator on track to reach close to $500 million in revenue this year.

4. Blades, Blades, Blades
In the system business, solution providers say they expect blade sales to remain white-hot as server consolidation continues unabated.

Joe Mertens, executive vice president of Sirius Computer Solutions, San Antonio, one of IBM's largest solution providers with 2005 revenue in excess of $578 million, said, "Blades are up 95 percent year over year, and that's coming off a big number."

5. Vendors Trimming Smaller VARs From Their Ranks
Questions of vendor loyalty -- translated as, "How much of my stuff do you sell?" -- will continue to hover over the channel this year. Look for major vendors to continue purging smaller solution providers from their ranks by declining to renew their authorizations.

Solution providers say this will force smaller resellers to embrace white boxes or alternative branded vendors, which could ultimately hurt vendors that believe fewer, but more loyal, channel partners will lead to more revenue.