Varnex VAR Poll: From Health Care To Windows 7 To The Super Bowl

How Is Your Health-Care Business?

We've had sporadic success selling to health care, but are planning to build it stronger: 41 percent

We do not sell health care but plan to do so soon: 31 percent

My company has a strong competency selling health care: 18 percent

Health care is not a current or future business market for us: 10 percent

Although only 18 percent of Varnex members said they currently have a strong competency selling health-care solutions, another combined 72 percent said they plan to increase their business in that space.

"Obviously the health-care market is going to be a huge opportunity for all of you in the room for the next several years as doctors get into the [electronic] medical records arena," said David Cardwell, senior manager of U.S. distributor sales at Lexmark.

Jason Oliver, vice president of channel development at Xerox, noted that many doctor's offices still photocopy patients' insurance cards, in some cases at each visit. "There's [opportunity in] understanding the whole document management space. The challenge is figuring out ways to implement that," Oliver said.

What Impact Will Windows 7 Have In 2010?

Help somewhat due to clients avoiding Vista: 38 percent

Have little or no impact on sales: 31 percent

Be a cornerstone of an IT recovery for 2010: 17 percent

Have an uncertain impact on sales: 14 percent

Solution providers expect Windows 7 to help somewhat in 2010, but less than 20 percent expect it to be a major force in their businesses. Microsoft, as one might imagine, is more upbeat.

"We see a lot of momentum. IDC did some studies of the economic impact of Windows 7 and they talk about a recovery impact of billions of dollars [in IT spending]," said Benny Madrid, director of market development at Microsoft. "There is pent-up demand that we want to take advantage of."

Madrid also noted that IDC projects that for every $1 spent on Microsoft products around Windows 7, another $8 will be spent on hardware, software and services.

Gary Koopman, vice president of distribution sales at Hewlett-Packard, said the vendor's research also shows a pent-up demand to replace Vista or XP.

"We'd like to replace all those old PCs. The capabilities of PCs today are light years better than they were three or four years ago. It's a great opportunity to go back to your install base," Koopman said.

Stephen DiFranco, vice president of channels at Lenovo, noted that PC sales started climbing again the week after Windows 7 was released. "This [Windows 7 release] is something significant. The PC industry was under tremendous risk of losing share to Apple. Apple was growing dramatically. The reason is not because the computers are prettier, it's because the OS was more stable," DiFranco said.

"I applaud Microsoft. We needed this. You guys spent a lot of time and resources taking Vista out and putting XP back and not getting any money for that. Now you have real SMB boxes in the market with a real SMB OS on it. This is a very significant advantage for Windows PCs remaining relevant in the marketplace. Without this, we're not going to get to what's next, like how to handle managed services. This OS is a lot smarter in how they handle managed services. You won't have to manage OS issues nearly as much as you have to do today," he said.

What Are Your Revenue Growth Projections for 2010?

Growth of 5 to 10%: 51 percent

Growth of 10 to 25 %: 29 percent

Growth of -5 to 5 %: 14 percent

Growth of more than 25 %: 4 percent

Decline of more than 5 %: 1 percent

HP expects 10 percent growth next year in the channel, said Koopman.

"We see a lot of opportunities and we will invest more in the channel," he said. "In order for SMB to grow, we have to look for different ways to spend money, to utilize less energy. We have some unique products coming out that will cut energy use by 50 percent. We have 'instant-on' printers coming out. Today's printers have to burp and belch to start before they're ready to use. There's a lot of real cool initiatives coming on to consume less energy. It's a great selling pitch. Most folks in the IT world are looking for ways to cut costs and save employees."

Lenovo's DiFranco expects many VARs to rebound after a tough year because more end users will look to divest their own IT infrastructures.

"If you don't grow from 2009, the worst recession year since 1930, that's a problem," he said. "We think the growth you see is because the customer will be more reliant on you for IT. That's coming from them saying, 'We just don't want to do this anymore.' I have predicted a number of IT people employed by small businesses will go down. Nobody hires their own janitors anymore. At some point, nobody will hire their own IT staff anymore. We're at that point. People need to run their businesses, not IT."

Kathy Graves, director of North American distribution, enterprise channels, at Symantec, said some growth will spur from vendors increasing their managed services initiatives, in her company's case with managed print.

"As manufacturers, we need to integrate more with LPI [Level Platforms], N-able [Technologies]. ConnectWise, Autotask, Kaseya. We need to integrate into managed print services what you're selling today," she said.

What Is Driving Current Demand?

Server consolidation/virtualization: 35 percent

Product refresh (efficient printing): 31 percent

Managed services: 27 percent

Storage: 5 percent

Security updates: 2 percent

Software upgrades: 0 percent

To perhaps no one's surprise, VARs selected server consolidation and virtualization as the top solutions driving demand today, followed by product refreshes.

"The one thing we've been preaching, it sounds counterintuitive, is to stop purchasing for the short term and analyze for the long term. I'd be interested to understand in this growth of hardware refresh how much is around driving optimization vs. a point solution being sold," said Symantec's Graves.

Lexmark's Cardwell said the product refresh category likely includes VARs driving demand by helping customers figure out ways to save money.

"We want you to print less, save more. If we can help customers print less and save money, that's a powerful statement in this economy. We have tools to help customers do just that, to not print unnecessary documents," he said.

For example, new tools lead to more double-sided printing, and printing up to four pages on a single sheet, Cardwell added. "The carbon footprint of a printer, 80 percent is the paper. Those messages are resonating users with end users."

HP's Koopman was surprised that more VARs didn't choose security as a driver in the current market. "I think there's a big opportunity in protecting the data, protecting your customers. I think that's a huge opportunity today," he said.

What Worries You Most in 2010?

Profit margins: 41 percent

Competitive changes: 21 percent

Cash flow due to expansion: 16 percent

Continued sales decline: 13 percent

Keeping quality employees: 8 percent

Profit margins, or what's left of them, are the top concern for VARs heading into 2010. Lenovo's DiFranco said it's what's causing solution providers to seek more services revenue.

"It's unlikely you'll see hardware pricing go up again and hardware margins remaining sticky at the bottom. I'm suspecting you'll see more energy in the channel around services going forward. That [margin] concern is going to drive it. It's not a technology revolution, it's economic revolution," DiFranco said.

Symantec's Graves said many vendors have numerous programs to help augment profitability, but a lot of VARs don't participate in them. "Two things we have are 60-day net terms and an 8 percent up-front deal registration fee [for Varnex members]. We spent a lot of time on programs. We're missing traction. But there are ways to augment profitability with distributor and vendor programs," she said.

Solution providers also need to take the time to better understand financial services offerings offered by vendors and other lenders, said HP's Koopman.

"It's a great way to boost margin on hardware. It's almost to the point where you can offer hardware as a service. That's one aspect that has not played well in the SMB space, up to 999 employees. There are lots of capabilities to manage [financing] on the hardware piece that we weren't able to do a few years ago," he said.

Who Will Win This Year's Super Bowl?

Patriots: 33 percent

Saints: 24 percent

Colts: 24 percent

Vikings: 15 percent

Broncos: 4 percent

And just for the record, Varnex members don't think Bill Belichick's fourth-down decision against Indianapolis will ultimately hurt the team's chances to win their fourth Super Bowl.