Solution Complexity Drives Branding Strategies

The deal, which puts the 11-year-old ISO-certified Needham, Mass., company in the role of general technology contractor selecting a wide variety of products and technologies, underscores the power of the solution provider as the brand in the current market, said TenCorp President Michael Healey.

"The customer is looking for us to provide all these specialized systems or solutions and put them into a cohesive package," said Healey. "We are paid to help get the best value and manage the budget."

TenCorp is not unusual. Research from CMP Media (owner of CRN) found that the average solution contains 40 different products and four different technologies. Solution providers say the individual brands that make up the solution are less important than they once were. They say that today their own brand,signifying their ability to bring together a multitude of hardware, software and services,is the predominant brand for technology buyers.

"Hardware brands are still very pervasive, but we have a much stronger influencer role than five years ago," said Healey. "There was a brand battle five years ago where places declared themselves Novell shops, Microsoft shops or Dell shops. There is less of a hard line now [since] customers [are] looking for a solution."

The level of complexity in the data center has also raised the brand of the solution provider, said Healey.

In the case of the TenCorp private school deal, the contract includes overseeing everything from the phone system to a complex cafeteria system application to video surveillance security systems and wireless functionality, said Healey. The deal also includes more traditional services such as desktop deployment and a Windows 2000 Active Directory-based network.

"The normal IT guy used to be in charge of a system, which used to be the network," said Healey. "Now that network is the phones, the security system and all the applications networked together. There are no more stand-alone applications. That is where the opportunity is for us as a solution provider."

Another sign of the brand shift is the increasing percentage of each sale coming from solution provider services, said Healey. "In the old days, 5 [percent] to 10 percent of a simple project came from labor and services," Healey said. "Now you are looking at [a] range of 15 [percent] to 30 percent. The level of complexity and integration has just skyrocketed."

With that growing complexity, the value of the solution provider's services is on the rise, while individual vendor product margins have plummeted.

In the old vendor brand era, profit margins on most major brand products were in the double digits. Today, the solution provider makes double-digit margins on services and low single-digit margins on most products.

Solution provider Nexus Information Systems has a story similar to TenCorp's. The average storage solution that Nexus designs for its clients now includes six manufacturers and about 150 SKUs, using as many as four distributors to buy those products, said John DeRocker, senior vice president of sales at the Plymouth, Minn.-based company. On the security side of the business, the average solution has four to five manufacturers' products with 50 to 100 SKUs and two to three distributors, said DeRocker.

"Five years ago storage and security was more of a single point product sale rather than a solution sale," said DeRocker. "To do a solution nowadays you have to know what you are doing because you're cutting four different purchase orders, tracking four different accounts receivables, each one with different payment schedules. If you want to sell a PC, there is one SKU and one distributor. If you want to sell a solution, you better have a team that knows what they are doing."

On the storage side of the business, Nexus has about 15 primary storage partner vendors, while it has about 50 primary vendors on the security side, said DeRocker.

In the vendor brand era, a buyer may have asked for a server from IBM or another vendor. That is usually not the case today, said Mark Stellini, CEO of InfoSystems, a Wilmington, Del., solution provider. Customers are not looking for technology products, Stellini said, but rather are looking to solve business problems. "Our customers are dealing with business problems, not technology problems," said Stellini.

Many vendors are slow to realize the tide has shifted. Several vendors that were participating in an InfoSystems' sales seminar for clients initially submitted presentations that were completely product related, said Stellini. "Their first thought is, 'Look at this cool new technology,' " he said, adding the vendors were sent back to the drawing board to put the emphasis on solving business problems. "Until they start thinking about what business problems the technology solves, they will not have a sales proposition."