10 Things To Watch From Datalink This Year

Datalink Doubles Down On Consulting Services, More M&A

Datalink is moving into consulting in a big way, growing its practice over the past year from scratch to 110 employees and 5 percent to 7 percent of the company's $630 million of annual sales.

Paul Lidsky, president and CEO of the Eden Prairie, Minn.-based company, No. 47 on the 2014 CRN Solution Provider 500, spoke with CRN about what's prompting clients to move away from replacing old equipment, how Cisco has become Datalink's biggest vendor, and why the company is looking to acquire firms in Florida, Ohio and Texas.

Lidsky also dished on how Datalink has gone about addressing business outcomes and forming relationships with more C-suite executives.

10. Technology Refreshes Aren't Taking Place as Often

Most of Datalink's clients are no longer refreshing technology based on the age of the equipment, Lidsky said, and are instead saving their cash for purchases that will improve business outcomes.

"Just upgrading your hardware because it's old doesn't necessarily improve your business if the hardware is working," Lidsky said.

Datalink's legacy storage business is growing more slowly than it had in the past, Lidsky said, with storage going from making up 27.3 percent of the company's business in the first quarter last year to 19.7 percent this year.

All of this meant Datalink needed to change its approach to clients.

9. IT Spending Now Prioritizes Business Outcomes

End users have redirected their IT spending toward projects that increase their security or improve their profitability and efficiency.

"A lot of that is not technology," Lidsky said. "It's services."

Datalink could in the past count on customers upgrading to the next generation of technology as their current infrastructure reached the end of its useful life.

But for Datalink to continue to grow, Lidsky said the solution provider needed to figure out how it could best address the business issues its clients were experiencing. And it needed to capitalize on security concerns as clients went about improving their corporate networks.

8. Datalink Will Make 80 To 100 New Hires for its Consulting Practice

Datalink plans to nearly double the size of its consulting practice over the next year from its current headcount of 110, Lidsky said. The solution provider vowed to jump -- and not merely step -- into its consulting business, which started just last year with 25 people.

"That's where clients are spending their money, and that's where we're helping them," Lidsky said.

Lidsky expects most of the new hires will have specific knowledge of the consulting business centered on data centers or IT infrastructure.

The consulting group often helps customers not with the technology itself, Lidsky said, but rather with the orchestration and workload management needed to run a successful cloud business.

7. Consulting Services Have Helped Datalink Win New Clients

Datalink has won new clients both last year and this year based entirely on its advanced and consulting services business, Lidsky said.

But Lidsky maintains that the greatest opportunity to enrich relationships and change conversation exists with current customers who already know and trust Datalink.

Although many of Datalink's recent acquisitions obtain some of their revenue from professional services, Lidsky said the company is still targeting companies with different consultancy skill sets.

Datalink hasn't to date formed any new vendor relationships because of its consulting business, but Lidsky said the company hopes to partner with leading consulting firms that could benefit from Datalink's technology expertise.

6. Consulting Will Eventually Comprise 15 Percent Of Datalink's Revenue

Consulting currently makes up about 5 percent to 7 percent of Datalink's annual revenue, which was $630.2 million in 2014. But by the time Datalink reaches $1 billion of sales, Lidsky expects 15 percent of revenue to come from consulting.

But growing the consulting practice is about far more than money, Lidsky said. Datalink hopes to use consulting to change its relationship with clients, Lidsky said, connecting the advice to the company's data center and IT infrastructure technology.

"We're moving up the executive chain toward the more senior IT executives, the CIOs, CFOs and, in many cases, the CEOs, because we're addressing business issues they have a keen interest in," Lidsky said.

5. Server 2003 Refresh Demand Has Met Datalink's Expectations

Demand for Windows Server 2003 upgrade activities has met Lidsky's expectations, with Datalink making most of its money off advanced services.

Specifically, Lidsky said a growing pipeline of customers have been asking for Datalink's help with migrating servers, operating systems and application as a result of Microsoft cutting off support on July 14. Even with the deadline fast approaching, Lidsky still feels there's a lot of opportunities to sell.

Unlike other solution providers, though, Datalink hasn't built a separate unit around the refresh, and Lidsky doesn't expect it to be anywhere near the biggest part of the company's business in 2015.

4. Cisco Has Surpassed NetApp As Datalink's Largest Vendor

Cisco surpassed NetApp as Datalink's largest vendor after the solution provider acquired Cisco partner Bear Data for $18.5 million in October. While Datalink's NetApp practice isn't shrinking, Lidsky said the company's Cisco practice has benefited from both faster organic and inorganic growth.

Datalink is also seeing strong organic growth with its Cisco data center practice since UCS is the primary compute component in all the converged architecture the solution provider sells. Networking is Datalink's second fastest growing Cisco practice, Lidsky said.

Many of Datalink's major corporate clients are Cisco shops, Lidsky said, and like to incorporate the vendor's technology wherever possible.

3. Legacy And Emerging Vendors Driving Flash Storage Growth

Datalink's flash storage business is growing thanks to both traditional vendors like NetApp as well as newer vendors such as Pure Storage, Nimble Storage, SimpliVity and Tintri.

Clients are comfortable with NetApp's approach to data management with a common layer across platforms, Lidsky said, meaning they'll typically want to first look at NetApp's flash offerings to see if it fits their needs.

Conversely, Lidsky said many of the newer entrants are looking to disrupt the flash storage market by accelerating or enhancing a specific application. But some of the emerging vendors such as Pure Storage have set their sights higher, Lidsky said, and wish to replace the entire legacy storage array.

2. Datalink Wants to Grow At Least Twice as Fast as the Industry

Datalink continues to set its sights on growing twice to three times as fast as the IT services industry as a whole, Lidsky said.

The company's practices around security infrastructure and consulting -- both of which were established in the past year - will help drive that growth, Lidsky said. Datalink is prioritizing security in the data center, Lidsky said, working to protect both the assets within the centers as well as the centers themselves.

Existing clients contacted by Datalink have expressed high levels of interest in more robust security solutions, Lidsky said.

1. Datalink Wants to Expand Into Florida, Ohio, Texas

Datalink's merger and acquisition strategy has largely been focused in getting a physical presence in geographies where the company already has customers and brand equity but is not the dominant player, Lidsky said.

The company has done roughly one acquisition every 12 to 18 months since Lidsky joined in 2009, strengthening its presence in California, Minnesota and the Carolinas.

"The clock is ticking, and we are actively engaged in looking for the next acquisition," Lidsky said.

Datalink is most interesting in acquiring companies in Florida, Ohio or Texas, Lidsky said, particularly ones with a security or advanced services focus.