Cooperation Helps Server VARs

Last September, VAR Joe Palmer was able to organize an event that years ago would have been considered taboo. He invited 17 solution providers to attend a Cisco Systems Security seminar and NetIQ security presentation held at the Gillette Stadium in Foxboro, Mass.

What happened there is the equivalent of the Yankees and the Red Sox having a dinner party to discuss ways to improve each other's game. At least seven resellers showed up, along with 65 of their customers, where they networked and talked technology. There were even instances where resellers introduced their customers to other resellers.

For Palmer, who has been a solution provider for 18 years, that event was a far cry from the days when VARs followed a different hard-line code.

"A competitor was a competitor. You kept each other at arm's length," explains Palmer, a sales manager at Enterprise Technology Group, based in Boston. "I don't talk to you; you don't talk to me. If we see each other, we look the other way. That is the way it was."

Not so today. More and more VARs are partnering and subcontracting work with each other--a sure sign that box-pushing VARs are morphing into collaborative solution providers. The technology market is making this a necessity. And it's not just about making a mental adjustment. It's a fundamental business-model change. Pure product-focused sales no longer generate enough profitable margins. Moreover, emerging technologies--such as wireless, storage and Voice over IP--are complicated and require huge investments to adopt and develop as an expertise. So, now, many VARs have to break the competitive barrier and extend a handshake to fellow VARs."You can't do it all," Palmer says. "[Technology changes are] too much, too fast. And if you tell your clients that you can do it all, they are not going to buy it anyway."

Research data supports this premise. According to VARBusiness' 2004 State of the Market research, subcontracting and partnering is up this year, compared with 2002. The number of small solution providers doing more subcontracting or partnering has increased from 67 percent last year to 72 percent this year. For midsize VARs, the number has increased from 76 percent to 85 percent, while the number of large firms has remained relatively unchanged at 86 percent, the statistics reveal.

Regardless of the company's size, revenue from partnering or subcontracting has increased from last year, up on average less than 20 percent to more than 25 percent, according to VARBusiness' research. For small firms, the average revenue generated from partnering has gone from 21 percent last year to 28 percent this year. For midsize VARs, the number has grown from 19 percent to 24 percent; for large firms, it has jumped from 17 percent to 29 percent.

Brian Okun, director of marketing at Chips Computer Consulting, based in Lake Success, N.Y., is one of many VARs committed to this partnering approach to business. And he is pretty clear about what will happen to those who don't adopt this model soon. "In my mind, they are going the way of the dinosaur," he says.

Okun talks about a recent project that illustrates how this kind of VAR-to-VAR approach benefits all involved. A national solution provider called on Chips Computer Consulting because a Fortune 1000 customer, located in the Northeast, was hit hard by computer viruses that occurred last August. That customer needed some Symantec expertise. Chips dispatched two of its senior-level engineers to do the job, a four-week-long project."There are still a lot of product-focused solution providers out there," Okun says. "And you just don't see that growing. In the old days, a client came to us and asked for 100 IBM desktops. Boom, you took the order and made your 10 or 15 percent. But, today, the average selling price of a PC is under $1,000, and the profit margin is under 6 percent. You are not going to stay in business doing that."

Cyclical ChangesIt's hard for Laurie Benson to curb her enthusiasm on the subject of partnering. As CEO at Madison, Wis.-based Inacom Information Systems, a $62 million-a-year business solution provider that specializes in technology consulting, education and procurement, she is finding it "an awfully interesting time to be in the industry." One of the main reasons? Partnering and subcontracting are on an upswing.

Benson has been around the industry long enough to see the cyclical changes in business. In many cases, it just makes better sense to subcontract and partner to reach customers in remote locales than to fly staff and other resources to these areas. "This is a fundamental shift in how customers are served," Benson says. "And it's all about what is best for the customer. That is what is so awesome."

In addition, more VARs are taking Cisco Systems' advice to become specialized in certain technology areas and vertical markets.

"What they are finding is, instead of trying to be all things to all customers, let me do the one or two things that I am good at or have the most knowledge in," says Justin Crotty, senior director of channel development at Ingram Micro. "And I can partner with VARs for parts of the solutions that my customers are asking for, but I am not going to spend money to adopt."VARBusiness research supports this trend, showing nearly half of large and midsize VARs (48 percent and 46 percent, respectively) becoming more vertical-market specialized in the past 24 months.

Ingram Micro, the largest distributor in the world, found it had something special to offer toward this ongoing trend: the Ingram Micro Service Network (IMSN) and the VentureTech Network (VTN). IMSN functions as a centralized dispatch system--similar to the auto industry's AAA--that connects 550 solution providers and more than 10,000 technicians in approximately 800 North American markets into a centralized network managed by Ingram. VTN is a less structured program that works more like a networking program to connect 350 resellers.

Here's an example of how it works: Information Networking in Irvine, Calif., was asked by a customer in Southern California to perform a Token-Ring-to-Ethernet migration of 400 PC workstations and 70 servers. The task involved planning meetings, design and project management. But there was one major requirement: The job had to be done in one weekend.

Through IMSN, Torrance, Calif.-based MicroWorld supplied 25 certified PC and server technicians to work around the clock during that time period. In conjunction, Information Networking provided three PC and server technicians, four Fibre and copper cable technicians, as well as server project management.

After some on-site planning meetings and numerous telephone conference calls, the migration project began on a Friday afternoon at 5 p.m. Roughly 460 man-hours later, the job was done. Ingram Micro is now touting this as one of its success stories made possible through its dispatching call center."What solution providers now say is...let me partner with other VARs for the solutions my customers are asking for but that I don't want to spend money to adopt ," says Bob Stegner, vice president of U.S. marketing at Ingram Micro.

Enterprise Technology Group's Palmer says he engages, on average, with Ingram's VTN program three times a month. Through that system, he is able to be a one-stop shop for one client that has 65 satellite offices nationwide. This client calls for everything from break-fix repairs on printers to helping install connectivity for remote salespeople. He has some simple advice to those resellers that are still stubbornly holding onto the old mentality: "If they are that concerned with engaging a partner, then they don't have a good enough relationship with their clients," he says. "I told one guy at the VTN event, 'You should go figure out how to have a better relationship with your clients.' I just see that as fundamental."

Sometimes the choice between engaging a partner and not engaging a partner is losing a customer. "Let's say a customer says, 'I need a VoIP assessment.' What do I say? 'No?' Then the customer will go to someone else. Now I have a real competitive situation," Palmer says.

Scott Goemmel, director of Detroit-based M/C Service Solutions, a division of O/E Systems, also based in Detroit, says the company generates approximately 85 percent of its revenue by providing hardware support--generally long-term maintenance, including areas such as PCs, printers, servers and networking infrastructure. Without a doubt, this has become more of a commodity skill set, giving the customers more leverage in pricing. So a dispatching system like IMSN becomes a cost-effective way for the service provider to deliver hardware maintenance support.

So, do resellers believe that partnering and subcontracting is a permanent trend? Some say it's tied to a down economy because, particularly for vendors, commodity sales have slowed and alternate ways of generating business needed to be discovered, says Ray Morton, director of technical services at Daly Computers, based in Clarksburg, Md. When the economy picks up, Morton expects commodity sales to increase so the percentage of overall sales through partnerships will be lower. But, he says, it will continue to be a viable part of the IT business."No one can do everything," he says. "You have to partner."

Other solution providers say this kind of partnering trend had its beginnings before the economy started to sputter. They predict it will continue upward even as the economy goes into an upswing. Yes, it's true that it can be very costly to be hooked up to people with skills in every location and region a company is trying to penetrate, but "the reality is the marketplace is starting to accept this," Goemmel says.

He points to another factor--and perhaps an even more important indicator--that this trend has permanence: Customers are beginning to recognize and accept it, that is, as long as VARs have the mechanisms in place to ensure quality control in delivery of the services.

"The marketplace accepts this more so [now] than five years ago," Goemmel says. "The implementation is happening faster because of the down economy, but it started well before [that]. Now, even the big guys are leveraging relationships to deliver services."