Channel growth lies in services

The channel’s future lies in services. That was the central message from a session on channel business models at IDC Canada’s annual IDC Directions conference this year.
The channel’s future lies in services. That was the central message from a session on channel business models at IDC Canada’s annual IDC Directions conference this year.
IDC carried out a survey of Canadian resellers this spring in conjunction with distributor Tech Data Canada. It found that services revenue is growing, while resale revenues are fairly flat.
“Over the next five years, these partners are by far and away seeing their services business growing as a percentage of their over-all revenues,” said Paul Edwards, director of SMB and channel strategies at IDC Canada.
“I’m not saying that you’re going to have all the VARs in Canada turn into systems integrators, but that is happening to a degree in the marketplace right now.”
IDC defines a VAR as a company with more than 20 per cent of its revenues from reselling hardware and software and at least another 20 per cent from services. A systems integrator gets 60 per cent or more of its revenue from its own services and less than 20 per cent from resale.
Services are becoming more important partly because of software as a service. SaaS doesn’t eliminate the revenue opportunities from software, but it does tend to diminish them.
Interestingly, of the 68 per cent of respondents to IDC’s survey who believe SaaS will have an impact on their business, roughly half expect that impact to be negative and the other half expect it to be positive. Bob Dylan summed it up: “You know something is happening here, but you don’t know what it is, do you, Mr. Jones?”
Of course the decline in hardware prices is nothing new and that puts pressure on margins. So it’s getting harder to make a living reselling hardware and software.
It’s not a revelation that services are becoming a more important revenue generator for the channel, but IDC’s latest survey shows how important this shift is.
It found 57.9 per cent of resellers are VARs, while 24.6 per cent are systems integrators – and IDC sees more VARs becoming systems integrators (meaning resale is falling below 20 per cent of their revenues while services reaches at least 60 per cent), while fewer focus on product resale or logistics.
So, a few observations on this.
This really means that the channel is increasingly facing the sort of pressures that corporate IT departments have been dealing with for at least the past decade. Knowing about technology is no longer enough. It’s all about understanding the business, its strategy and how technology can help advance that strategy.
For resellers it’s even tougher than for the corporate IT folks, because if you work in an enterprise IT shop you’re only trying to understand your own company’s business – whereas if you’re a services-oriented reseller or VAR, you need to understand all your customers’ businesses.
Second, the more important services become, the more important it is to be able to communicate with customers in the language of their business and not just the language of technology.
This is also a symptom of the computer industry’s maturity. Nobody cares much about megabytes and megahertz any more. They want to know how technology can help their businesses. And they want to deal with people who can talk to them on those terms, not just in traditional techie language.