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Channel revenue outpacing direct

IDC Canada forecasts indirect software revenue will surpass direct revenue by 2011

IDC Canada’s channel forecast through 2011 predicts channel revenue will continue to outgrow direct revenue over the forecast period, with particularly strong growth expected in the networking equipment segment.

According to the forecast, indirect revenue in the hardware segment is expected to experience a compounded annual growth rate of 5.9 per cent, with the software segment expected to grow by 6.5 per cent. That’s contrasted with slower grow rates in direct sales, which IDC forecasts at 1.5 per cent for hardware and 3.9 per cent for software.

Ricky Mak, an associate analyst with the customer segments team at IDC Canada, said indirect revenues will definitely outpace direct revenues in terms of growth, though growth will still be moderate.

“For both hardware and software, indirect revenue for both markets is expected to experience relatively moderate growth rates, with a compounded annual growth rate of six to seven per cent over a five year period, up until 2011,” said Mak.

He added the forecast is in line with the historical norm, with indirect revenue growth having traditionally outpaced direct growth. There’s also more good news for the channel in the direct/indirect market share split.

The channel leads in the hardware segment, with 65 per cent of total revenues coming from the indirect side. And in software, while the indirect side has just 42 per cent of the total it is increasing its share.

“In software, we’re seeing that split coming closer to a 50/50 split in the next four to five years,” said Mak. “There’s a slower decline in direct revenues partially due to the popularity of software as a service, which tends to be delivered direct.”

When the segments are broken down into sub-segments, within the hardware space the hottest area is networking equipment with a forecast indirect growth rate of 10 per cent.

“We believe a lot of the growth in networking equipment is due to spending by small business, which is a segment serviced more predominately through channel partners,” said Mak. “If VARs can incorporate services within networking offerings that will lead to strong growth.”

Additionally, he noted strong indirect growth is also forecast in the storage and printing sub-segments.

Within the software segment it’s a slightly different situation with all sub-segments experiencing similar growth rates of six to seven per cent.

“There’s no one particular sub-segment within software that’s outgrowing any other sub-segment,” said Mak. “Within system infrastructure software we’re seeing system-level software growing through the indirect channel quite a bit.”

Comment: cdnedit@itbusiness.ca