Newscasters describing the economy today make Chicken Little sound like an optimist.
Yet, says Carmi Levy, an independent technology analyst based in London, Ont., there is still opportunity amidst the gloom and doom that seems to be seeping into every aspect of business life today.
“It’s a safe assumption that even in the middle of bankruptcies, layoffs and dismal financial results, there are a lot more companies out there that don’t make the headlines,” said Levy. “Life goes on for most companies, and that means continued opportunity for anyone with even a passing interest in building a business based on those needs.”
Virtualization remains a growth area
In search of “recession-proof areas” for the channel we polled eight vendors, and we heard an unexpected story. According to these vendors, people are still buying, but it takes a different focus to get them to open their wallets.
Analysts at IDC agree. “Although one would expect to see businesses and consumers ‘hunker down’ and put IT spending on hold, it’s more likely that technology spending will continue in areas where the benefits are clear,” says Frank Gens, senior vice-president and chief analyst. “While all sectors of the market will experience slower growth in 2009, the disruptive offerings and models that are transforming the industry will take less of a beating than traditional IT areas and will actually gain share faster in the down economy.”
VMware (NYSE: VMW), for example, is still seeing growth despite – or perhaps because of – the state of the economy. “Virtualization tends to be the best bang for the buck in reducing IT costs,” says the company’s Canadian country manager, Grant Aitken. Existing customers are expanding their usage, and new customers are coming on board as they realize that the previous wisdom that some application can’t be virtualized is, on the whole, obsolete. Even business intelligence vendor SAP, long a virtualization no-no, has been certified.
“It’s the kind of project where IT is the expert, knows what benefits it will get, and knows which numbers to throw out from the data centre to show the benefit is being delivered,” notes Warren Shiau, lead analyst, IT research for The Strategic Counsel. “It’s the perfect type of initiative for the current situation because the business side sees it being about major cost savings, IT efficiency improvements, and doing more with less.”
Virtualization isn’t the only area that’s flourishing. Alex Nobile, Keating Technologies‘ vice-president, sales and general manager, says that, for categories his company is involved with, demand has been steady, and there was actually an increase in retail business in January, compared to the same month last year.
Areas such as storage and virtualization are still in demand in many segments, Nobile says, but at the same time, it’s difficult to say that anything is truly recession-proof.
Even a behemoth like Cisco Systems (NASDAQ: CSCO) is seeing alterations in its environment. “Things have changed drastically for our customers,” says Denny Trevett, Cisco’s director of advanced technology and vertical solutions team, U.S. and Canadian channel. “Partners can’t take the same sales pitch as last year. They must maintain focus on the customer’s true needs and solve problems with solutions, not just sell them stuff.” Adjust your pitch: It’s about saving money
Fred Patterson, director of channels for Symantec Canada (NASDAQ: SYMC), adds that vendors who can save customers money now will enjoy success. Take advantage of existing infrastructure, he advises, and look for ways to help the customer to spend less this year. It will likely pay off in the future.
Levy agrees. “Partners should avoid, at all costs, a sales-driven strategy when approaching both prospects and existing customers,” he says. “Now is not the time to be pushing products.”
“There is some liquidity in the marketplace right now,” adds Conrad Mandala, vice-president, SME channels at SAP Canada. “Industries with cash are making the strategic decision to invest in IT now so they will be well positioned when the economy improves.”
SAP now encourages its partners and customers to get away from customizing software, and use products straight out of the box – the templates supplied already provide good configurations. Mandala says SAP partners have three strong revenue streams (software, services and maintenance), so what they may lose in customization, they will make up in the long-term relationship.
As well, he advises, partners should go back to existing customers to make sure they’re getting the best out of the software they already have. “It’s true that fewer people will be making ¬purchase decisions during an economic downturn,” he notes, “but some will be, and resellers must not miss the opportunities.”
Greg Milkovich Canadian country manager for Belkin, sees growth in mobility and productivity, which builds demand for many product lines. “In a recession, consumers and businesses are clearly focusing on ‘saving’ and ‘value for money.’ Resellers need to move away from simply selling ‘boxes’ and individual products to selling integrated solutions,” he says. “The focus should be on delivering overall value to customers who are constantly looking for cost-effective ways to increase productivity.”
The component business tends to do well during economic slowdowns, according to Newegg‘s vice-president of marketing and merchandising, Bernard Luthi. Companies who balk at purchasing new computers instead opt for upgrades that will extend system life for another six months or a year.
“It’s similar to what we saw during the last recession,” he says. “A VAR or reseller can go in and show the customer how they can increase the productivity of computers through upgrades instead of selling them new systems. When the economy recovers, customers will come back (to that VAR), because the VAR was honest with them and helped tide them over.”
Downturn creating emerging opportunities
There are even new markets developing because of the economy. During recessions, says Michael McAvoy, director of commercial marketing for HP Canada (NYSE: HPQ), we see a lot of SMB startups driven by people who have been laid off, and they may need assistance in choosing the right technology. Financing options, such as HP’s current zero per cent offer, lets the reseller provide flexibility as well as a strong technology story.
“Crises love innovation,” says Philip Kaszuba, vice-president, storage at Sun Canada(NASDAQ: JAVA), “and lots of customers are having crises. Partners have the opportunity to go to the customer and tackle those problems with innovation.” Sun sees open source as a solution with a lower cost of entry than commercial products.
“Customers are looking for maximum value,” he went on. “They’re saying ‘what we did yesterday isn’t good enough any more.’”
While none of them was willing to say their business was recession-proof, all of the
vendors agree that, to survive, customer intimacy is critical, as is maintaining focus.“We would say that, first and foremost, resellers we deal with need to meet the expectations of their customers and make sure client preservation is their number one priority,” says Nobile. “Then they should weather the storm.”
After all, says McAvoy, “We can’t roll up the sidewalks and say ‘see you again in six months.’”