VARs optimistic about future of IT

The reseller outlook for the IT industry is bright for 2004 and 2005.

Increased sales opportunities are forecasted for both hardware and outsourcing segments. Annual hardware expenditures are expected to increase by 52 per cent in 2004. Outsourcing is predicted to grow by 48 per cent, as

organizations look to reduce in-house IT operating costs. These strong expectations indicate that following the challenging period experienced in the past three years, reseller organizations emerged confident and optimistic for growth. Forming partnerships and diversifying their client base ranked amongst the top reseller initiatives taken to cope with the changing IT landscape.

The reseller community continues to move away from the commodity nature of the hardware market and towards stronger revenue streams, found most specifically in professional services. However, future expectations include an increase in hardware sales. While the margins are low on hardware lines, selling the products continues to the backbone of the industry, enabling resellers to bundle software and higher revenue-generating service offerings with hardware products. Service revenue streams generated from hardware product sales include pre- and post-sales support, both of which include training and licensing prospects. With organizations expected to upgrade current hardware products, increased IT reseller opportunities are anticipated.

In the research conducted by ERC, resellers were asked to choose from a selection of possible actions; those that were used in 2003 and in the first half of 2004, to arm them with the arsenal to cope with the changing IT landscape.

Of the actions taken by resellers to meet and survive the challenging IT landscape in the past two years, forming partnerships with other resellers proved to be the most popular initiative. By partnering with another organization, resellers are able to capitalize on key opportunities available, in bringing a total solution to the client.

Finishing in second place as a critical area to help boost business opportunities is diversifying the client base. In tough economic times, focusing on your “”backyard”” is a strategic business strategy. However, the importance of branching out to find new opportunities is integral to growing business. Combined with forming partnerships and diversifying the client base, resellers also looked to products with higher profit margins as a way to improve business performance. As the quantities of sold products might have slipped slightly, resellers can maintain or grow revenues by increasing revenue price points on product offerings.

Resellers expect the IT market to experience tremendous growth opportunities in the next 18 months in both the hardware and services. Resellers will form partnerships with complementary organizations, diversify their client base and look to high profit generating products. The combination of increased corporate demand with strategic go-to-market practises will contribute to the success of reseller initiatives.

(Michelle Warren is channel analyst for Evans Research and author of the reseller survey)

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