State of the IT channel: Reading the numbers

State of the IT channel: Reading the numbers

A little tightening and cautious optimism

Numbers are one thing, but understanding what ARN's State of the IT Channel is saying about the industry is another. Channel Dynamics directors, Moheb Moses and Cam Wayland, took a look at the data to see what it means to the industry.

This year’s State of the IT survey data can be interpreted in a few ways. Perhaps most critically, though, it shows a channel that’s a little squeezed, and a little unsure about the broader economic conditions, but one that is finding new opportunities out there in the market.

It’s also a survey with data reflecting, largely, the smaller end of the channel. The breakdown of people who responded to the survey put 20 per cent of respondents as consultants – and typically consultancy businesses are small in size.

Further, the wage breakdown reflects the smaller size of the majority of those that responded to the survey, according to Channel Dynamics director, Moheb Moses.

“I was surprised at the salaries,” Moses said. “The majority of them are making between $75,000 to $150,000, and that seems low for either a salesperson or an MD at a company. If you are a top flight sales rep at a large national reseller, you expect to make between $180,000 to $250,000.

"Only 17 per cent were hitting those numbers, which is quite a small number. Even if you take that 17 per cent and allocate them entirely to the MDs of these companies, it means the majority of salespeople are only making over $100,000, which seems really low. This survey is probably not a reflection of the big national players, though they are included, but more of a reflection of the small resellers consisting to 10 to 20 people.”

So what can we expect to see happen to these groups over the next 12 months? Nothing too drastic, according to Channel Dynamics director, Cam Wayland. The IT industry is somewhat sheltered from the broader economic climate due to its necessity to corporations, and that should help resellers and distributors find relevance.

“Consolidation is inevitable, though at the same time, I don’t see a seismic shift happening to the number of resellers in the next 12 or so months,” Wayland said.

“IT isn’t going to go away, so some businesses will need to make some adjustments to become well run and profitable like any other business. What the resellers are delivering in terms of technology might change, but the demand for it won’t. So it depends on how businesses will adapt to get the right sales people to do that. The channel won’t go away, but it might change in nature.”

Technologies themselves are going through some big transitions at the moment; from the Cloud computing push to the increasing weight given to BYO technologies and mobile solutions. Some have more obvious plays for the channel than others, though according to Moses there’s opportunity in them all.

“I find it amazing that 21 per cent of resellers thought that mobile and tablets represent the bulk of their revenues. That surprises me, because I don’t know where they are making money. They’re not making it from the hardware,” he said.

“One area might be security. There’s certainly not a lot of money in hardware, so it’s got to be in services around it. Security is going to be one of them. Also, any mobile applications are going to need a powerful backend server. You might just download Angry Birds to use it, but if you go and install a corporate email system, then for each user they would download a client, but at the backend they need someone to get it to operate and run. I do see this as a growth segment, because it’s starting from a small base.”

Distributors, meanwhile, will find themselves more and more invested in the Cloud. Moses claimed we may well see more specialist Cloud distributors in the market in the near future.

“To be a distributor, you need a vendor or vendors to build your business around. I would expect someone soon becoming a Cloud distributor or building Cloud offerings, as there is an opportunity there,” he said.

Economic expectations

With the global economy still under question, it would seem natural that the channel will be feeling the pinch. And yet, of those surveyed, just four per cent of resellers expected a decline in revenue for the year, and no distributors at all expected anything but growth.

For the distributors, this makes a lot of sense, Moses said. Distributor’s growth targets are dictated by their vendor partners, and if they don’t hit those numbers, then there could be serious consequences for the distributor. Therefore growth is almost a mandatory expectation in distribution.

They’ve been squeezed for years, and Moses said this will continue in 2012. “Distributors are being squeezed from two sides: declining revenue streams from the lack of business confidence, and vendors trying to keep more of their money. Because of the tight economic conditions, the vendors have felt it. So vendors are looking at how to they maintain their revenue and profit margins,” he said.

“So you start taking things back and become less open to giving to distributors. If you go back 10 years, the vendor used to give the distributors some funds that they could do whatever they wanted with it, and it was a percentage based on revenue.

"The problem back then was that a lot of that money was spent on taking people to the AFL grand final, and while that is nice, the vendors wanted a bit more productivity and took that back. So what then happened was that benefit got halved. Now very little goes to the distributors, so they don’t have access to that money anymore to use for discretionary purposes. In addition to it being heavily scrutinised now, the fact is that there is less of it available than back then.”

For resellers, it could be something as simple as picking the right technologies that could mean the difference with hitting growth targets this year. Further, Moses said the resellers especially at the smaller end of the market need to keep an eye on the business side of their companies, which is something that is often neglected.

“As a reseller, there’s the challenge of being an IT reseller and a business. As an IT reseller, you have to pick the technologies. If you decide to invest in virtualisation seven or eight years ago, that was a good decision. If you chose to do it three or four years ago, it was a leaner business as there were a lot more competitors,” Moses said.

“So being successful comes down to understanding product trends and what time to get involved. Then there’s the running of business, such as managing cash flow and understanding how you recruit people, things that are completely independent from IT. There are very few people who are good at doing both things. Good business people might not be good at picking technology and vice-versa, where good technology people don’t spend enough time on running their business.”

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Tags CloudChannel DynamicsMoheb MosesState of the IT ChannelCam Wayland

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