Squeezed margins a double-edged sword

Squeezed margins a double-edged sword

Vendor's and reseller's margins are being squeezed and that could prove a double-edged sword for end users.

Comments from analysts reveal that a variety of pressures, including increased competition, economic turmoil in Asia, and Y2K, are combining to effect margins, with a range of outcomes.

"Across the technology sector margins have gone down between 10 and 15 per cent over the past 18 months," said Mitch Radomir, director, technology marketplace, for the Gartner Group.

Radomir said that one cause of the squeeze is that "every sector [of the marketplace] is being more heavily contested".

According to Radomir, vendors especially feeling the pinch of increased competition include those "selling through channels", and the resellers and systems integrators themselves.

"In the services sector it's particularly affecting the lower value, repetitive type, services like help desk, network management and hardware maintenance rather than high-value professional services.

"It's a double-edged sword for end users," he said, explaining that whilst users might experience lower prices, and "more focus from existing vendors", they could also face insecurity in terms of the ongoing viability of their suppliers.

Peter Hind, manager of end-user research, IDC, agrees that the squeeze means that some vendors are turning to their installed base to generate an increasing proportion of revenues, rather than aggressively seeking new business.

"Why go out to bat in a new marketplace and work to establish credibility when you can bat in an area you know, where you have access to senior executives?" Hind asked.

"IT can't live in a fool's paradise and think it is protected from the economies of organisations around it. If there is economic stagnation, IT is going to experience it as well," he said.

Hind believes Y2K is also having an effect on sales of new systems and software: "The deadline is too close now to solve the problem by implementing a new system . . . brand new business systems and software are not people's focus right now," Hind said.

"While IT expenditure is going up, fixing Y2K is actually accounting for a large amount of it."

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