Channel Business Still Steady

Last year at this time, quiet-but-persistent prophecies of an impending economic slowdown, which could have affected the IT channel, were making the rounds. In hushed tones, some event uttered the "R" word—"recession"—saying it was a possibility for 2007.

The predictions were understandable. In July 2006, the Commerce Department reported that economic growth dropped to 2.5 percent in the second quarter from 4.8 percent in the first quarter. It was a troublesome sign, and who could blame people for getting jittery?

But while many in other sectors worried, the IT channel maintained its composure, despite its ever-cautious outlook on business growth. Aside for some regional exceptions, 2006 ended up being a positive year, especially as business picked up in the fall.

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So far this year, channel business has been good, even though overall economic growth took a serious dip in the first quarter. But even that has changed, as the Commerce Department reported last week that economic growth rebounded in the second quarter to a 3.4 percent rate. It was the fastest growth rate reported since the beginning of 2006.

But hold that celebratory dance. As these things tend to go, the good news was soon tempered. Wall Street, after hitting some record highs, has started to slide on concerns over mortgages and real estate.

Of course, these days even fairly sharp drops on Wall Street aren't enough to send everyone scurrying for the exit. Things have changed significantly since Black Monday in 1987, and unless you are an adherent of the End of Times doctrine, little reason exists to get too worried just yet.

In recent meetings with well-entrenched channel executives, I found that the mood about the remainder of the year is generally positive. Adoption of technologies such as virtualization, server consolidation, business continuity, and yes, even the "greening" of technology, are generating healthy numbers for many across the channel.

Beyond the technology, the general move toward a services approach to the business has started to pay off in many quarters. With this move has come the automation of a number of processes that were previously handled manually and, all too often, inefficiently. As a result, IT is becoming more predictable and less worrisome for users.

Accompanying the automation and move toward services is the recognition that channel companies have to be run properly. In eWEEK Strategic Partner, we have published story after story about what solution providers are doing, or should be doing, to better run their business. In other words, how can solution providers become better business people?

As it happens, the channel has made a lot of progress in this area. Scott Tillesen, director of small and midsize business credit at Tech Data, said VARs and integrators applying for credit with the distributor these days have much better grasp on running the business than, say, five or six years ago.

"They're smarter, listen better and want to hear the alternatives," Tillesen said.

In addition, the customers of these VARs and integrators—SMB companies, by and large—are spending money on technology. And they are doing so to grow their businesses and become more efficient themselves. In so doing, they continue to be the main engine that is keeping the economy steady.

"Most of the job creation we see is in the SMB market, not the enterprise," said Tech Data CEO Bob Dutkowsky.

What all this means is that 2007 is shaping up to be as good or better than last year, barring any unforeseen catastrophes. So at the risk of jinxing the whole thing, I'll just stop right here and wish everyone a profitable rest of the year.

Pedro Pereira is editor of eWEEK Strategic Partner and a contributing editor for The Channel Insider. He can be reached at ppereira@ziffdavis.com.