The Good News, Bad News for VARs in 2010

Pricing is stabilizing, project work is up, and some VARs have diversified into new end markets, such as home theater installations.

That’s the good news. The bad news is that pricing for services seems to have been reset to a significantly lower level, and the long tail effect of unemployment is likely to haunt technology sales for quite some time to come.

That’s the assessment of technology services online marketplace OnForce, which released its fourth-quarter and year-end OnForce Services Marketplace Index on Jan 25. CEO Peter Cannone told Channel Insider that the keyword heading into 2010 is “stabilization.”

“The pricing threshold has stabilized all the way from break/fix up to high-end installations,” he said.

But stabilization doesn’t necessarily mean recovery. Cannone noted that service pricing overall dropped by about 30 percent in 2009 from its 2008 levels.

“Pricing is at levels I haven’t seen before,” said Cannone. “It’s a brave new world in terms of services pricing.” And when he talks of services pricing, he means the total prices on work orders that have fallen significantly year over year as installation work has virtually halted.

Cannone said he believes that 2009 has reset services pricing.

“I don’t think prices are going to go any lower, but we are not going to get back to 2008 pricing levels this year,” he said.

Part of the problem is the long tail of unemployment. Companies won’t be hiring in 2010, and they won’t be buying new PCs for new employees. Instead, investments are likely to come from technology that businesses believe can contribute to revenue generation—for example, mobile devices for sales reps to provide them with instant access to real-time information.

At the same time, high unemployment has led to what Cannone estimates is double the technician applications to participate in OnForce’s technician database, including those who hold higher-end certifications such as Cisco engineers and Oracle experts.

He believes that as the economy rebounds, businesses—including VARs and IT solution providers—will remain reluctant to commit to increasing headcount and will instead turn to outsourcers, contractors and temporary workers.

As far as the promise of Microsoft Windows 7 as a driver for a technology refresh is concerned, Cannone said he has not yet seen any evidence of a technology refresh anywhere.

“If there’s an ability to refurbish, that will be the choice,” he said.

But the news isn’t all bleak.

“In January we are seeing a little bit of an uptick,” Cannone told Channel Insider. “Work order volume in January is up 15 percent over January 2009 and up 60 percent sequentially over December. That’s a good sign that some project work is coming back and that there is a little bit of pent-up demand.”

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