2009 Channel Outlook: It Will Get Worse Before It Gets BetterBy Pedro Pereira | Posted 2008-12-19 Email Print
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IT channel insiders predict a rough start for 2009, but strong customer relationships should get solution providers through the recession.
Howard Cohen has been around long enough to know the signals. And the signals, he says, point to things getting worse before they get better.
"We haven't seen the bottom drop out yet," says Cohen, a 26-year veteran of the IT channel and a principal at solution provider Synergy Corporate Technologies. In business for more than a decade, Synergy is a Managed Microsoft Gold Certified Partner and boasts 16 of the 17 partner competencies available from Microsoft.
Cohen is not alone in his predictions. Todd Thibodeaux, the CEO and president of trade group Computing Technology Industry Association (CompTIA), says the first-half of 2009 will be tough. As long as credit remains tight for small businesses, the best most companies can hope for is to maintain current levels.
Business growth is unlikely for the immediate future because a lot of companies are putting off capital expenditures, though there are a few bright spots with projected growth, including managed services.
Cohen says many of the companies postponing projects for the New Year will likely find they will have to wait even longer.
A lot of businesses tend to hold off on spending or cutting jobs between Thanksgiving and New Year's in deference to the holiday season, Cohen says. "Come Jan. 2, all bets are off, and I think we're going to see even more bloodletting."
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Thibodeaux says many companies are in the process of reevaluating their strategies for 2009. In some cases, they've had to go back to drawing board several times as markets conditions change daily, he says.
"A lot of people that I've talked to say they're spending a lot of time adjusting their sales plans," Thibodeaux says.
The first half of 2009, he predicts, will be challenging. The trick will be to maintain the business as is and avoid contraction. Until the credit markets get back in shape, no growth is likely to happen, he says.
"That's looking really tight in a lot of situations for the next several months," Thibodeaux says. "It's going to be tough, there's no doubt about i."
Cohen predicts Darwinism will kick in as things tighten up in the first half of the year. The IT channel will go into a "survival of the fittest" mode, and the solution providers most likely to survive the economic slump will be those with tight client relationships and recurring revenue models.
Recurring revenue is central to newer IT channel business models such as managed services, through which solution providers remotely manage and monitor their customers' IT environments; and software as a service (SAAS), through which customers pay utility-like fees for software as opposed to buying the applications.
Channel companies that haven't invested in these models and still rely too much on transactions will see their chances diminished, Cohen says. "I suspect those folks will have a real hard time of it."
A recent CompTIAs study supports Cohen's channel forecast. CompTIA's managed services best practices survey found that more than 50 percent of respondents said they expect managed service revenues to increase by 25 percent or more in 2009, compared to 2008.
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Ken Sponsler, vice president of engineering services at managed services provider Connecting Point of Greeley, Colo., says that projection is in line with his company's expectations for the coming year. "Right now, we're busier than ever," he says.
In addition to recurring revenue models, Cohen says the relationships solution providers have built and nurtured with their clients will be key to surviving the hard times. Clients will be asking for providers to be more flexible and help them do more with less, and the providers have to be able to deliver.
"Our job now is to help our clients figure out how they're going to do more with less," Cohen says. "Of course the best news is that, once achieved, productivity gains are seldom if ever reversed. So our clients will end up that more productive and efficient and we will end up that much more embedded in their operating infrastructure."
The clients' needs, he says, have to remain the foremost priority. Too often, Cohen says he sees providers responding to requests for proposal by first boasting of their capabilities and then explaining what they will do for the client.
That, he says, must be reversed because doing so makes sense strategically.