Channel Appears Strong as Fourth Quarter Kicks In

As the fourth quarter kicks into full gear, the channel appears to be on a good footing and solution providers are looking ahead to identify areas of growth in the coming year.

The fourth quarter typically is when the highest volume of sales takes place, and this year should be no different, despite some trepidation in the market about the overall economy’s prospects.

At around the same time last year, fears of an economic slowdown, possibly even a recession, were being expressed, but they turned out to be largely unfounded. Of course, things are a little different now as a result of the mortgage crisis, the full effects of which are not yet entirely understood.

Still, close to 80 percent of IT solution providers are profitable currently, and they are keeping a keen eye on areas of technology and service opportunities that will keep them profitable, at least in the immediate future, and hopefully long term as well.

Results of a recent survey conducted by Ziff Davis Enterprise with Crimson Consulting show that 89 percent of solution providers say they are profitable. The study, which had 270 participants, found that 59 percent of providers are seeing profit growth of between 5 percent to 25 percent, while 20 percent of providers say their profits are up at least 50 percent. Eleven percent of participants said they are breaking even, while 10 percent said they are losing money.

Click here to read Pedro Pereira’s thoughts about hardware as a service.

Considering the dire predictions of recent times that stated large numbers of VARs and integrators will go out of business within a couple of years, the survey results provide an overall positive picture in relation to profitability.

Also positive, and arguably more significant, are the results concerning the percentage of revenue solution providers are realizing from service offerings. Participants said they get about two-thirds of their revenue from services, including general IT services, support, professional services and business consulting.

These results indicate that the shift from a focus on product sales to services, which so many channel experts, executives and analysts have said needs to take place, is well under way.

While product sales will never go away for obvious reasons, the increased focus on services speaks to a level of maturity in an IT channel that is putting more emphasis on the types of business that promise sustainable growth and ongoing revenue streams.

That’s why providers are looking at areas with high profit margin potential such as application development and integration, systems management, and managed services as drivers for business growth.

Application development leads the way among business growth drivers, with 38 percent of study participants identifying it as an area of growth. Application integration naturally followed, with 34 percent, and next on the list were systems management and managed services, both with 27 percent saying they would be growth areas. The business management/productivity category was picked by 25 percent of participants as a growth driver.

See more study results

The increased focused on services, development and integration bodes well for the channel, even if the economy goes south. During the recession that followed the dot-com bust and the 9/11 terror attacks, there was a lot of suffering in the channel because of a disproportionate dependence on product sales.

Now when customers tighten their budgets, they’ll still hold off on buying new hardware, but they are less likely to abandon integration projects or IT services contracts that are crucial to managing the data on which their businesses depend.

As the year winds down, the IT channel is showing positive signs of strength, and that strength will be critical to weathering whatever economic storms may be in store.

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