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Remember when selling computer hardware was a good business? These days VARs are looking to the sale of services and other items for higher margins.

But the recession may have taken the wind out of another business – the sale of maintenance contracts. This kind of sale is becoming more of commodity, according to Tina Lux, president of MMI, whose company tracks service contracts for vendors and VARs.

And customers are looking to cut back here, too, she says.

“A few years ago everybody did top-of-the-line maintenance and refreshed products,” she says. “Now companies say they will take their chances on certain equipment. If not that, they take it down to 9 by 5 [rather than 24 by 7].

“They are looking a lot toward third-party maintenance providers, or people who stock their own parts and who do hourly maintenance on the machine,” she adds.

That trend has put a great deal of pricing pressure on the market. Customers will get a price quote from third-party providers and then take that back to the manufacturer, looking to get them to match the deal, according to Lux.

“Third-party maintenance providers are being used as leverage to get manufacturers to drop their maintenance costs,” she says. And the drops are steep – 40 percent to 50 percent off the original price.

Lux says these days about 60 percent of the deals are requiring multiple quotes and using the third-party provider as leverage.

“They never used to do this,” she says.

“Maintenance contracts are moving into commodity status,” she says. “It’s becoming a free-for-all, and it’s driving margins down. VARs are taking a hit.”

And taking it even further, vendors are coming up with better warranty programs, providing three years where they used to provide one year.

“It doesn’t help the business partner at all,” says Lux. “There’s no opportunity to sell maintenance contracts.”

So what’s a VAR to do? Lux says there’s still good money in software maintenance and service contracts. For example, virtualization still requires many licenses and knowing where all the virtual servers are, according to Lux.

In addition, certain verticals such as health care will never compromise on equipment and preventative maintenance services.

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