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Thanks to the IT spending habits of small and midsize businesses, 2005 will go in the books as a pretty good year for the channel.

Despite some troubling economic indicators at times, VARs, integrators and service providers, when asked, by and large reported they were having a decent year, though not record-breaking.

It was a different story for channel companies with significant business in managed services, security services or both. Many have enjoyed growth comfortably in the double digits while the channel as a whole expanded at single-digit rates.

In 2006, we can expect more of the same. Unless the economy takes a dive, small and midsize businesses will continue to put significant amounts of cash into IT products and services.

But they will want more in return. They’ll want reliable technology and services, and they will expect the providers to truly understand their business.

Research firm AMI-Partners, New York, predicts SMB companies will spend more than $175 billion on IT in 2006, up from an estimated $163 billion this year. This bodes well for the channel because these companies will continue to turn to their local provider to upgrade systems, install business applications, deploy wireless technology and fulfill security and data recovery requirements.

The relationship between solution provider and end-user customer in 2006 will get tighter than ever. With the advent of managed services, through which providers remotely take over IT functions at customer sites, the dependence on the provider has increased to unprecedented levels.

A deep transformation is taking place in the IT channel. Customers that used to have contact with their provider only when they had a problem or bought new equipment or software now have uninterrupted contact through monitoring and management systems.

So much so that providers who fail to keep good records of the services they provide for customers may find themselves having to justify the monthly utility-like fees they charge. Because everything runs smoothly when managed services providers are doing their job right, the customer may get the false sense the provider really isn’t doing anything.

This is why managed services platform providers have built meticulous reporting applications into their monitoring systems. Providers must periodically share reports with their customers to let them know every last disruption the provider fixed or prevented.

The continuous contact is especially important as more functions are added to managed services. These include data backup and recovery, which when delivered as a managed service is considerably more reliable than the traditional way of doing on-site backups and shipping tapes elsewhere.

Web-based backup and recovery complements the need for mobility, as increasing numbers of users rely on notebooks to do their work. IDC predicts notebooks will out-sell desktops in the U.S. market within a few years. This will create more opportunity for the channel in wireless technologies and security areas such as identity management.

The intricacies of keeping all the technology that today’s business need in running order, while protecting critical data, is a tall order for any IT manager. At small and midsize companies the increased reliance on technology to stay in business presents a daunting challenge

That challenge is effectively met by embracing the managed services model. As a result, more and more VARs will invest in the model. But by doing so, they must also make sure they address customer IT needs from the perspective of addressing their overall business requirements as opposed to simply pushing new technology on them.

For channel companies that understand the realities of the market and make strategic decisions accordingly, 2006 will be a good year.