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Dell’s purchase of a London-based IT services provider in mid-November to strengthen its service offerings comes as the channel shows a renewed interest in hardware sales.

Hardware, and product in general, was the channel’s raison d’etre in the early years, but as profit margins shrunk to as little as a point or less in some cases, channel companies had no choice but to seek other ways to make profit.

Installation services, end user training and maintenance emerged as obvious options, so legions of VARs and integrators added these types of offerings to their product sales.

The added focus produced a good enough living for many a channel company, but to truly make a go of it, more and more VARs and integrators found they had to build up their service offerings around specialized areas, such as connectivity, Web applications, security and, lately, voice over IP and IP-based video.

Some channel veterans actually turned their backs on product altogether, in some cases selling their companies and starting up new ones with an exclusive focus on services.

But over the past couple of years, as customers have opened their wallets for IT refreshes, channel companies have found they can still make money on selling products.

Of course, the margins remain tight, but a solution provider with the right strategy now has plenty of profitable product options.

As a result, the pendulum is swinging back from a reluctance to carry product to somewhere in the middle—a mixture of products and services.

This shift owes to several factors. Interestingly, one of the main factors has a lot to do with Dell, whose stated strategy is to sell direct.

The Round Rock, Texas, company in the past had a price advantage over vendors doing business with the channel.

Dell competitors had to fight back by dropping prices and in the process, margins that were already tight, all but evaporated.

Meanwhile, customers were reluctant to spend on IT, often cutting their budgets to the essentials, during the dry years that followed the dot-com bust and the Y2K rush.

Only in 2004 did customers finally start opening their wallets again, and have since continued to so.

Solution providers and distributors say there was a lot of pent-up demand that once IT budgets swelled, translated to healthy spending, especially in the SMB (small and midsize business) sector.

Realizing that enterprise spending had stagnated, vendor after vendor developed products aimed at the dynamic SMB market.

Applications that previously had a home only in enterprise environments were rewritten for ease of installation and use in smaller companies.

Wireless and VOIP networks that had been cost-prohibitive, and generally impractical for SMB customers, started to become usable by these customers, and their use started creating demand for other technologies such as security and storage.

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Wireless and mobility naturally spurred sales of laptop PCs, whose price points dropped. Small customers that in the past might have dismissed notebooks as a luxury started to replace their desktop machines with them.

And so the channel finds itself with renewed interest in product. However, as opposed to the past when product was king, product now may get you in the door at the customer site, but it’s what follows that turns the customer into a long-term client.

It’s the services, the understanding of customer needs, the attention to making sure the customer gets the expected value from the technology investment.

Even Dell seems to understand that, as evidenced by its acquisition of London-based services provider ACS.

Pedro Pereira is editor of eWEEK Strategic Partner and contributing editor to The Channel Insider. He can be reached at