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First, the bad news.

The channel is changing and those traditional relationships between vendors, distributors, VARs and solution providers have begun to alter in fundamental and lasting ways.

But there is also good news. For VARs and solution providers, it’s not too late to change, readapt and profit from this change in the channel.

That is how Tiffani Bova, the channel sales research director for Gartner, sees the next five years in the channel. She delivered her remarks on the first day of the IT Channel Vision Conference in Phoenix Oct. 3.

“You have to be constantly evaluating your business model and eliminate ‘unprofitable’ from you portfolio, while preparing for emerging solutions and services,” Bova told her audience during her lecture “Reading the Tea Leaves: What the Future Holds for You.”

The idea behind this year’s conference is to talk about the future and prepare for what will start happening in the channel in 2007 and then beyond.

Click here to read more about the themes at this year’s IT Channel Vision conference.

During her talk, Bova urged VARs and solution providers to develop more partnerships and start collaborating with other resellers. She predicted that revenue from these partnerships will grow significantly between now and 2010.

“By year’s end 2010, 70 percent of midsize VARs will generate at least 50 percent of revenues selling to, through and with other VARs, SIs [system integrators], ISVs and other service providers,” according to her research.

That message of more partnerships among VARs and solution providers rang true for several in the audience. A number of VARs told Channel Insider that they have already begun developing these type of partnerships and that Bova’s research convinced them they have made the wise choice.

Shiv Kumar, executive vice president of ZSL, in Edison, N.J., said his company, which develops application and maintenance solutions, has started a partnership with a telecommunications company.

ZSL, Kumar said, is using that partnership to enter the managed service space as well as deliver business intelligence solutions.

“This talk really confirms where we are going and that’s it’s the right thing to do,” Kumar said.

Bova sees the biggest gains in the channel in software application solutions, especially business intelligence solutions. She said that customers collect volumes of data but need a smart solution to help make sense of what they have collected.

There will also be a greater demand for SAAS (software-as-a-service) products, as well as a great demand for managed solutions, she said.

Click here to read more about the future of SAAS in the channel.

Why is it important to start strategic partnerships and look for new revenue streams based on shifts in customer needs?

The competition, according to Bova, will get more intense as vendors begin to reduce the number of partners within their channel.

“IT vendors will reduce current partner populations by 25 percent based on lack of engagement and strategic relevance by year-end 2008,” according to Bova’s research.

Bova believes there will also be fewer vendors in the IT field in the coming years and those that are left will be looking for partners who can both be flexible and offer a specific set of skills.

At the same time, the demands of customers, coupled with a much more tech-savvy workplace, will increase demands on the solutions and services that VARs can provide.

The way to counter these changes is to build new partnerships. VARs and solution providers need to partner with other resellers and look to see which vendors and distributors can furnish them with the best products.

Click here for exclusive channel research from Amazon Consulting.

Bova hopes that more VARs and solution providers will develop their own products, sell directly to customers and use those new skills to create leverage in the marketplace.

“I love the channel, and I want to see a partner population out there that is healthy,” Bova said.