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It takes a solution provider to know a solution provider, so it’s no wonder that one of the newer trends in the IT channel involves providers launching products and services that they are marketing to peers and competitors.

Driven by declining profit margins, distrust of some manufacturers and the goal to address client IT needs ignored by vendors, a growing number of solution providers are taking on this new role of quasi-vendor. And they are zeroing in on some of the market’s most acute needs—things such as security, backup and recovery, business continuity, and business management.

“There’s no one better to come up with a VAR program than another VAR,” said Rory Sanchez, CEO and president of SL Powers, a $5 million managed services provider based in West Palm Beach, Fla.

Sanchez is one of hundreds of partners that have signed up to sell the backup and disaster recovery services of Zenith Infotech, a systems integrator in Warrendale, Pa., that stumbled upon a managed services opportunity to bring to market a remote management tool it developed in-house. CEO Akash Saraf said Zenith Infotech saw the number of its channel partners swell to 1,400 from 230 over the past year.

The reason for that success, Saraf said, is simple: “We think like a solution provider.”

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Branching out

Zenith Infotech, based in Mumbai, India, was founded in 1997 as an ISV and systems integrator writing branch office management automation software for small banks in India and providing support to the clients. After developing a remote management tool for its own use, Saraf said, the company decided to branch out as a vendor, marketing the tool to other solution providers.

The company, with revenue of $25 million and 900 employees, then began offering complete BDR (backup and disaster recovery) services for Windows 2000 and Windows 2003 servers with a pay-as-you-go model. Zenith Infotech in June began shipping an appliance, consisting of a NAS (network-attached storage) box with software, designed to provide the small and midsize business market with enterprise-level security services.

The pay-as-you-go model makes it possible for VARs not to shell out large sums of money upfront. It means, Saraf said, that Zenith Infotech aligns its revenue and profitability to those of its partners. Saraf said he also encourages VARs to private-label the Zenith Infotech services for their clients.

SL Powers is doing just that. The solution provider, said Sanchez, sold a half-dozen appliances right after the BDR solution was launched, and another six since then. Offered as a managed service, BDR does off-site data mirroring, and as such, provides an ideal alternative to tape, which is unreliable and an issue for every customer and solution provider, Sanchez said. The box also comes with built-in virtualization software, giving customers a standby server for failover.

SL Powers brands the service as GN Restore, and Sanchez said he expects a high adoption rate among his existing 75 to 80 managed services customers.

Next Page: XiloCore Tackles Recovery

Another solution provider seizing the managed storage opportunity is XiloCore, a joint venture of three solution providers—AllConnected, of Simi Valley, Calif.; Connecting Point of Las Vegas; and Connecting Point of Greeley, Colo. XiloCore teamed up with Asigra, a vendor of agentless backup and recovery software, to put together a managed backup, recovery and business continuity service that it sells exclusively to the VAR channel.

“XiloCore was necessitated by client demand for a better way to protect their data and being able to earn recurring revenue for delivering managed services for business continuity,” said Alan McDonald, president of AllConnected.

Most importantly, McDonald added, networking with his VAR peers was instrumental in the launch of the company and the service. “The bottom line is that as solution providers we all share the same pains,” he said.

With the support of more than 100 fellow solution providers, the XiloCore partners opted to offer the service to other VARs, as opposed to marketing it to users. “We saw that we could partner to bring a new service to market, make it more reliable, [and] offer a better infrastructure, better support, a solid methodology, and a lower cost scale,” McDonald said.

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Following its September launch, XiloCore signed up more than 45 VARs as partners.

A growing trend

Zenith Infotech and Xilocore are new players in what has essentially become a channel within a channel. It’s a market that goes back at least five years, when solution provider ConnectWise, of Tampa, Fla., identified an opportunity to sell technology to other VARs and integrators. That technology is ConnectWisePSA, a business automation solution now used by more than 16,000 IT professionals, according to ConnectWise CEO Arnie Bellini.

The business automation software has become a hit among solution providers because it was something they needed but had no access to, Bellini said.

Other VARs have followed similar paths to that of Connectwise. Network Management Group, in Hutchinson, Kan., launched DoubleCheck Email Manager, an e-mail firewall appliance that includes McAfee anti-virus software. Darren McBride, founder of Sierra Computers, in Reno, Nev., started Highly Reliable Systems and launched the High-Rely disk-to-disk backup system line. John Williams, CEO of Safenet, a solution provider in Atlanta, started eFolder for online remote backup and reporting.

Paul Eberting, president of Computer Connection in American Fork, Utah, is headed down a similar path. He’s currently working with SecurityMetrics to help take its PCI Compliance solution to the VAR community, something SecurityMetrics hasn’t done to date.

“It will be a revenue-generation opportunity and an opportunity for new business,” said Eberting, who added he has plans to market the technology to members of VentureTech Network, a group of solution providers affiliated with distributor Ingram Micro.

Inspired by the venture, SecurityMetrics is going back to the drawing board to develop more tools for the channel.

Next Page: Need for Solutions

Industry insiders have more than a few theories about the growing trend among resellers to turn ideas into products for the VAR community.

Kirk Robinson, vice president of channel marketing at Ingram Micro North America, said the channel always has a need for more new solutions, and VARs with the expertise and willingness to take risks will step up to the plate.

The channel often can’t wait for others to provide solutions to customer problems that need fixing today. “We know what we need and the nuances of our business that people not operating in the industry wouldn’t know,” Bellini said.

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NMGI President Steve Harper said he agreed. “VARs understand the true needs of VARs,” he said. That explains why DoubleCheck doesn’t require certification for VARs, which lowers the barrier to entry. In addition, the company provides marketing materials and allows the partner to private-label the product.

“We leave control with the VAR,” Harper said.

Multiple roles

Harper sees his company as one-third VAR, one-third consulting company and one-third ISV. DoubleCheck, he said, currently markets 18 product SKUs to its partners.

The trend of VARs assuming multiple roles is likely to continue gaining momentum. Highly Reliable’s McBride said that as hardware profit margins continue to shrink, VARs thinking about survival will continue pursuing other business models.

This year revenue from 3-year-old Highly Reliable Systems has exceeded that of McBride’s Sierra Computers, a 20-year-old VAR. The child has become bigger than the parent, said McBride, who expects Highly Reliable Systems to generate $4 million in revenue in 2008—double the $2 million he expects will be generated this year.

McBride credits this success to what he calls lack of follow-through by vendors in channel relationships, while putting in place certification requirements. “Many manufacturers have been giving the channel lip service for years, which has led to a lack of trust,” he said.

Indeed, say some solution providers, manufacturers and providers tend to define “partner” differently.

For its part, Software One, of New Berlin, Wis., has put a new twist on the definition. A Microsoft LAR (Large Account Reseller), Software One saw a gap in the industry when it came to providing software licensing to the SMB market. So the company launched the VARassist Partner Program to help channel partners with a joint go-to-market strategy addressing licensing needs.

“We’re 100 percent focused on software licensing and don’t compete with our partners,” said Brian Fuher, VARassist program manager.

As an outsourcing agent for its VAR partners, Software One provides expertise on enterprise and select agreements, primarily around Microsoft products, which would otherwise be too time-consuming and difficult. The LAR-VAR partnership also opens up market opportunities for channel partners that were previously out of reach.

“Our biggest challenge is creating trust with the VAR community that we’re looking out for their interests [and] their customers and that we’re giving them the best deal,” Fuher said.

High expectations

While solution providers may see introducing products and services for their peers as a necessity, they also recognize that a VAR can be another VAR’s most challenging customer. Not only do VARs know what bad service is like, they also are not interested in spending excessive time figuring out how a product works.

“We have to provide a level of service that’s really top-notch,” says XiloCore’s McDonald. After all, VAR vendors aren’t just supporting clients; they’re supporting experts.

At the same time, there’s nothing like having access to the company’s president if you’re having a problem with a product. Often connecting at trade shows, seminars or through a partner network, the VAR community can get small pretty quickly.

“Not only am I not going to take your customer, if you have a problem with my product, tell me what’s wrong and we’ll fix it,” Harper said. “I’m accessible.”

In general, many VARs agree that they often bounce ideas off one another and ultimately offer best-of-breed products that are highly focused and highly customizable.

Many solution providers are surprised it doesn’t happen more often.

The trust factor still remains a hurdle for some channel partners. Eberting, who’s been in the business since 1994, admitted that it took him a long time to not view every VAR as competition. “I eventually learned there’s value in reaching out to other VARs and leveraging each other’s strengths,” he said.