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IT industry walks down the Yellow-Brick Road - Part 1 of 3
31 July, 2008
By Robert M. Cohen |
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Definitions
SMBs (small and mid size businesses): Businesses with 10 to 500 seats but do not have a true CIO in place. Canadian and US SMBs purchase about 23% ($300 billion) of the world's annual IT sales. While individually SMBs have small IT budgets, limited IT in-house capabilities and demand tremendous attention & collectively, they represent the hottest, yet most underserved segment of the market.
VARs (Value Added Resellers): The 85,000 organizations that are strong technically, with an uncanny knack for removing the FUD factor (fear, uncertainty and doubt) from SMBs by installing IT solutions and being emphatic about servicing and supporting them. Approximately $240 billion of the $300 billion in purchases by SMBs, in Canada and the US, flow through the 85,000 VAR organizations.
TBAs: Trusted Business Advisors are a select group of business certified VARs who have demonstrated that they understand the business of being a VAR and have the capability to deliver, service and support the business and technology aspects of IT-centric business solutions for SMBs.
TBA Certification: The TBA business education, certification, lead generation and channel advocacy program was developed by the ChannelLine Advisory Council.
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Corporate America has had an obsession with being the first to buy the latest and greatest technology since the 1960s as evident by the mammoth computer environments they built and their enthusiasm to show off their technology. However, over the past decade, the relationship has shifted as fiscal responsibility, accountability and measurable ROI has become the pillars that corporate America has to respect.
Today, the trend is towards buying IT-based business solutions as opposed to buying IT products as technology is becoming a competitive tool that has to be linked directly back to lower operating costs, higher margins or increased sales.
Global IT annual sales are $1.3 trillion, with the United States and Canada cumulatively accounting for $750 billion. This $750 billion is comprised of:
- Retail/SOHO: With annually IT purchases of $83 billion, consumers, home office and small companies with fewer than 10 employees tend to purchase products vs. solutions and base their supplier decisions on price and brand choice on awareness. Margins are low and purchasing prime floor or website space is expensive. Thus, in the retail space, success is typically reserved for large branded products with deep pockets.
- SMB Market: Businesses with 10 to 500 seats purchase about 23% ($300 billion) of the world's annual IT sales. Of this, $240 billion flow through the 85,000 value added resellers (VARs). Collectively SMBs represent the hottest, yet most underserved segment of the market. They have small IT budgets, limited IT in-house capabilities and tremendous requirements for IT-centric business solutions. This results in higher margins.
- Mid Market: Companies with 500 to 1,000 seats annually purchase $38 billion worth of IT products. Typically, when VARs are used, it is because the CIO is looking for a specific skill set/knowledge or believes that the VAR can sell them product at a lower cost than they can purchase direct. Mid Market companies tend to be too big to use dedicated VARs and too small to attract the attention of the big Vendors.
- Enterprise Market: Accounting for about 1.5% of all companies and representing about 44% of all IT purchases, the 1,000 plus seat companies purchase $330 billion of IT products. However, with a stronger focus on ROI and fiscal accountability, corporate IT spending is down and strong negotiation skills has dramatically lowered margins. Still, the larger Vendors and IT Consultants have dedicated account teams ready to serve this segment.
When Dorothy landed on the other side of the rainbow she quickly discovered that she needed to surround herself with the good people and make her way down the yellow brick road to OZ where the wizard will make everything perfect.
In the computer industry, there are no clear-cut rules or clearly defined wizards versus witches. In our relatively new industry, we grew up with huge demand, tons of fear, uncertainty and doubt (FUD) and very few people who understood how to eliminate the FUD Factor and fill the demand. Add to this the great margins and IT nerds had a license to print money.
However, the Ruby red shoes have been removed and the rules have changed. Competition at the Vendor level has increased while the big-box stores have enjoyed tremendous growth in technology sales to home consumers and the very small companies, driving margins down significantly. Add to this the increased focus on ROI and accountability within the enterprise marketplace, which has resulted in slower product turnover and rapidly eroding margins.
SMBs
Employing about 75 percent of the Canadian and US work forces, it is no wonder that the elusive SMB market segment has emerged as the IT industry's El Dorado. Representing $300 billion in annual IT purchases, SMBs tend to have a small or no in-house IT staff and very little technology expertise or experience. On an individual level, each SMB buys very little and thus margins are higher since their individual buying power is insignificant.
Like every yellow-brick road, the route to Oz has its obstacles. SMBs are difficult to reach, slow to adopt new technologies, need more hand holding and often come with credit and thus financing problems. Moreover, while Vendors tout solutions, they sell products while SMBs are looking more and more at ROI and are seeking out measurable IT-based solutions that will increase revenue and/or decrease costs.
For most IT vendors as they begin their journey down the yellow brick road they quickly realize that it is just a brightly painted road leading to economic suicide. The SMB marketplace is simply too large, too complicated, too needy and too diverse to allow vendors to profitably hire an outbound sales force that can contact the SMB market and develop relationships with them. Nor can they justify the expense of hiring sufficient tech support to service and support SMBs in terms of creating complete solutions and then facilitating the delivery, integration, training, service and on-going support functions.
To find out more about what the ChannelLine Advisory Council is doing or to join us, please contact me at 1-800-465-2059 or by email at rcohen@integratedmar.com.
Robert M. Cohen, a passionate and enthusiastic channel advocate, is the founder of the ChannelLine Advisory Council as well as president and business editor of Integrated mar.com, publishers of Channel Advisor, eChannelLine and ConnectIT. Since 1980, he has worked with 300 IT vendors, distributors and resellers in developing and implementing strategic go-to-market programs, using a variety of direct, channel and hybrid models. Integrated mar.com, in its role as publisher, channel marketer and founder of the ChannelLine Advisory Council is proud to be a leader in orchestrating the paradigm shift. Together we will make the IT channel more profitable for all of us!
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