The SMB Market Gets Channeled
There's an IT boom on the horizon for U.S. SMBs, but it isn't going to come from vendors. Channel partners are expected to do the majority of the selling and servicing, with sales expected to reach $154 billion over the next 12 months, representing a 17 percent rise in sales since last year, according to a study by AMI-Partners.
"SMBs are a substantial market for channel partners as most technology products and brands that SMBs buy are based on recommendations from the channel," says Avinash Arun, a research analyst with AMI-Partners. "U.S.-based SMBs have a lot of confidence in channel partners and rely heavily on them to recommend, configure, install, and provide service and support for IT solutions."
Channel partners can be broken down into four types: VARs (value added resellers), which focus on providing computing hardware and related services; service vendors, or the providers of software; systems/network integrators, providers of networking, security, and general IT services; and service providers, or companies such as Internet service providers who also offer other services. According to the study, titled "2005-2006 U.S. Channel Partners Market Overview and Topline Assessment," service providers anticipate the highest revenue growth at 19 percent, followed by systems/network integrators at 18 percent. Overall, the total number of channel partners has risen 4.5 percent in 2006, which is represented across three of the four types; only VARs have experienced a drop in their numbers.
SMBs are attracted to channel partners' personalized service, which can be difficult for larger national vendors, such as NetSuite, Sage Software, or Salesforce.com to provide. "A lot of SMBs don't have the IT department the larger companies have, so they require services that go beyond simply purchasing the product and getting it up and running," Arun says.
The focus of the SMB channel partners has shifted within the last year from low profit-margin hardware and packaged software selling, to high-margin services such as IT and Internet-related services. This, Arun says, illustrates the trend among SMBs to purchase standard hardware and packaged software directly from vendors or Internet retailers and rely on channel partners for the value-added solutions and services. This also reflects the change in customer focus as the channel partners now turn their attention to the larger firms that use higher-margin IT services. "There has been a slight drop in revenues from small businesses, which has been offset by an increase in revenue from the medium-sized businesses," Arun says.
IP telephony, security, CRM, and ERP applications continue to be the products and services that provide the highest growth for SMB channel partners, according to the study. Interestingly, AMI-Partners also found a vast disparity in the channel partners' revenue distribution among the various states in the U.S., indicating that U.S. channel partners focus on the lager states. California, Florida, Illinois, New York, and Texas comprise more than a fourth of all SMB channel partner revenues and constitute about two-fifths of total SMB channel partner revenues.
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