How Many VARs Are There Anyway

Peter : On Rad's Radar?
| Peter Radizeski of RAD-INFO, Inc. talking telecom, Cloud, VoIP, CLEC, and The Channel.

How Many VARs Are There Anyway

This is a LONG post. Kind of rambling. Sorry about that. But it does have some really good nuggets of info. Thanks for reading. Leave feedback.

At the CompTIA meeting with the Telecom Advisory Council, the size of the VAR market was discussed. Analysts rank the size of the IT sector at 120K shops (Break/fix, MSP, VAR, integrator and a heavy dose of one man IT fixers). The estimated number who will survive the current industry and economic turmoil are about 30K!

I know, right?

When you look at the numbers, you have to realize that there are a lot of different verticals inside that 120,000. Microsoft partners, Cisco resellers, Xerox, HP, Dell, Lenovo, IBM and those with no certs or authorized partner status.

The Microsoft shops have been hit by a few moves by Microsoft: end of life of Small Business Server and the closing of Tech Net - both coming on the heels of MS hosting and retailing Office 365. These guys don't want to be sales and marketing arms for MS. They like tech. I am already seeing a chunk of these guys turning to programming instead. Who wants to deal with end users anyway?!

Dell has its own special set of circumstances that make us forget the HP missteps over the last few years.

Hardware sales are moving to cloud sales. Laptops and desktops are becoming tablets and smartphones. Tech Data, Ingram and SYNNEX have had to pivot continually to adjust to this within their razor thin profit margin. Their base of VARs are a lot like Master Agents base of agents -- they share a lot / lots of crossover. That happens because as a VAR you check each data base to see has the gear in stock and close to the customer (for shipping). This will not happen with cloud services. VARs will not manage Hosted Exchange users are more than one platform. It is too cumbersome. Well, they might if they HAVE to, but they don't have to.

There are a good percentage who don't want to stop selling gear (premise equipment). It's a mindset and it is wrapped around a control issue. It will get harder for them to eke out a living.

VARs are also competing with their vendors more and more for professional services contracts and other business. That channel conflict gets old very quickly, especially when you didn't really have that issue for the last 15 years with Cisco, IBM or Microsoft. Now you do. Welcome! We have a support group that meets at the bar every day at 6 pm.

So about one-quarter will come out of all this with viable business models.

Vendors and carriers are hoping these remaining 30K will all have MSP models - meaning that they will sell a wide portfolio of services, including ours! Yeah!

The model will have to work. We are watching pricing shrink. If you are used to selling servers or PBX or video conferencing codecs for $5000 plus each sale, selling an MRC of $299 per month seems ridiculous and a waste of time.

Even at 25 points, a $299 per month service is $75 per month. You have to sell a lot of them as fast as you can to make a living.

You have to sell a lot of different services to get that MRC to $2500 per month and take your overall 10 points off that. And still have to do that often to accumulate a decent recurring pile of money.

Think about it from the carrier side: revenue is dropping constantly but their costs - especially the cost of sales - has either been stagnant or increased. But each quarter you have to report the same or more revenue or suffer the consequences.

When Gig ports are selling for $1000 or less and 10GB pipes are selling for sub-$3000, how in the world do you increase revenue?

They say that there are 4000 Agents in telecom, but less than 200 of those are vibrant (active, selling, inking). Those 4000 account for just 5% of the total telecom spend. A whopping 95% of the telecom buy comes directly.

That leaves a huge pile of sales that could be going to the channel. Let us not forget that some of that business is precluded to go to the channel. For example, government, E-rate, house accounts, wholesale and other to-be-determined later accounts are all off limits to the channel.

Welcome to telecom! We will tell you if you can sell to that account (that we haven't touched in a year) AFTER you submit the quote form. Then we will wake up our direct rep with a kick to his chair and he will call the customer directly cutting you out of the deal. But thanks for bringing it to our attention!

The cost of acquisition is going up. The markets for broadband, cellular, TV, phone lines are all flat! The residential market is tapped out. It's all about SMB. But the cable companies - specifically Comcast, TWC, Bright House and Cox - will be grabbing between 10-18% of that market by year end. That was the lucrative part of the pie chart for the ILECs and CLECs.

Carriers, hardware vendors, VARs, VADs, Master Agents and Agents are all suffering from the economic turmoil and the cloud disruption.

But now the cloud is being disrupted by the NSA!!! See Josh's blog post here. Supported by these 2 articles:

Why NSA Surveillance Will Be More Damaging Than You Think

Snowden isn't the story: the fate of the Internet is

All of which is why my pal Todd is going to crush it (after disrupting Disrupt with his let's hack capitalism idea)!

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