AMI-Partners’ Study Shows Small and Medium Business Focused IT Channel Partners Exhibited Double Digit Sales Growth Despite Decline in Large Enterpris

I know this is a bit long…but I thought it was valuable to post in its entirety never-the-less – Ramon
Driven by Strong Demand for Web-Related Services, IT Security and Software, SMB IT Channel Partners Expect Double-Digit Growth With 30% Planning to Hire Employees
NEW YORK – November 14, 2002. SMB-focused U.S. IT Channel Partners, the crucial intermediaries providing IT products, services and advice to the vast but fragmented market of 7.7 million small and medium businesses (SMBs) in the U.S. increased their annual sales by 11% with aggressive further growth projected for next year. An estimated 30% of the SMB Channel Partners are planning to hire new employees, defying the steep downturn and continued uncertainty in the overall IT industry and raising speculation that the rebound of the IT industry will be led by small and medium sized businesses rather than large enterprises.
The growth was primarily driven by strong demand for web-related services, IT security, storage and software by SMBs (companies with 1-999 employees). SMB channel partners have also benefited by the increasing attention being showered on them by IT vendors, who are attracted by the steady increase in SMB IT spending (13% this year over last), especially in light of the delay in the revival of large business spending.
The above findings were released today by New York-based Access Markets International (AMI) Partners, Inc., a leading consulting firm specializing in IT, Internet, telecom and business services market intelligence, trends and strategy with a strong focus on global small and medium business (SMB) enterprises. AMI conducts the IT industry’s most comprehensive annual tracking surveys of small and medium business (SMB) enterprises in several countries including the U.S., France, Germany, U.K., Australia, China, India, Japan, South Korea, Brazil and Mexico.
While the industry conditions and the economy did affect IT channel partners, with almost half of them showing declining or stagnant sales last year, the brunt of the decline was borne by channel partners relying heavily on large businesses. Many such channel partners were forced to downsize operations. In sharp contrast, channel partners who relied heavily on SMBs and offered services related to the web (e.g. web site design & development, web site hosting & maintenance, etc.), IT security and software customization grew sharply with one-fourth growing at over 20% on an annualized basis.
AMI estimates that the 42,500 SMB channel partners (i.e. those who derive 50% or more of their revenues from SMBs) earned $101 billion in revenues last year and accounted for over 60% of total IT spending by U.S. SMBs last year.
IT Vendors and Channel Partners Agree: Small is Beautiful!
“SMBs were slow to adopt new technologies during the late nineties, and did not over-indulge during the industry’s boom years. As a result, they still represent under-saturated markets for offerings such as web-related services, software, IT security and storage and are expected to continue to spend in these areas,” said Andy Bose, CEO and Founder of AMI-Partners. A separate study of SMB end-users conducted by AMI-Partners estimates total IT spending by SMBs will increase 13% in 2002 – from $120 billion in 2001 to $136 billion this year. Thus, SMB-focused channel partners have seen their sales increase rapidly.
SMBs, which often have limited skills and resources, rely heavily on their channel partners to help them identify, evaluate and implement new technologies. This dependence gives the channel partners tremendous influence in their customers’ decision-making and selection of products, services, and brands. According to AMI’s study, three-fourths of all channel partners believe they have a strong influence in their customers’ selection of Internet brands and two-thirds believe they influence their networking and software brands. “SMB Channel partners’ strong influence on brand selections makes them invaluable allies for IT vendors who target small and medium sized businesses,” said Anil Miglani, Vice President at AMI Partners.
As a result, several IT vendors like Check Point, Cisco, Brocade, EMC, IBM, Microsoft, Network Associates (NAI), Oracle, SAP, Siebel and Sun, impatient with the continued tightness in large enterprise spending, have either have turned their attention to, or increased their focus on SMBs in recent times. For many of these industry leading IT vendors that has meant a renewed focus on developing strong channel partner relationships in order to navigate the vast size and fragmentation of the SMB market. SMB channel partners have also reciprocated by obtaining certifications from key vendors. AMI’s study shows robust growth in IT certifications over the next year will be in the areas of software, IT security and storage from an increasing array of non-traditional SMB vendors like EMC, J.D Edwards, Network Appliance, Oracle, PeopleSoft and SAP to name a few.
Services and White Boxes: Channel Partners’ Response to Shrinking Margins
As PCs, networking hardware and packaged software have become commoditized, gross margins on these products have diminished, forcing SMB channel partners to shift their focus to services including software customization, IT service & support and web-related services. SMB channel partners earn gross margins of 36-54% for services compared to around 20% for hardware and packaged software. Services accounted for over 55% of total channel partners’ revenues last year.
Also, with customers increasingly buying directly from PC and server manufacturers, channel partners have responded by offering custom configured white boxes, or unbranded computers, assembled locally. AMI’s study shows that 82% of SMB channel partners now offer assembled white box PCs and 69% offer such servers. “Working with high quality, industry standard components, channel partners are able to deliver name-brand quality at lower costs and better margins,” says Miglani. They also offer greater customization for their customers than most brand manufacturers. Almost half of all PCs sold by SMB channel partners are now assembled white boxes. The importance of the white box market was recently accentuated by industry leader Dell, who has started offering a line of Dell-built white box PCs to channel partners to be sold as an unbranded or house brand PC, mainly to SMBs.
Future SMB Growth Areas: Web, Software, Security, Storage and IP Telephony
The combination of an under penetrated SMB market, and an increasingly difficult hardware market, has helped to create robust demand from SMBs for a number of web-related services, enterprise software, IT security and IP telephony, including the following:
∑ Web-Related Services: Including website development and website hosting & maintenance as web sites become commonplace among SMBs.
∑ IT security: Almost two-thirds of the channel partners offer firewalls, 58% offer data backup & disaster recovery and 48% offer VPNs. In addition, 36% are involved in designing & developing custom security systems for their clients and 22% offer outsourced managed security services.
∑ Enterprise Software: Including applications like CRM, SFA, ERP and SCM as SMBs adopt them to enhance their own internal efficiencies or provide better support to their customers and suppliers, and also to establish electronic linkages with their large business partners.
∑ IP telephony: Driven by industry leaders like 3Com, Cisco and Nortel as well as smaller telephony companies like Altigen who are targeting the SMBs, over 10,000 SMB channel partners currently offer products and services related to IP telephony, and another 7,000 plan to do so next year.
SMB Channel Partner Segmentation
A separate analysis by AMI-Partners shows that the channel partners often mirror their SMB customers in terms of their skills and competencies. AMI groups these channel partners and their SMB customers into four tiers based on their new technology adoption. At one end of the spectrum, the most tech savvy channel partners in Tier 1 are the first ones to begin offering new technology products and services to their Tier 1 customers, who themselves are high technology adopters. At the other end of the spectrum are Tier 4 channel partners, who essentially offer only standardized products that are easy to use, servicing “needs-help SMBs” who tend to be the most price-conscious customers and last to adopt IT technology for their businesses.
Such a one-to-one mapping of channel partners and end users allows IT vendors to view their channels and end customers from a single set of lenses and also develop and implement their strategies to effectively reach high value SMBs.
About Access Markets International (Partners) Inc. (AMI-Partners)
AMI-Partners specializes in IT, Internet, telecommunications and business services strategy, venture capital and actionable market intelligence, focusing on global small medium business (SMB) enterprises. The AMI-Partners mission is to empower the firm’s clients for success with the highest quality data, business planning and “go-to-market” solutions. AMI-Partners was founded in 1996 under the name of Access Media International (USA), Inc. (AMI-USA) by Andy Bose, formerly a group vice president at IDC. Since its inception, the firm has built a world-class management team spanning 10 to 25 years in IT, telecommunications, online communications, and multimedia. The team is comprised of individuals who have formerly built careers at leading companies such as Cablevision, Compaq, IBM, IDC, JPMorgan, McKinsey and other industry-leading companies.
AMI-Partners has shaped the go-to-market SMB strategies of more than 130 leading IT, Internet, telecom and business services companies in the last five years. The firm is well known for its IT and Internet-adoption-based segmentation of the SMB Markets; for its annual retainership services based on global SMB tracking surveys; and for its proprietary database of several thousand SMBs in the U.S., Europe, Asia-Pacific and Latin America. The firm invests significantly in collecting survey-based information with several thousand SMBs globally through the industry’s most comprehensive SMB survey instrument, and is considered to be the leading benchmark for tracking SMB trends.
For more information on AMI-Partners please visit or call 212-944-5100