The IT channel business is going through a transition of
sorts. Earlier, over 90% of the players in this segment relied largely on
hardware sales to survive and succeed. Price and margins were the most important
factors while trying to decide which vendor should be added into their product
portfolio. Though these two aspects still have a strong role to play when
a partner negotiates with his principal, there is yet another factor that
determines the inclusion of the vendor's products into his kitty. And that is
the service offerings the partner can provide as a value-add to that technology.
This is not an unusual phenomenon. Worldwide, partners in
more mature markets actually leverage on their service capabilities when they go
to market, rather than just trading in boxes. This has several benefits for
them.Â
For one, they can retain a customer for a longer period of
time, as the client is tied to them for the maintenance of the service offering
and its constant upgradation. Secondly, they can customize their offerings based
on the kind of solution the customer requires, resulting in better margins. And
lastly, they can upsell other technologies to the client in the long run and
keep them coming back for more. The fact that this trend is now evident in
the Indian market as well is a welcome sign. It shows that the channel has
finally come of age and has gotten rid of its blinkered view of how the world of
technology works. Â
Bangalore-based Frontier Business Systems is a technology
integrator, which through its computing divisions offers a range of IBM and Sun
desktops, workstations, servers and storage devices. Frontier is also an Avaya-authorized
systems integrator for the latter's structured cabling solutions and Cisco's
premier partner for hubs, routers and switches. The company, which has been
growing at the rate of 40%, achieved revenue of Rs 142 crore in the year
2004-05. However, only 15% of this revenue came from providing services. The
seven-year-old company has offices in Chennai, Hyderabad, and Mumbai with about
225 employees.Â
Similar is the story for Apara, a focused IT infrastructure
solutions/services provider. About 85% of Apara's revenues come from solutions
sales that include hardware/software and 15% revenues are from pure services.
Apara delivers solutions in enterprise storage, intelligent networking,
information security and messaging, to enterprise customers. With an average
growth rate of 50%, the company closed FY 2004-05 with a revenue of Rs 91 crore
in organic business. The previous fiscal's closing was at Rs 59 crore. It has
operations spread across eight locations with 150 plus people on board.Â
Margins do Matter
The biggest consideration of a partner in the solution business continues to
be margins and bottomline. While earlier they could achieve good margins by
largely playing on the price front, now they have realized that they can shore
up better profits, if they have the skillsets to offer the right technologies.
This is why a lot of tier-one solution providing companies are willingly
investing in training and technical upgradation of their manpower. In fact, the
only way to make money in the business these days is by investing in skill sets
and building expertise in specialized areas.Â
And since manpower is the biggest asset in a service-driven
industry, constant employee training in the latest technologies is the need of
the hour. Most solution providers actually set aside a good portion of their
revenues for training. Initially the service offerings of partners were
limited to providing some AMC and post-sale support, where engineers needed to
have a basic know-how about the hardware and its associated software
application. But now, partners are training their staff on several vertical
technologies, so that they can provide a wide array of services to their
customers.Â
A few partners have segregated their manpower to concentrate
on different verticals, like wireless networking, open source or security
applications, and have them trained on these technologies. Often, the training
is provided not just for the products of the vendors they sell for, but of their
competitors as well, to give them a wider exposure to the workings of the
industry.
Who Wants to be a Service Provider?
Some solution providers in the industry had the foresight to see that
services will soon become a mainstay for the business anddeveloped skillsets in
it. One such example is Allied Digital Services. This Mumbai-based solution
provider started off by providing service for select vendors and then forayed
into offering hardware alongside. This strategy has held it in good stead and
today services has become its forte. Because of its first mover advantage, the
company now boasts of an enviable clientele, for which it offers third-party
maintenance, hardware/software migration services, test and repair services and
network management services. It is also undertaking consultancy-level activities
like project management (involving design, sizing, testing and roll-out),
business continuity services and customized software development. Currently, for
Allied, its service revenues contribute about 30% to the total revenue and 50%
to the bottomlines.
Not all solution providers are getting into the services
business as part of a well chartered business strategy. Some get into it by
default. The reason is simple. The IT business thrives on the relation between
the solution provider and his client. The latter would prefer that his IT
provider take the ownership of the company's infrastructure in totality. So
while a partner still acts as a hardware fulfillment agent, he also has to don
the roles of a technical consultant, solution implementer and service provider.
This ultimately works out in favor of the client, who gets a single point of
interface for his IT needs, and for the partner, who wins a customer for life.
Selecting the Right Niche
The biggest challenge for a solution provider is selecting
the right niche to focus on while deciding on the services business. Should he
go for high-end technologies like high performance computing or should he stick
to plain vanilla networking? There is no surefire way to decide what niche is
suitable for which partner. It is a matter of finding out the inherent skillsets
of each company and then building on it.
Mumbai-based ABM Knowledgeware learnt this the hard way. The
company started out as a systems integrator with its own brand of PCs. But it
later decided to focus on developing applications specifically for e-governance.
Today, it is using its proprietary application, Citizen Facilitation Centers
(CFC), to enable e-governance in Maharashtra and Gujarat. The CFC is a
customizable application for front offices of government institutions, which
acts as an interface between the citizen and the government personnel, featuring
time-bound service delivery. The company has also set up anytime access portals
for municipal corporations in Maharashtra.Â
Changing Definitions
As times and technologies change, the definition of service offerings is
also undergoing a sea change. Till a few years ago, clients would ask for mere
AMC contracts and everything remotely related to IT would fall under its
purview. Not any more. Customers and solution providers are getting more mature
and various subsets within a service offering are viewed as an independent
faction of the entire package. Â So when a client asks for network
integration, partners will get into details like network design and audit,
capacity planning, network management and depending on the needs of the client,
even remote management. In fact, remote management is one area that many
partners believe will be a turning point of the services business, especially
for international clients.
As with outsourcing of various business processes, companies
within and outside India are looking at totally outsourcing their IT needs to a
third party. Some partners opine that customers would soon want to focus only on
their core business and get a third-party to manage and maintain their IT
infrastructures, preferably from a remote location.
Final Word
Now that service is becoming a big part of the revenue pie for most solution
providers, the battle is to keep finding new technologies to train in. Most
provide value-added services like FMS, network management, consultancy. But
others are still scouting around to offer differentiated services by building
expertise in niche areas.
The crème de la crème of the solution providers are
offering an array of services like facilities management services (FMS) that go
into the areas of network management, application management, application
development and consulting. Now even their lower-rung peers are aspiring to
offer one, if not several, of these services.Â