CRN’s Channel Universe research project has produced the clearest picture for a decade of exactly who the UK’s resellers are and what makes them successful.

It depicts a channel leaner and fitter after 10 years of tough trading conditions and shifting customer priorities, and gives today’s resellers a unique opportunity to benchmark themselves against their peers.

The researchers cast the net wide, defining a reseller as any company that resells or provides IT products or services to third parties. Even so, they found that the channel has shrunk from 23,500 resellers in 1998 (when CRN’s predecessor, PC Dealer, conducted a similar survey) to around 17,000 today.

Those that have prospered believe it has been a case of survival of the fittest. “During the late 1990s and year 2000 a lot of organisations were able to exist by riding the wave of the technology boom,” said Ash Hussein, sales and marketing director at VAR Axial. “Less skilled or committed resellers that cannot provide the service and customer experience that clients demand will suffer in a more competitive environment.”

However, evolution has not been easy, said James Burckhardt, associate director of ICM Research, which designed and managed the research.

“Resellers have a tendency to stick in the same markets, especially in products, even if these are struggling,” he said. “It is easier to migrate to other service fields, so we did see more fluidity and agility in resellers’ ability and willingness to switch between services, and we commonly found resellers offering as many as five different types.”

The researchers found that the channel is predominantly populated by smaller, lean resellers: 74 per cent have fewer than 50 staff and 70 per cent operate from a single site, while only 11 per cent have 200 or more members of staff. More than half the total (54 per cent) can be described as micro-resellers, employing fewer than 10 people.

Many micro-resellers are entirely service and consultancy based, selling no products at all, says Burckhardt. Often their clients have no internal IT expertise and rely on their reseller for advice and day-to-day support.

However, while small resellers predominate, a few big players still pick up the lion’s share of revenues. Of the survey respondents who divulged their turnover, 45 per cent made less than £500,000, while 13 per cent were making more than £50m. The average turnover of smaller resellers (employing fewer than 50 people) was £1.4m, while the larger firms averaged a cool £253m.

The researchers segmented the channel into 13 categories. The most numerous were VARs, who number more than 4,000 companies and account for 24 per cent of the UK channel. Four-fifths have fewer than 50 employees, 69 per cent are single-site and 55 per cent turn over less than £1m.

The strength of services

Nearly 60 per cent of VARs’ revenues are generated from services and consultancy and there is evidence of increased focus on managed and outsourcing services, while a surprisingly high 71 per cent develop or tailor application software. Consultancy, support, installation, training and maintenance are the top five services provided by VARs, with all except training showing healthy growth.

On the product side, prospects are not quite as rosy. Of VARs’ top five product categories, storage and networking are experiencing steady growth, but applications, client/server and operating systems/middleware are static or declining for more than half of resellers: signs that a strategic rethink may be required.

The key customer sector for VARs is SMEs (10-99 staff), who account for a quarter of all VAR revenues. More than half of VARs also focus on medium-sized and enterprise (ME) businesses, while 39 per cent focus on the public sector. Only 31 per cent focus on small office home office (SoHo) businesses (less than 10 staff), while sales to consumers are negligible.

Personal recommendation is still by far the most popular way to acquire new business, and is used by 89 per cent of VARs. Nearly half also use telemarketing, lead generation, exhibitions and email marketing. All VARs sell face-to-face and 71 per cent said this is their key sales channel.

The number of system houses and system integrators (SIs) has mushroomed since 1998, from a couple of hundred to almost 1,000, representing about five per cent of the UK channel. Their economic clout is high since nearly two-thirds have 100 or more staff and turnover of at least £10m.

Most of this is earned from services and hardware, with installation, support and maintenance being the key services, and networking, security and applications the most popular product areas. Nearly a third (30 per cent) of SIs manufacture proprietary products and 55 per cent are stepping up their focus on managed services.

Not surprisingly, MEs (100-499 staff) and enterprises (500+) account for 80 per cent of SIs’ revenues, much of them relying on complex, consultative sales. A third also focus on sales to resellers.

The last decade has also been kind to consultants, who now account for 6.5 per cent of the UK channel, more than 1,100 companies. Most are small ­ 88 per cent have fewer than 10 staff and only four per cent have more than 50 ­ and they generate 70 per cent of revenues from services.

Break from tradition

Like consultants, traditional resellers are predominantly small, since 90 per cent have a single site and fewer than 50 staff. But while VARs, SIs and consultants have thrived, the number of traditional resellers in the UK has plummeted since 1998 from about 5,000 to just 750. They remain reliant on hardware sales for 52 per cent of revenue and 35 per cent still assemble proprietary hardware. Networking and storage form the mainstay of their product sales.

Traditional resellers’ prospects are better on services, where they major on maintenance, support, installation, networking and integration. A third are also looking to extend into storage services. Their sales focus is predominantly on SMEs and SoHo (81 per cent and 65 per cent respectively), although there is evidence that they are extending their reach into the ME sector. Recommendation still remains the most used marketing tactic, and 49 per cent of traditional resellers rate telesales as a key sales channel.

Direct-response resellers still account for about seven per cent of the UK reseller community. This is all the more remarkable since off-the-page resellers rely on hardware and software for 62 per cent of their revenue, and most plan to maintain a focus on client and networking hardware. However, more than 70 per cent also offer support, installation and maintenance services.

Off-the-page resellers are slightly larger than VARs, with 32 per cent employing 50 or more staff and 30 per cent operating from more than one site. Their customer focus is predominantly SoHo and SME (64 per cent each), with some ME, public sector and enterprise. Not surprisingly, 84 per cent use low-touch inbound telesales and 52 per cent rate this as their main sales method, although word of mouth remains key for acquiring new customers.

In 1998 the commercial internet was in its infancy and there were just 200 online direct response resellers. Now there are around 850, making five per cent of the total channel. The category is polarised between micro-resellers (67 per cent) and large firms with 100 or more staff (14 per cent), and 27 per cent of online resellers turn over £10m plus.

Cutting out the middle man

Although 47 per cent make or assemble products, online resellers offer a wide range of hardware and services, with an increasing focus on networking, applications and audio-visual. Walk-in retailers have slumped to fewer than 400 companies. The middle ground is gone, since 93 per cent have fewer than 50 staff while the rest employ more than 1,000. They rely on hardware for 43 per cent of sales, and although they offer a broad range of products their top five include the under performing OS/middleware, printing/imaging and applications. Consumer and SoHo are their main focus markets, although many are trying to swap consumer customers for SMEs.

Next week we shall reveal which are the most successful markets for resellers and how they reach them.

Expanding universe