Network infrastructure and telco VARs are under "a lot of pressure", according to Arlin Sorenson, VP of Peer Groups at Connectwise.
Sorenson told Channelnomics at IT Nation in Orlando, FL last week that while the VAR market is still strong, there are sectors that are struggling amid dropping margins.
"If all you're doing is selling servers and network gear, that's under a lot of pressure for sure." Sorenson said. "I think some of the telcos - basic telephone kinds of areas - are also under pressure. There's hope there with collaborations and the newer things, but if all you're doing is selling handsets and dial-tone, it's a tough business. So some of the technologies we've known for a long time that have been very profitable over time are starting to lose that margin, and people have to wrap them with some kind of service offering."
Sorenson also noted that there are sectors of the VAR marketplace that are still going strong, despite the evolution of the channel to a services-led market. The VP told Channelnomics that there is a set of VARs still "doing really well" being VARs, meaning they're not motivated to change to a services business. However, such a business model is not sustainable in the long term, he said.
"We're not even going to try and convince them they should [change] at this point, but we do know that that business model is going to continue to be under pressure, so if they're not ready today, a year from now they may be," he said.
Also in the VAR space is a number of VARs "in the middle", who are looking to make the change from VAR to a services practice "but don't really know how", Sorenson said. The aim with this group is to offer education and support to help them make the necessary transition. However, he also noted there is a group in the VAR space that is "really struggling" because whatever segment they're serving, they have seen margins drop significantly.
"The profit margin has fallen out of [their business] and they're just trying to hold on and they really need to change quickly," Sorenson said. "They've got to get services wrapped around what they're doing."
The opportunity is certainly there for such players, according to Sorensen, but it is a "hard transition".
"Sales and marketing are totally different with managed services - it's not sit across the table and get an order; it doesn't work like that. And services delivery is very different too. Every month you have got to go and do the deal, so you have to re-engineer the whole company to make this successful. It's a tough road to hoe and that's why I think it's been underserved, and it's going to be a lot of work and some of them don't necessarily want to do the work. And some are convinced they don't need to do the work and that makes it even more interesting."
Sorenson noted that ConnectWise Peer Groups is rolling out some groups specific to VARs to help manage the differing circumstances and journeys.
"They've got a different set of challenges than MSPs, and we think they're an underserviced area," he said. "We have a few VARs in our regular program, but we're going to put some specific VAR groups together, help them make the transition towards a more as-a-service model and not give up on their product business, as that's always going to be core to what they do, but they have to wrap it with some services and we want to help teach them how to do that."
Another area the group is focusing is M&A, with some M&A-based peer groups being rolled out in Q1, starting in January, Sorenson said.
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