Jan Issue Dummy by Sreekanth Sastry

FUTURE& The State of the Market 2011 Survey

OPTIONS At the dawn of a new decade, partners express their concerns, opportunities, and the way forward By Radhika Nallayam

Channelworld

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cover story n

P h o t o g r a p h b y S r i vat s a S h a n d i lya & I m a g i n g : U n n i k r i s h n a n AV

he year 2010, indeed, was a turning point, for it marked the end of an extremely action-packed decade — a decade in which we saw the rise and death of many technologies, companies, and industry bubbles. It was also a year of transition, a period that was sandwiched between the ‘global financial meltdown’ and an impending recovery. The list of anticipations that were there in 2010 was long, but many remain unfulfilled because it threw down a lot of unexpected challenges. While struggling to claw out of the downturn, the industry did manage to float through, without sinking. But it was a significant year of new learnings and novel survival methods. Equally decisive is 2011, as it flags the beginning of another important decade for the IT industry. It’s a phase in which the limping economies are expected to recover, frozen budgets to finally melt, and all the hypes to become realities. As new opportunities, new technologies, and a fresh set of new challenges await the industry in the new decade, it is important to see how the partners sketch their future. And, there is no better time than this to approach the partners to know what they foresee in 2011 as it’s the need of the hour to look beyond a list of predictions for next 12 months and observe what the mood of the market actually is. While predictions always carry a risk of going wrong, observations help in preparing and learning new things. Through the ChannelWorld State of the Market 2011 survey, channel partners told us why they are excited, though with a bit of extra caution, about 2011. Read on. january 2011

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State of the market | 2011

13%

Improved Implementation & Technical Support

3% Increase in Market Development Funds

4% Others 0

19%

is the average increase in profits that the partners expect in 2011, compared to a 30% increase in revenues. What is the single biggest challenge you expect to face in 2011? 33%

5 0

Others

13%

Staffing

19%

24%

Expanding Product/Service Portfolio

of things to curb this from worsening. “When we sign up with a vendor, we invest some time and money and thus we expect some return out of that investment, in terms of healthy margins. But unfortunately, that has not been the case for a very long time. Our margins have become so low of late that we are struggling for survival in the market. I think that vendors should think beyond fulfillment of their targets and work towards ensuring better margins for their partners,” says Manish Tandon, Managing Director of Questa Software Systems. He feels that a lot of vendors are now over-crowding the market by signing up with a large number of partners, resulting in a situation where none of these partners get good margins. And he is not alone. Sampath Kumar HR, CEO, Value Point Systems, adds, “We have to invest substantial amount of money and time during pre-sales as sales cycles lately are much longer. But afterward, fierce competition steps in and eventually turns the deal into a price war. We think that the vendors should take the initiative to ensure that the deal goes to the partner who puts in serious sales effort.” Even partners who maintain exclusivity and choose to work with only a selected set of vendors are not really getting benefited with better margins. Besides, a lot of customers prefer to approach vendors directly to ensure better deals, which again compel the partners to compromise on their margins. “We have come across situations where the customer had gone directly to the vendor to settle a deal. In such cases, the vendor hardly

15% Better Training & Certification Programs

Expanding Customer Base

as one percent and at times even negative! This might seem like an overstatement, but sadly, appears to be true for many channel partners in the country. This is not just true for hardware players, but applies equally to partners in the software space as well. An increasing number of SIs and VARs are feeling the heat of shrinking margins even when IT budgets across the industries are on an upward swing. Partners are surely expecting their principals to step in and lend them a hand. About 50 percent of the respondents in ChannelWorld’s State of the Market survey projected ‘better margins’ as their biggest wish from their principals in 2011. This clearly shows that a lot more effort is required to tackle this age-old issue. Quite naturally, more than 33 percent of them expect that ‘pressure on margin’ is going to be the biggest challenge that they are going to face in the coming year. Post the recession, companies definitely are looking at expanding their IT infrastructures. However, ‘doing more with less’ is a widely accepted and followed mantra. Hence they do expect their vendors to deliver products and solutions at a much lower cost. The economic slump, definitely, was a trendsetter in that sense as companies, large and small, are equally conscious about their IT budgets. Thus low-margin has definitely become an inescapable scenario that every vendor is slowly getting into. While it’s equally important to thrive in that low margin world, partners do feel that their principals can help a lot

49%

Better Margins

argins as low

16% Generating Sales Leads

Pressure on Margins

As shrinking margins remain a challenge, partners look to vendors for help

What is your biggest wish from a vendor in 2011?

Growing Revenue

A Few Dollars More Please

Money Matters

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cover story n takes the partner’s margin into consideration. The price they quote, at times, would be so low that the partner ends up getting single digit margins,” says Manoj Sharma, CEO, MM9 Information Technologies. He also feels that the vendors should be ready to recommend the right partner with the right capabilities to their customers for a particular implementation. “In most cases, a customer would have an existing relationship with multiple partners. When they approach a vendor directly, that vendor is in a position to guide that customer to the right partner. But unfortunately, that never happens. Vendors usually leave the decision to the customer and a partner who has personal or closer relationship with that customer ends up bagging the deal. He may or may not have the capability to take up that project. But expertise is hardly a parameter in winning a deal these days,” adds Sharma. Naveen Verma, CMD, Algort Technologies feels that vendors need to pay more attention in addressing the specific requirements of customers in each vertical. “Vendors can develop products based on solutions to specific business problems of customers. This helps us to pitch in their products with better margins.”

Leads and Support After margins, the next area where partners expect their vendors to improve upon is the lead generation activities. Sixteen percent of the respondents to the survey say that generating sales leads would be their biggest wish from their princi-

A vendor is in a position to guide a customer to the right partner, which never happens. But these days expertise is hardly a parameter in winning a deal.” Manoj Sharma, CEO, MM9 Information Technologies

pals in 2011. Though a few vendors are known well for their lead-gen programs, there still are a lot of vendors who do not make sufficient investment or take such programs more seriously. Partners believe that the vendors need to take the initiative and pass on high-convertibility leads to the right partners. They also expect their principals to educate the customers about new technologies, especially those related to the cloud. Incompetent lead generation programs could definitely be one of the reasons why about 19 percent of the participants felt that expansion of customer base is going to be a tough task going forward. This means that partners would be forced to restrict themselves to their existing clientele, which in turn would bring about bad revenue and profitability figures. Another challenge that the partners expect in the coming year is around an ancient issue — staffing. Attrac-

tion and retention of the right talent has always been an issue for channel partners and if the survey results are anything to go by, it might continue to be so even in 2011. At least a good 24 percent of the participants believe that staffing is going to be the biggest challenge for them in 2011. AL Srinath, Director of Hyderabadbased Shell Networks, says, “My recruitment is directly related to the amount of money I make. I should be able to generate a healthy top line and bottom line to recruit and later retain people with high salary packages. Single digit margin does not solve the purpose.” Partners also expect their principals to provide better training and certification programs, along with improved implementation and technical support. “Improved implementation and technical support from vendors would help us enhance our capabilities. This will not only facilitate customer trust, but also in being less dependent on vendors beyond a point and eventually, in improving our margins,” says Rahul Meher, Founder, Leon Computers. Though the new year is expected to bring some good news in terms of faster adoption of technologies and improved IT budgets, partners have very clearly made a stand. It’s quite evident that they are not keen on taking up deals that do not provide promising margins. Some of them do not even hesitate to say ‘No’ to low-margin businesses. This visibly shows the need for both partners and vendors to come together and jointly come up with a win-win proposition. 

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State of the market | 2011

28%

Infrastructure & Utilities

IT/BPO

Services

Retail

Telecom

48% 45%

Hardware

25% 26% Software

8% 10% Consulting

10% 12%

n 2011

n 2010

Managed Services

9% 7%

Others

How do you think the IT Spend will change in 2011? 6%

10%

36%

32%

91%

87%

Cloud Based Solutions

65%

21% 42%

Virtualization

Storage

Hardware Solutions

Business Application Software

73%

100

20%

16%

120

Virtual Reality After cloud, virtualization seems to be the next growth area that the channel

12%

20% 12%

Contribution to revenue from the following areas in 2011

84%

Discussions around Cloud Computing reached a peak in 2010. Almost all of those discussions were about whether to ‘Cloud or not to Cloud’. Is cloud computing finally going to take off in 2011? While only time can give an answer to this question, a large number of the channel partners in the country seem to be extremely bullish about the opportunities in cloud computing. About 92 percent of the respondents in State of the Market survey think that the IT spends around cloud-based solutions are going to go up in 2011. This is as opposed to the fact that only 35 percent of the respondents in the last year’s survey (State of the Market-2010) voted for cloud computing. Within cloud computing, partners believe that the initial demand is going to be around email services for corporate customers. Though companies may not move their mission-critical applications to the cloud initially, email is definitely an area they would start with. Till last year, not many people were receptive to the idea of email on the

Security

Will the cloud be cleared?

cloud. They thought that free email services from the likes of Google would do their job. However, that mind-set is changing as more and more people realized that they can’t expect such free services to be high in quality and reliability. As a result, they are now ready to make investments to get professional email services from third-party providers. After email, ERP, CRM and business intelligence are the other applications that are expected to move to the cloud. While hardware and platform as a service are still at a nascent stage, software as a service is an area that partners want to focus on in 2011. Some have already made investments in offering hosted applications and RIM services to their customers. They also see huge opportunities in setting up private cloud infrastructure for their customers. A number of them have made tie-ups with telcos and other service providers for jointly offering cloud services to enterprise-class customers. And, partners have reasons to believe that they are on the right track. Most industry analysts substantiate this. Gartner has identified cloud computing as one of the four broad trends that will change IT, and the economy, in the next 10 years. “Cloud computing will transform the IT industry as it will alter the financial model upon which investors look at technology providers, and it will change vertical industries, making the impact of the Internet on the music industry look like a minor bleep,” says Peter Sondergaard, Senior Vice President and Global Head of Research at Gartner.

38%

hough there are business

Manufacturing

BFSI

Government

concerns for partners, 2011 looks really bright in terms of adoption and growth of new technologies and the opportunities these technologies would bring. There is a prevalent positive mood in the market. Everyone expects that 2011 is going to be better in all respects. While 2010 was a year of transition from recession to recovery, 2011 is expected to be a revival period, especially for the Indian market. Partners hope that certain technologies and industries would fuel the growth of the IT industry in the coming year.

53%

Cloud and virtualization, coupled with government spending will provide boost

Networking

Opportunity in the Wake of Difficulty

Future Peek Which sector’s IT Spend do you expect to grow the most in 2011?

nIncrease nDecrease nStay the Same

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cover story n partners are highly betting on. EightySeven percent of the respondents believe that virtualization will bring more money in the coming year. It was considered a money-spinner even during the days of downturn and continues to be so. Server virtualization is pretty much a matured market and the latest discussions are now around VDI and associated opportunities in networking, storage and security. Gartner, too, confirms that the IT services space in India will be driven by new projects in areas of business applications, virtualization, and data center consolidation and green IT exploration. Partners who have not yet tried their hands at virtualization are realizing the need to take a pro-active approach in 2011 and build capabilities around virtualization. The investment, they believe, will be justified without doubt. “We have already undertaken the initiative to expand our skills around virtualization and cloud as these technologies are surely going to be in the buying lists of customers,” says Arun Sharma, Founder of Netpro. Partners also believe that security is another area where their customers would focus on in 2011. While about 85 percent of the respondents opined that IT spend in security will go up in 2011, it’s interesting to observe that security is the only technology for which not even a single respondent predicted negative growth. Security, offered as a cloud services, is also being looked upon as a profitable business by partners in next 12 months.

Sarkar Raj Government sector will continue to be a sweet spot for vendors and part-

Almost every government department is investing on automation and in expanding infrastructure, which is driving a lot of requirement in IT.” Yogesh Godbole, Director, Acebrain Systems

ners in 2011, according to the State of the Market survey. About 28 percent of the participants believe that IT spend in this vertical will go up in next 12 months, followed by manufacturing (20 percent). According to Gartner, the government’s infrastructure projects and hypercompetitive financial services will strongly drive IT in India in the coming years. Analysts believe that the current growth in the ICT sector in India can only be sustained by the continuous investment from government ministries and departments to improve their IT infrastructure. E-governance projects are great source of business for partners across all the regions in the country. “Government deals are usually around end-to-end infrastructure requirements. Almost every government department is investing on automation and in expanding their IT infrastructure. Government’s initia-

tive to start single window services is also driving a lot of requirements in IT,” says Yogesh Godbole, Director, Acebrain Systems. At the same time, simple automation is not the only prospect that the partners are expecting. Government is also investing in cloud related services, say some partners. “At the taluk level, the IT infrastructure is very limited and hence processing happens centrally at district or state level. This means that a lot of applications will have to be hosted on a central server-resulting in opportunities for us in the areas of cloud and RIM,” adds Godbole. Manufacturing segment, which is otherwise considered conservative when it comes to technology adoption, has now started looking up. This segment is investing heavily on virtualization, storage, security, and compliance. Naveen Verma, Managing Director, Algort Technologies, says, “Manufacturing is moving very fast towards total automation to cut costs and improve quality, which demands very high use of IT as an enabler.” Government is expected to provide instant opportunities right from the beginning of the year, while technologies like cloud are going to surface only towards the second half of the year. Interestingly, industries like telecom and IT/ITES, which at one point were strong growth drivers, have now moved down in the list. Barely about three percent believe that spend in IT/BPO sector will go up in the coming year, while just eight percent are optimistic about telecom space. 

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State of the market | 2011 The top go-to-market strategy for 2011

A balanced focus on products and services expected to bring good fortune

30% 60

Technologies you plan to get into in 2011

54%

is the average business partners expect to get from new customers in 2011.

Cloud Based Solutions

28%

Virtualization

27%

Hardware Solutions

Application Software 28%

27%

Storage

Cloud and managed services are definitely in the agenda for many partners. They have either partnered or in the process of partnering with vendors and telcos to offer services on a payper-use model to customers. Leon Computers, for example, has already made investments in providing hosted applications to its enterprise as well as SMB customers. The company will be initially looking at email and sharepoint hosting and remote management services. Its RIM services will include end-to-end infrastructure management and monitoring. Bangalore-based Value Point Systems also has serious plans around cloud. “We already offer cloud-based services to our SMB customers in India. In 2011, our target is to reach out to the enterprise segment. We are in the

28% Offer services on a recurring revenue model n I mprove my customers’ business process n Introduce new technologies to existing customers n H elp customers leverage technology to innovate in their industry n Lower my customers’ cost n U pgrade and refresh customers’ hardware n Help customers attract and retain new customers n Others n

36%

At your Service

process of collaborating with some of the leading service providers to offer white box cloud services to this segment,” says Sampath Kumar. MM9’s plan is to drive at least 60 percent of its revenue through its annuity-based service offerings in 2011. The company has already partnered with TCS to offer a few cloud services to its customers. “There clearly is a shift from capex to opex among companies and we do believe that hardware purchase will drastically go down in the coming days. So the best way to tackle issues related to both diminishing top line and bottom line is to have more focus on services on a ‘pay per use’ model. We see an increasing demand for applications like ERP, business intelligence, CRM and data management. We clearly notice less demand for on-premise implementation of such applications today,” says Sharma of MM9 Information Technologies. The success of salesforce.com in India is a clear example for partners to follow and they are very confident about the growth of cloud services, especially SaaS. As concerns about security and privacy on cloud gradually clear up, partners expect to see an increased adoption of cloud services in 2011. “We are looking at offering ‘simply hire’ services to our customer in 2011. Initially, our idea is to offer security related services on a subscription model,” says Inderjeet Singh Maan, Head-Enterprise Business, S. Kumar Computers. Though all partners are planning to get into cloud services eventually, managed services would be something they would start experimenting with. “We have observed that a lot of small and mid-sized companies do not have

Security

definitely going to be a tough row to hoe in 2011. At the same time, it’s not an impossible task. A smart strategy and timely execution will undoubtedly ensure success. In view of the new opportunities and to overcome the margin pressure, partners are planning a twin approach – introducing new products and technologies to their existing customers and getting into services business on a recurring revenue model. This is pretty much in line with the State of the Market survey conducted last year, in which 100 percent of the respondents said that they were planning to expand their services business, while about 97 percent were planning to add more solutions to their existing portfolio.

6% 5%

32%

stable growth rate is

16%

35%

Networking

Charting Course for the Future

Route Map

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cover story n the right resources to manage their IT infrastructure. As a result, they are actively looking at outsourcing the management part of IT. We are trying to benefit from this trend and are looking at providing customized facility management services to customers across different verticals,” says Sharma of NetPro. Suresh R, Vice President, Marketing, Navigator Systems also has similar plans. “We are planning to offer managed services to our customers in IT and ITES segments. We have seen that a lot of companies in these industries have started outsourcing IT infrastructure management. We want to be a one-stop-shop for such services in the future. We are already in talks with companies like IBM and HP for this.” “Everyone wants to focus on their core business due to intense competition in their respective business and thus they need to outsource all the support services, which is the main source of recurring revenue for us,” adds Verma of Algort Technologies. Partners who are reselling cloud services from various vendors are however a little apprehensive about this model. “We are currently very optimistic about cloud services. However, our principals can anytime decide to go direct with their cloud offerings. So we are not very clear about how our role is going to evolve in the coming days,” says Manish of Questa Software.

Expanding the Kitty While cloud will fulfill their need to have a recurring and stable revenue model, partners are equally serious about offering new products as part of their portfolio. Their technology

Everyone wants to focus on their core business and thus they need to outsource all the support services, which is the main source of recurring revenue for us.” Naveen Verma, Managing Director, Algort Technologies

roadmap includes security, networking, virtualization, business application software, storage, and even hardware solutions. After cloud computing, security seems to be the choice for most of the partners. About 37 percent of the respondents are planning to get into security in 2011. This also shows that companies of all sizes would be more alert about security threats and are conscious about the need to invest in security. Networking is an equally important market for channel partners, with about 33 percent planning to get into it in next 10 months. Surprisingly, a number of partners who so far have not focused on hardware believe that it’s important to get into this business. The major reason for this is the hardware requirements for high-value projects in the government and other sectors. However, partners are not looking at selling hardware as a stand-alone product, but at the same time they do not want to miss

out on the large end-to-end integration projects due to the lack of hardware in their portfolio. “We realized that most of the egovernance projects have hardware requirements and they prefer to approach a single vendor for all their requirements. So, it’s important that we get into hardware if we want to cash on these opportunities. Besides, we have also seen the same trend among our other customers who use our software products. They want us to take care of their hardware needs as well,” says Nitin Walia, Director, Data Infosys. However, simply adding some products is not the idea for partners. They are looking at expanding into niche areas and looking at adding innovative product lines to their offerings. Data Infosys, for example, has big plans around offering services and solutions in enterprise mobility. The company recently launched Bharat Berry, a mobile communication service targeted mainly at enterprise users. Acebrain Systems is getting into biometrics solutions. Though it’s a volume business, Godbole feels that the new product line will help him improve revenues. The future is very clearly in the services business. However, the survey also shows that partners have not really set ambitious goals for themselves when it comes to profits. While they expect an average growth of about 30 percent in their revenues, they don’t seem to be equally optimistic about their bottom lines. The average growth expected in profits is only close to 19 percent. However, 2011 hopefully will have more reasons to cheer up and have success in store for partners. 

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