ARC Insight; Conflict On Horizon

This is without a doubt my favorite issue of the year. The Annual Report Card is a year in the making, which means we are always working on this massive partner study that captures the ratings of more than 4,000 VARs. The results this year are significant because they captured the mind-set of VARs as many of them were grappling with the devastating effects of the economic downturn. That meant a change in what partners rated as most important factors in driving satisfaction. While partners have long rated criteria related to product and technology as most important, economic factors drove business issues higher in relevance this year. That is why such criteria as revenue and profit potential, ease of doing business or return on investment became more significant in some categories.

The results have ramifications for many vendors that use the ARC as a tool to change products, programs or support because it is hard to tell whether the changes we see in this year's study will be permanent. Many consumers have altered their buying habits, but have VARs? Some resellers said the dynamics of the VAR-vendor relationship have been forever changed.

Accolades go to this year's impressive group of winners but also to companies that showed gains and promise. One of those is Symantec, which had a dramatic improvement in year-over-year scores in both the security and storage categories. Symantec stayed "on message," as the saying goes, while aggressively courting partners who had become disillusioned with the brand. On the networking front, Juniper continued to post strong scores in a category once dominated by Cisco and narrowly missed edging out John Chambers' organization. CA's performance was notable in that its storage unit posted gains, but the promising changes it has made to its security products and channel have yet to take hold.

The proposed purchases of IT services companies by Dell and Xerox may be good news for those hardware firms, but every VAR should be concerned. As many of you know by now, Xerox has made a $6.4 billion bid for VAR500 firm Affiliated Computer Services while Dell is paying $3.9 billion for Perot Systems. The moves are clearly signs that manufacturers do not believe product sales will propel their growth in the next few years. You can expect more acquisitions of services companies in the coming months, as they are attractive targets. This sets the stage for a major resurgence of channel conflict in 2010 and beyond as vendors grow their services revenue while attempting to manage partners who are more services-oriented than ever. Professional and consulting services have been the driving force behind the stability and growth of VAR organizations this year. The acquisition of ACS will triple Xerox's services revenue, while Perot will bring $2.8 billion in services revenue to Dell with strength in verticals such as health care and government. These deals will no doubt benefit companies highly dependent on commodity hardware while putting mounting pressure on their channel executives to manage conflict.

Xerox will have to explain how 74,000 newly added ACS professionals who support thousands of large clients across dozens of vertical markets won't interfere with their business. Managing a huge services arm and partner network is no easy task. Just ask IBM, which has struggled with the issue for years. As HP expands its services business, it will be forced to spend more time managing conflict as well but has thus far avoided any major problems.