ARC Optimism: Where's the Growth in 2010

VARs are optimistic that security solutions will continue to be a big part of solution providers' businesses in 2010, according to Everything Channel's 2009 Annual Report Card Survey.

More VARs expect their sales in network security appliances (81.3 percent of respondents) and client security software (81.1 percent) to increase in 2010 than in the 16 other product categories, according to the study.

VARs also seem optimistic about enterprise networking hardware (80.1 percent), server virtualization software (79.5 percent) and storage software (77.7 percent).

Solution providers were asked to rate their business expectations (increase, stay the same or decrease,) and more than half of the respondents expect their business to increase in 17 of the 18 categories. More than 25 percent of VARs expect sales to stay the same in nine of the 18 categories. Almost one-third of the respondents expect their notebook sales to decrease in 2010, the only category in which a significant portion of VARs expect business to drop.

All told, it's shaping up to be another good year to be a security VAR, said solution providers. Network security appliances are drawing high expectations because more people are opening up their businesses to Internet access in different ways, said Audrey Levi, president and owner of Altek Computer Group, a Miami-based solution provider.

"More people are opening themselves to some sort of remote access. As that occurs, people have to put in firewalls and network security," Levi said.

End users have a better understanding of the risks of a security breakdown than they did just a couple of years ago and are willing to take more proactive steps to avoid risk, said Bruce Freshwater, CEO of Sierra w/o Wires, a Pittsburgh-based solution provider.

"One virus on one PC can do a lot of [harm]. They'll spend $3,000 on a small network appliance to eliminate spinning their wheels for 30 hours. It's a win-win for everybody," Freshwater said.

Network security appliances are also a key piece to some compliance solutions, said Edward Laprade, president and CEO of Adnet Technologies, a Windsor, Conn.-based solution provider. Adnet has many clients in Massachusetts, where a data privacy law will go into effect March 2010.

"There are a lot of compliance areas that affect most companies. They need to tighten down their security, data encryption," he said.

As far as client security applications, end users are also more willing to opt for more complex solutions because they understand the risks, Freshwater said. "Instead of the old mentality of just needing antivirus, now they know they need malware and phishing software too," he said.

Meanwhile, VARs might be expecting to increase business in enterprise networking hardware because innovations in that area can help customers save money, Levi said.

"I think you'll see more 10 GB, more PoE [Power over Ethernet] for various applications. There's more strain on the network and the enterprise infrastructure will get refreshed with newer switches," she said.

The server virtualization software has been a big focus for VARs for a couple of years now and 2010 will not be different, according to survey respondents.

"The benefits of virtualization are easy to [market]. Down here [in South Florida], there's always the issue of disaster recovery and co-location, and virtualization fits well into that," Levi said.

Virtualization is driving a lot of business because end users can see near-immediate value returns, Freshwater said.

"The old mentality was to buy a server for a specialized application, a specialized configuration," he said. "With virtualization, you buy a server and you can have an Active Directory Server, an Exchange server, a print server, a file server, a dedicated internal apps server all on one or two master boxes."

Server virtualization business is being driven by end users' desire to consolidate their data centers, said Adnet's Laprade.

"It seems like even small clients have a fair number of servers and it's a constant battle to keep those servers up to date," he said. "Consolidation makes life easier to manage and it's greener, if you will. People are trying to consolidate, bottom line, and simplify things."

Laprade said storage software is somewhat of an umbrella category that is included in bigger solutions that have high business expectations for 2010.

"It goes along with backup and disaster recovery and everything that goes along with that. Storage is a big issue out there because even the small guy is chewing up big chunks of storage these days. It's a growing area," Laprade said.

"More clients are looking for cloud-based storage solutions, which is driving more applications sales."

One category that doesn't project for high expectations is network storage hardware, which finished 17th of 18 categories, but it's a high-growth area for Altek, Levi said.

"That's a push right after virtualization. If you virtualize, you've got to put in a SAN. That usually requires a change," she said.

She, along with Laprade and Freshwater, were somewhat puzzled by the fact that 31.2 percent of VARs expect their notebook business to decline.

"That's bizarre. It's not a core business for us, but we see steady growth from one year to the next," Levi said.

Many Altek customers are still willing to buy laptops from the solution provider than through a cheaper alternative, Levi said.

Laprade said the increase in smartphones might be responsible for a perceived decrease of business in notebooks: "People are using their phones as a substitute for a notebook," he said.

In addition, VARs might be expecting a decrease in notebook sales because they know customers can source them elsewhere more cheaply but still need the VAR for more complex products and services.

"We stopped selling that type of hardware a long time ago [because] it's such a commodity," Laprade said.

Regarding other categories, Levi said she has high expectations for wireless infrastructure (66.9 percent) and unified communications/VoIP (64.5 percent).

Other categories where at least two-thirds of VARs expect business to increase include: workgroup color printers (73 percent); data and information management (69.9); external portable hard drives (68.4); middleware applications (67.6); and wireless infrastructure (66.9).

The remaining categories include: midrange servers (65.9 percent); volume mainstream business servers (62.7); displays (58.0); and network storage (51.6).

"We anticipate wireless to be a big growth area. Partly because security is very good on wireless and the speeds are good. You can deploy it and feel comfortable now. It's getting to that point where it's ready for prime time," she said. "And we still see growth in telephony. We still see lot of companies doing refreshes on VoIP, the first adopters. We expect pretty good growth in that."