Alternative Vendors: You've Got Options

Is there a sure thing in the IT industry? One can certainly argue that legions of VARs are making a consistent living pushing the wares of big guns such as Cisco, IBM and Microsoft. It's smart business, after all, as well as safe (at least for the most part) and often lucrative. But all the same, it's a crowded field, with VARs sometimes climbing over one another for deals, scraping for margins and, yes, clamoring for something more.

Options. Yes, there are options. Just as investors are advised by their money managers to diversify their financial portfolios, savvy solution providers should consider expanding their product offerings beyond those of the market leaders.

According to VARBusiness' first annual Alternatives Survey, that's exactly what solution providers are doing. On the average, VARs recommend or sell eight alternative vendor products. The larger players fill out their portfolios with products from about 17 vendors at once.

VARs' addition of alternative or emerging technologies to their product lines is a highly strategic maneuver; to wit, it's the executive management team that evaluates potential new products nearly three-quarters of the time.

In fact, evaluating alternative vendors and products is a constant part of the business life cycle. Thirty percent of solution providers said they study the merits of an alternative vendor on a monthly basis. And among large VARs, 21 percent conduct such evaluations weekly, with nearly one-quarter of those folks surveying the field every day.

And for good reason. By aligning with the so-called alternative vendors, VARs are expanding their market reach into today's diverse customer base while plugging critical holes in their product lines. Along the way, many revel in a more personalized relationship with the No. 4 or No. 5 player in the market, an intimacy not typically attainable when dealing with a market leader.

"The thing I've seen after 20 years in this business is that a company that wants to be a market leader, but isn't, is so much more flexible in accommodating us. They're hungry," says James Kernan, president and CEO of Networks Plus Technology Group, a $10 million San Diego-based solution provider that has cast its lot--and successfully--with alternative players such as Xerox, Trend Micro, NSI and FrontRange Solutions.

Kernan attributes his company's success to a combination of his own aggressive sales strategies and key partnerships with the likes of Xerox, one of the alternative vendors named in the VARBusiness survey.

Networks Plus had been looking to gain more services opportunities and work more closely with its vendor partners in co-selling arrangements. Enter Xerox, which engaged Networks Plus in a pilot program to sell and implement DocuShare, its document-management software product and a competitor to market leader Documentum. Kernan contends that DocuShare features 85 percent of Documentum's functionality--at one-third the price. But that's not the only reason he's happy with Xerox's program.

"Xerox listened to the requirements I had before I signed on the dotted line, including giving us tools for analysis and assessment and hiring field sales consultants to help us go to market," Kernan says. "We'll be a loyal partner to them."

Mark Drum, director of North American channels at Xerox, says the company has made a concerted effort to help partners move up the food chain to more sophisticated, higher-level disciplines such as document management/imaging.

"We want to get partners to higher ground," Drum says. "And it's not just about taking products and some training and putting it on a Web site. We're putting experts in the field with our partners."

What's In It For Me?

Solution providers cited a host of reasons why they opt to lead with an alternative vendor in security, networking, VoIP or storage, but beefing up product portfolios ranked highest on their lists. Other reasons survey respondents said they work with non-market leaders: to gain superior technology, fill holes in their existing portfolio, stay ahead of competition, get better pricing and enjoy higher margins.

Dana Zahka, president and CEO of Select, a 19-year-old integrator based in Westwood, Mass., says the company's philosophy had always been to focus on top-tier players in the industry. But a meeting with storage giant EMC several years ago altered that course, leading to a much-coveted relationship with up-and-comer Network Appliance.

"We were about to sign with EMC and asked them who their biggest threat was. They mentioned NetApp," says Zahka, adding that Select then researched NetApp and asked them to come in for a visit.

Select discovered that the alternative's network-attached-storage (NAS) and IP-SAN storage products fit most customers' sweet spots. The hardware is easy to manage and hasn't failed once in three years at any customer site, Zahka says, adding that NetApp's TCO is a "fraction of the cost of the EMC box."

"This was a change for us to [sign] on with [NetApp]," Zahka says. "But it was an opportunity to introduce a new player. Yes, it was a risk, but it paid off for us because EMC was already everywhere."

Risk, after all, is an unavoidable element of dabbling in the alternatives arena. According to our survey, midsize VARs are most willing to take a chance, with 21 percent of them saying they're very willing to take many risks. On the whole, nearly half of all VARs in the survey said they were willing to endure some level of risk.

Kernan, nearly half of whose product mix now consists of non- market-leading gear, considers himself willing to take risk and moves aggressively on new product sales and technical training. That said, he tolerates, on the average, a three-to-six-month window for ROI. After that, it's time to pull the plug.

Alternative Surprises

Here's one of the bigger surprises to come out of the VARBusiness survey: In some categories, vendors cited by VARs as alternatives were market leaders in other areas. Think IBM/Lenovo, Toshiba, Hewlett-Packard and Samsung. In effect, even the stalwarts have had to take on some of the characteristics of smaller up-and-comers in certain technology arenas. They've had to grow more nimble, more technically innovative and more accommodating to partners that commit to making an investment in their products.

"We're reaching the point in the market where things are very mature and vendors who have been traditionally conservative need to be more adventurous," says Richard Shim, a senior research analyst at IDC. "Lenovo is a good example. You'll see more innovation from them, as well as Dell and HP, in terms of going after new markets."

Still others in the industry are placing less importance on being the No. 1 player in a product category. Ania Levy, president of Levy LeGette, a Cherry Plains, N.Y., consultant that specializes in helping companies negotiate buying terms and conditions with technology providers, says the rules have changed. "[Being a] market leader used to mean something, but today so many companies that used to be nascent organizations...present a strategic alternative," Levy says.

She says VARs can play a critical role in educating their customers about non-market leaders. And that's big, considering that 40 percent of surveyed VARs cited "clients not trusting alternatives" as a hurdle to going with an alternative vendor or product. But the biggest downside to working with alternative vendors is having to establish a whole new vendor-partner relationship, which was cited by 44 percent of survey respondents.

Read on for more details on some of the leading alternative vendors based on VARBusiness' exclusive survey. Perhaps you'll see some names worth considering.

And so, is there a sure thing? Probably not. But there is variety--and plenty of it.