Grand Central Clock

The State of the VAR Market

01 . 06 . 20

How are VARs perceived by buyers? What have VARs been doing wrong or right? What can VARs do to future proof their positions? If you are part of a VAR company, does your company have existential flexibility?

Entertaining these questions and anything else regarding the future or uncertain, requires us to analyze what we do know — the past.

Buyers Don’t Place Any Value on Being Able to Sell a Box.

They never have. During the early years of the IT solutions industry, every part of the supply-chain had a unique function that the buyer could not fulfill themselves. OEMs manufactured machines, distributors financed distribution and VARs added value. 

VARs added value by fulfilling the buyers’ needs for IT solutions, engineering and support. Just a few decades ago, buying organizations had no idea how to choose, let alone use technology. 

So, buyers relied on VARs to analyze their problems, recommend solutions, and then to finally implement (and support) said solutions. VARs made it possible for buyers to integrate technology solutions into their business — and this was what was valuable to buyers.

However, times have changed. 

Death by a Thousand Cuts 

In the 21st century, the buyer no longer needs help choosing what kind of laptop they want, or help with setting up Microsoft Word. They also don’t need help deciding whether they want to go with Cisco or Juniper in the datacenter. The average buyer tech-stack has become exponentially more competent. Can you name a single VAR who has a more knowledgeable IT staff than Facebook or a “non-tech” company like BlackRock? 

This didn’t happen overnight. Over the past four decades, buying organizations caught up and surpassed VARs when it came to engineering IT solutions. 

As a reaction, VARs over-indexed in their other points of differentiation, which was mostly in order processing, sales, and customer service (whereas OEMs and Distributors had services that were essentially irreplaceable, which allowed them to continue what they were doing, uninterrupted, even  today). 

Do VARs hire more salespeople or developers, engineers, etc.?

Some VARs reading this may be thinking to themselves, “How do you think I got all my customers? They use and love my IT and value-added services all the time”. 

OEMs push buyers to go through a VAR, leaving buyers with not much of a choice (buyers also haven’t bothered pushing for disintermediation, which we’ll discuss in the next piece). 

When the buyer is told they have to go through the Channel, they end up choosing a VAR based on some combination of convenience, customer service, and seeing how much they can get out of the VAR, which may suffice for the next few years. 

They may also pay the VAR for services that they could actually do themselves but don’t want to be bothered with.

But is reliance on the OEMs pushing business through the Channel an infinite, future-proof strategy for VARs?

Is reliance on providing replaceable services a guarantee for the future? 

Imagine a world where you make less than a point or $0 of margin on infrastructure hardware, what does the VAR business look like?

When the IT Channel sales industry undergoes massive change and disruption, will customer service and sales be enough for 90% of VARs to stay in business? Tough to say.

Because ultimately, differentiation doesn’t matter when the market doesn’t need you (this is called disruption, and it always happens sooner rather than later). 

What will separate the VARs that will disappear from the ones that will stick around is the courage to put egos aside, the courage to innovate, the courage to be honest and to truly represent the buyer. 

In Simon Sinek’s book, “The Infinite Game”, he calls this, “existential flexibility”. In his words, “If you don’t blow it up, someone else will.”

“Disruption” is likely not the cause of the challenge, it’s a symptom of a more insidious root cause. It is not technology that explains failure; it is less about technology, per se, and more about the leaders’ failure to envision the future of their business as the world changes around them.”

Excerpt From: Simon Sinek. “The Infinite Game.”

The VARs that will have survived disruption will have done so because they will have developed additional competencies outside their current stack of services. They will have developed competencies that buyers don’t and won’t ever have.

From what we’ve seen, possible areas of innovation/value-add, from easiest to accomplish to hardest, (and of course there are potentially many more) are:

  • Having The Capability to Support Global Infrastructure Needs (Working with a global deployment partner to do so)
  • Having The Capability to Asset Tag & Configure – Integration Centers
  • Adapting services that are based on best-in-market knowledge about the direction of the IT industry (digitization, IoT, etc.)

Buyers are unlikely to invest in building their own integration centers or international supply-chains, and will happily choose the companies that can provide them these value-added services over the ones that can’t.

We’ve suggested three pathways of innovation that we’ve noticed ourselves. Ultimately, it is leadership’s responsibility (whether you’re a sales manager, VP, or CEO) to find and develop areas of innovation that they think will best secure their company’s position in the long run.

The long run is what we’ll discuss in our next post: VARs and the Inevitable Recession. There’s only one thing that’s certain about a bull market, it’s that it can’t last forever, and when it’s gone, everyone will be affected. Some more so than others. 

Any thoughts, objections, or feedback? Feel free to email us at sales@fgx.com, we’ll be sure to get back to you.