VARs Bulk Up
My all-time favorite episode of South Park is the one where Eric Cartman, the overweight neighborhood troublemaker, decides to get in shape by taking a bodybuilding supplement called Weight Gain 4000. Unfortunately, Cartman fails to realize that exercise must coincide with consumption of the product, and he only succeeds in pushing his obesity to truly grotesque levels. For the past few years, several ECM (enterprise content management) and mass storage vendors have attempted to “bulk up” through consolidation and acquisition of complementary technology partners. IBM’s acquisition of FileNet, Open Text’s merger with Hummingbird, and CA’s purchase of MDY are all evidence of this continuing trend. Now, it seems this wave of consolidation is becoming commonplace in the channel as well.
The surge of mergers among solutions providers is being driven by increased customer demand for a single point of contact and control for IT implementations. Businesses want to avoid the “blame game” that is often played between hardware and software companies and multiple partners. Realizing the prevalence of this client need and the significance of service revenue to their sales growth, some VARs are beginning to acquire peers and competitors as a way to add to their geographic reach and technical expertise. Dubbed “IT superVARs,” these solutions providers are winning business by providing customers with one point of accountability for an entire IT solution. An example of one such solution provider is Net@Work. In August, the New York VAR acquired Eagle Consulting to bolster its support for Sage Software’s MAS 90 accounting software. This acquisition and others have helped Net@Work offer a broad range of solutions and services, including e-commerce, custom application development, network infrastructure design, and document management.
While the IT superVAR approach may work for some, Cartman proved that bigger isn’t always better. As some VARs join forces to add to their size and scope and improve their chances for success, others are only looking to acquire the pieces that will allow them to offer a more focused or specialized offering. Vertical expertise — particularly in healthcare, government, and finance — is in high demand among VARs all over the country. These solutions providers are willing to pay a premium to acquire the personnel that will help them develop the customized vertical market solutions that differentiate their product from the masses.
VARs with vertical market expertise also have become attractive acquisition targets for IT vendors. For example, in September, ECM software manufacturer Hyland Software acquired its long-time reseller Matrix Imaging, due largely to the integrator’s expertise in the higher education market. Matrix sold and supports one-third of the Hyland OnBase systems installed for higher education customers, and the acquisition is intended to help Hyland bring this significant domain expertise in-house to enhance its overall services and sales growth in the education market.
The acquisition trend in the channel may make some VARs nervous, but it’s not necessarily bad news. Unlike the dot-com collapse in the late ’90s when many VARs were undercapitalized and forced to sell, solutions providers today can demand a premium for their skills and expertise and continue to work as an integral part of the merged business unit.
The market for piecemeal and horizontal IT solutions continues to erode. Whether you look to join forces with complementary business partners or reinforce your vertical domain expertise, chances are you will need to modify your business plan sometime within the next few years to drive your sales growth. The key to continued success is not only being able to identify when your growth potential has hit a wall, but also having a plan in place to evolve. With a solid plan of action, you can put yourself in position to become an IT superVAR.