Evolving from box-drop to value-add

Evolving from box-drop to value-add

In a recession, resellers can’t afford just to be box-shifters. As their customers lose their appetite for risk; desktop, server and laptop refreshes occur less frequently. Resellers have to create revenue streams that insure them against squeezed margins and lengthening IT product lifecycles.

All of which is creating opportunities for vendors of niche software, as well as resellers who are able to add value to what previously would have been a straight product sale.

Scott McKinnel, security vendor Check Point’s regional director for Australia and New Zealand, says the current mood of uncertainty reminds him of the period around the dotcom crash, when doubt and snowballing business failures led to a massive purge. “Internet security had its heyday a few years ago. Over the past two or three years, in terms of CIO’s priorities, [security] has been declining. But it’s back on the agenda again now.”

McKinnel says changes in buying behaviour are accompanying economic instability. “People might have delusions of grandeur about projects, but the procurement cycle is a lot smaller and signoffs are a lot tighter.”

Among other things, this change is forcing vendors, distributors and channel members to encourage their customers to associate any IT investment with either total cost of ownership or an operational cost reduction, he says.

“Every time you walk in to talk to a customer, it’s always a quagmire over how they perceive security risk and their tolerance levels. Historically, you’ve often had to deal with the technology people because the financial spend on security is typically not a high proportion of the IT budget, so you get treated like the photocopier.”

In the past, business decision-makers have either referred conversations about security products to their technologists or have chosen a security product based exclusively on price. “I’m sure the cheap alternative will still be evaluated, but it won’t just be about the purchase price,” says McKinnel, who predicts security market consolidation will impact on companies that have tried to make price their differentiator.

Software development analyst David Harris of MeCount Business Systems has been in the industry for 26 years, 19 of them running his own computer support and services company. He’s concerned that over the past six months he has lost work at what he estimates to be around 100 sites as customers tighten their belts. “A lot of people are replacing their security products with free versions,” he says. And often, these companies are using cost (or the lack of it) as their exclusive criterion.

“Wherever I can I try to educate them,” says Harris, “but they’re seeing that as a way in which they can save money across their business.” For many of his smaller customers, security has never previously been on the agenda. “It’s something most of them don’t want to do, but they have to.”

Band-Aid territory

This recession, McKinnel predicts, will put paid to many companies that have funded their expansion entirely on debt. “If your business is so finely tuned that it can’t absorb a downturn of 5 percent, then you’ve got to ask questions about it,” he says.

Another side-effect of a downturn, says Harris, is that the time between receipt of a quotation and the confirmation of a sale stretches as economic uncertainty grows. “When things are good you get calls saying, ‘We need a new PC. We trust you — just get us a good one.’ As soon as times start to get tight, you tend to be repairing, upgrading, reinstalling rather than replacing it with a new machine.” This takes resellers into what Harris describes as “Band-Aid territory”: “The customer knows they really should replace their hardware, but ask you to patch it up so it’ll last a little longer.”

The present climate is also driving a growing trend in the implementation of data loss prevention tools, says McKinnel, as companies try to protect their intellectual property. “The rationale is that a lot of big companies are shedding staff.

“It’s one thing having an isolated employee who chooses to go, but if you’re making a high percentage of your workforce redundant, information’s going to go out the door, so a lot of people are shoring up their IP.”

McKinnel says companies are focusing on the areas of their business where they can identify revenue opportunities and brand recognition, for logical reasons.

A drive to cut costs and tighten up management processes is translating into increased interest in products that can protect customers’ profit lines and their IP. “Yes, security is a black art, but where there’s margins there’s magic. Vendors get trusted advisor status when they talk to customers, because the dialogue you have around security when you remove the technology is about governance and risk. The lights are starting to go on now for a few people.”

Need refreshment?

New Zealand sales manager of Check Point distributor Westcon, Dayle Barnes, says there is still plenty of quoting activity and requests for proposals in the market.

“We’re getting people sending us bills of materials from other vendors, asking, ‘What’s your comparison for this?’ When you get to the CFO, you can’t just say, ‘We’re buying this,’ because he’ll say, ‘Does anyone else make it?’ You’re a brave person in today’s world to say, ‘No, there’s no other options’.”

End of conversation

Security may be back on the agenda, but pressure of work often stops business decision-makers from progressing towards buying a product. The flipside of this is that the slowdown in buying behaviour in the rest of the industry is now causing customers to seek incremental business improvements elsewhere.

“Right now, people aren’t doing refreshes of laptops and servers. That [sales] conversation’s over,” says Barnes. “Anyone who goes into IT with their laptop now and says, ‘It’s three years old I need a new one,’ will get asked if it still works. Those refreshes just aren’t there, so what am I going to sell them?”

Harris agrees that product lifecycles are lengthening — and he remembers the last major downturn. “The year 2000 was particularly flat, as a result of all the hype that was generated around the Y2K issue. People brought forward their refurbishing and refreshing, so the market just died for 18 months or so.”

Resellers are rethinking their sales strategies, spurred on by the prospect of an extended recession, says Barnes. “The things they’ve done in the past will not get them their targets this year. They’re going to have to change.”

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