On Rad�s Radar

A Look at the VAR World

By Peter Radizeski, RAD-INFO Inc.  |  May 20, 2013

Channel programs are chasing the VAR space heavy. There are estimates that there are more than 100,000 VARs in the U.S. Let’s say that is true.

Using Pareto’s Principle, 20 percent of that group – or 20,000 – will become their own cloud service provider or managed service provider. Some of those services will be delivered by white-label (where they still bill).

The bottom 20 percent will drop out of the VAR space. Why? The VAR space is a lot like the ISP space. Most of the ISP owners were techies who just wanted to create themselves a job that would be fun. They liked the tech side of the business and did not want to sell or market or worry about the financials. Even talking with Harry Belsford, we can agree that up to 25 percent of the VARs will not survive.

I am already seeing Microsoft (News - Alert) partners migrate to programming or software integration, certainly not channel partners for the duopoly.

Then there is the next 20 percent from the bottom who do not want to sell or market. The duopoly – the telcos and cablecos – want partners who will actively sell their stuff. That won’t be this group. They will be more like referral partners, but ones who want residuals. They will sell to their base or adjacent to their base. The median customer base is about 500 customers. They will hit 10 to 15 percent of that base with a new service in the first year. They will see the commission checks as a bonus, not a viable revenue stream.

In VoIP we see this with interconnects who still think of the premises PBX (News - Alert) as the best choice for businesses, including their own. No matter the revenue model, some interconnects see their current business model as the most profitable they can be. Honestly, this is why many go with ShoreTel (News - Alert), Star2Star or the like – they still get to sell hardware, which is all they know. They get to make money on the install just like before. The recurring commission is a bonus, but in their eyes doesn’t replace their collection of maintenance fees.

The duopoly will need to pitch their services inside these models, since only about 20 percent will embrace the duopoly as they are. Now 20,000 possible feet on the street is bigger than the agent space, but the agents are a true sales force. Everything else will be pockets of sales to an existing base of customers by VARs. I wonder if the channel heads grasp this.

Edited by Stefania Viscusi