Why VARs should rethink their business model

This posting is ~3 years years old. You should keep this in mind. IT is a short living business. This information might be outdated.

Okay, the headline of this blog post is a bit provocative. This blog post is not written from the vendor perspective. It’s the perspective of someone, who’s sitting between the vendor and the customer. A value-added reseller (VAR) is typically located between vendor and customer. And the business model of a VAR is typically based on selling hardware, software and service.

Added value

The typical customer doesn’t have the time, money and the know-how to transform business requirements into a bill of materials (BOM). It’s a “make-or-buy” decision. And “buy” is often better than “make”. The customer needs a partner who helps him to transform the business requirements into a solution and a BOM.

Even “simple” things, like a new server, are sometimes complex. What memory configuration? How many disks? Which controller? Which CPU for which application? Who ensures that the firmware is upgraded? Who labels the cables during rack-and-stack? These things are not self-evident. Sure, servers are commodities. You can buy a HPE ProLiant from an online shop. You can buy expansion enclosures for a HPE 3PAR from an online shop. You can buy nearly everything online. But what customer risks it to buy crap? At this point, a VAR can offer added value.

The downside of a buyers market

IT budgets are under considerable cost pressure. The customer always wants the best price. And there are many VARs. As a VAR, you are not in the best position. Information technology is a buyers market. As a VAR, you must offer added value and the best price. Customers love free advice… and then they buy from an online shop, or from another VAR that was cheaper.

Cloud eliminates hardware/ software revenues

Cloud offerings are awesome! For customers… But they are the plague for VARs. Usually you need to sell more billable hours to achieve the same margins with cloud offerings and service, as with a combination of hardware, software and service. And your employees need different skills. Take the example of Office 365. To date, a VAR has sold 200 licenses for Microsoft Office (Open License). Now he sells 200 E3 plans. Revenue is not the same. Maybe a little more service for the implementation of Office 365 and AD FS. Or Microsoft Exchange. Many customers consider the use of Exchange Online (often as part of an Office 365 deployment). Or Microsoft Azure instead of VMware vSphere on-premises. No hardware, less software, similar amount of service, but a different skills.

Develop your business model

Cloud offerings and “price-conscious” customers are forcing VARs to rethink their business model. Decreasing margins and a highly competitive market make the sale of hardware and software increasingly unattractive. But cloud offerings require other skills from your sales and technical teams. Such fundamental changes need time, patience and leadership to be successful.

Why VARs should rethink their business model
4.3 (85%) 8 vote[s]
Follow me

Patrick Terlisten

vcloudnine.de is the personal blog of Patrick Terlisten. Patrick has a strong focus on virtualization & cloud solutions, but also storage, networking, and IT infrastructure in general. He is a fan of Lean Management and agile methods, and practices continuous improvement whereever it is possible.

Feel free to follow him on Twitter and/ or leave a comment.
Patrick Terlisten
Follow me

Leave a Reply

Your email address will not be published. Required fields are marked *

I accept!