The IT channel business is going through a transition of sorts. Earlier, over 90% of the players in this segment relied largely on hardware sales to survive and succeed. Price and margins were the most important factors while trying to decide which vendor should be added into their product portfolio.  Though these two aspects still have a strong role to play when a partner negotiates with his principal, there is yet another factor that determines the inclusion of the vendor's products into his kitty. And that is the service offerings the partner can provide as a value-add to that technology.

This is not an unusual phenomenon. Worldwide, partners in more mature markets actually leverage on their service capabilities when they go to market, rather than just trading in boxes. This has several benefits for them. 

For one, they can retain a customer for a longer period of time, as the client is tied to them for the maintenance of the service offering and its constant upgradation. Secondly, they can customize their offerings based on the kind of solution the customer requires, resulting in better margins. And lastly, they can upsell other technologies to the client in the long run and keep them coming back for more. The fact that this trend is now evident in the Indian market as well is a welcome sign. It shows that the channel has finally come of age and has gotten rid of its blinkered view of how the world of technology works.  

Bangalore-based Frontier Business Systems is a technology integrator, which through its computing divisions offers a range of IBM and Sun desktops, workstations, servers and storage devices. Frontier is also an Avaya-authorized systems integrator for the latter's structured cabling solutions and Cisco's premier partner for hubs, routers and switches. The company, which has been growing at the rate of 40%, achieved revenue of Rs 142 crore in the year 2004-05. However, only 15% of this revenue came from providing services. The seven-year-old company has offices in Chennai, Hyderabad, and Mumbai with about 225 employees. 

Similar is the story for Apara, a focused IT infrastructure solutions/services provider. About 85% of Apara's revenues come from solutions sales that include hardware/software and 15% revenues are from pure services. Apara delivers solutions in enterprise storage, intelligent networking, information security and messaging, to enterprise customers. With an average growth rate of 50%, the company closed FY 2004-05 with a revenue of Rs 91 crore in organic business. The previous fiscal's closing was at Rs 59 crore. It has operations spread across eight locations with 150 plus people on board. 

Margins do Matter
The biggest consideration of a partner in the solution business continues to be margins and bottomline. While earlier they could achieve good margins by largely playing on the price front, now they have realized that they can shore up better profits, if they have the skillsets to offer the right technologies. This is why a lot of tier-one solution providing companies are willingly investing in training and technical upgradation of their manpower. In fact, the only way to make money in the business these days is by investing in skill sets and building expertise in specialized areas. 

And since manpower is the biggest asset in a service-driven industry, constant employee training in the latest technologies is the need of the hour. Most solution providers actually set aside a good portion of their revenues for training. Initially the service offerings of partners were limited to providing some AMC and post-sale support, where engineers needed to have a basic know-how about the hardware and its associated software application. But now, partners are training their staff on several vertical technologies, so that they can provide a wide array of services to their customers. 

A few partners have segregated their manpower to concentrate on different verticals, like wireless networking, open source or security applications, and have them trained on these technologies. Often, the training is provided not just for the products of the vendors they sell for, but of their competitors as well, to give them a wider exposure to the workings of the industry.

Who Wants to be a Service Provider?
Some solution providers in the industry had the foresight to see that services will soon become a mainstay for the business anddeveloped skillsets in it. One such example is Allied Digital Services. This Mumbai-based solution provider started off by providing service for select vendors and then forayed into offering hardware alongside. This strategy has held it in good stead and today services has become its forte. Because of its first mover advantage, the company now boasts of an enviable clientele, for which it offers third-party maintenance, hardware/software migration services, test and repair services and network management services. It is also undertaking consultancy-level activities like project management (involving design, sizing, testing and roll-out), business continuity services and customized software development. Currently, for Allied, its service revenues contribute about 30% to the total revenue and 50% to the bottomlines.

Not all solution providers are getting into the services business as part of a well chartered business strategy. Some get into it by default. The reason is simple. The IT business thrives on the relation between the solution provider and his client. The latter would prefer that his IT provider take the ownership of the company's infrastructure in totality. So while a partner still acts as a hardware fulfillment agent, he also has to don the roles of a technical consultant, solution implementer and service provider. This ultimately works out in favor of the client, who gets a single point of interface for his IT needs, and for the partner, who wins a customer for life.

Selecting the Right Niche
The biggest challenge for a solution provider is selecting the right niche to focus on while deciding on the services business. Should he go for high-end technologies like high performance computing or should he stick to plain vanilla networking? There is no surefire way to decide what niche is suitable for which partner. It is a matter of finding out the inherent skillsets of each company and then building on it.

Mumbai-based ABM Knowledgeware learnt this the hard way. The company started out as a systems integrator with its own brand of PCs. But it later decided to focus on developing applications specifically for e-governance. Today, it is using its proprietary application, Citizen Facilitation Centers (CFC), to enable e-governance in Maharashtra and Gujarat. The CFC is a customizable application for front offices of government institutions, which acts as an interface between the citizen and the government personnel, featuring time-bound service delivery. The company has also set up anytime access portals for municipal corporations in Maharashtra. 

Changing Definitions
As times and technologies change, the definition of service offerings is also undergoing a sea change. Till a few years ago, clients would ask for mere AMC contracts and everything remotely related to IT would fall under its purview. Not any more. Customers and solution providers are getting more mature and various subsets within a service offering are viewed as an independent faction of the entire package.  So when a client asks for network integration, partners will get into details like network design and audit, capacity planning, network management and depending on the needs of the client, even remote management. In fact, remote management is one area that many partners believe will be a turning point of the services business, especially for international clients.

As with outsourcing of various business processes, companies within and outside India are looking at totally outsourcing their IT needs to a third party. Some partners opine that customers would soon want to focus only on their core business and get a third-party to manage and maintain their IT infrastructures, preferably from a remote location.

Final Word
Now that service is becoming a big part of the revenue pie for most solution providers, the battle is to keep finding new technologies to train in. Most provide value-added services like FMS, network management, consultancy. But others are still scouting around to offer differentiated services by building expertise in niche areas.

The crème de la crème of the solution providers are offering an array of services like facilities management services (FMS) that go into the areas of network management, application management, application development and consulting. Now even their lower-rung peers are aspiring to offer one, if not several, of these services. 

Vinita Bhatia