One of the biggest challenges that any solution provider is going to
have to deal with in a down economy is the pressure on pricing. It’s
hard enough to find a customer who wants to buy any new product, and
when they do you can bet that they will push back hard on pricing.
We’re already seeing this trend play out in Cisco’s latest financial
results. As the leader of the enterprise networking market, Cisco has
always been able to claim a pricing premium. But now customers are less
enthralled with grand five-year visions of where technology is heading.
Instead, they are focused on brass tacks and trying to save every dime
possible. As a result, Cisco is dropping prices of core infrastructure
products, namely routers and switches, and paying rebates as high as 15
percent to stimulate sales.
That trend has helped companies such as 3Com claw its way back to relevancy. 3Com is leveraging its Chinese manufacturing muscle in the form of Huawei Technologies to bring aggressively priced switches and routers to the U.S. market. Similarly, we’ve seen Acer leverage pricing to take a significant share of the notebook market.
The dilemma this situation created for solution providers is
two-fold. On the one hand it can be more profitable to carry only one
vendor per product category on their line card. That not only results
in less overhead in terms of the number of vendors that need to be
supported, but it usually translates into a little more active support
from the vendor.
But all too often a single vendor is not as competitive as they
might be in a given category due usually to pricing or the simple fact
that they have been temporarily left behind in terms of technological
innovation.
In either event, solution providers can find themselves in an
untenable position when a single vendor they are counting on falls
short in the marketplace. That’s why, despite the additional overhead
in costs, solution providers are generally better off when they have
relationships with at least two vendors per category.
Obviously, they don’t need to carry every vendor in a product
category. But when you get right down to it, products are often a means
to an end for solution providers. They need to have competitive
products just to stay in the game, because without the product there is
no real opportunity to generate downstream services revenue. And as we
all know, services revenue is the real life blood of the channel.
Mike Vizard is
senior vice president of market strategies and content services at Ziff
Davis Enterprise and a regular contributor to Channel Insider.
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