A Seller's Market
Over the last two or three years, wireless has emerged from its roots on the factory and warehouse floor – where it produces a very clear return on investment – to become commonplace across industry sectors. In the language of economist Geoffrey Moore, wireless has "crossed the chasm" from being a technology adopted only by "visionaries" to being adopted by "pragmatists."
This creates ideal conditions for decent profit margins in a growing market, say VARs and integrators interviewed in a new Unstrung Insider report entitled Channel Conundrums: Wireless LAN Resellers and Integrators. The idea is that an enterprise-grade wireless system (or, in the resellers' parlance, "solution") has benefits that need to be actively sold to the enterprise and is vastly different from the consumer market, where commodity home-office products are bought by Joe Average walking into his local electronics store.
The distinction may sound like sales-speak flimflam, but it's actually fundamental to how channel resellers are adopting wireless LANs.
Doug Clark, pervasive wireless solutions leader for IBM Corp.'s (NYSE: IBM) northern region, exemplifies this approach: "Clients may not have identified a need [for wireless]... but we go to them, identify pain points, and look for transformational angles to help them leapfrog the marketplace," he explains.
"We're very sales-focused," adds Clark. "We are very much making money out of wireless, our partners are, and with our ROI model, I'm sure our customers are."
James Walker, productivity solutions manager at European network integrator Telindus Group NV (Euronext: Tel.BR), makes the point that profit margins on 802.11 wireless equipment are possibly at their peak. "Uptake has suddenly risen," he says, "and we're not losing the margin – we're seeing the manufacturers reduce their margins."
Over time, however, Walker expects profitability will come under pressure, forcing integrators to bundle products and support more complex applications in their efforts to maintain margins.
Indeed, not all channel players see wireless as a profit center. For some integrators, wireless is often not viewed as a lucrative part of the deal – even though it may be an essential component of the "solution" or application being deployed.
"Do you make money on the WiFi?" asks Pieter Zylstra, head of mobility at Capgemini, a major European-based integrator. "Unfortunately not; it's an innovative and emerging technology, and you're better off offering any margin you make on the hardware and software back to the customer, maybe in the form of training, or so on.
"We're not using the reseller type of business model," explains Zylstra. "Our money is in the back-end migration and management [of enterprise systems]."
The report finds that, by most measures, the wireless channel is still immature, and that the majority of VARs and integrators, which make a living selling tried-and-true produts, still don't see it as much more than a niche play. Fortunately, there's a lot more wireless business to come, as 802.11 technology continues to force its way into the DNA of enterprise networks.
— Gabriel Brown, Chief Analyst, Unstrung Insider
Channel Conundrums: Wireless LAN Resellers and Integrators is available as part of an annual subscription (12 monthly issues) to Unstrung Insider, priced at $1,350. Individual reports are available for $900. To subscribe, please visit: www.unstrung.com/insider.