Wednesday Dec 13

Posts Tagged ‘erate’

Dec
26/08
The Problem with a Booming Industry in a Looming Economy
Last Updated on Friday, 26 December 2008 02:13
Written by jj
Friday, December 26th, 2008
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As most of my readers know, the company I work for (you know, the day job) is what we call a VAR (value-added reseller). In addition to providing a line of products, we also provide services- integration, consulting and training.

We’re lucky. Or maybe I should say fortunate, for having positioned ourselves to be successful, even in a struggling economy. As I look around over the past few months, I’ve seen a plethora of friends and colleagues (at other companies) that have suffered the brunt of the blow- lost jobs, decreased benefits and dwindling retirement and savings. Businesses are closing, restructuring or cutting back, and it’s affecting everyone.

But our business– in the IT, and specifically the security industry– is strong. In fact, it’s thriving! We just recently almost doubled our full-time staff, adding more technicians, engineers and account reps to our core team. Great, right? Of course.

However, there’s a nasty little side effect that’s about to smack us all in the face.

In these times of struggling financial organizations, financing and credit are quickly morphing from a ‘given’ of business to a luxury that’s becoming harder to earn. Companies that could once float $1M deals through credit lines and distributor relationships are losing many of their finance options.

What does that mean? It means when your company sends in a $500k purchase order, your provider may not be able to process the order because they don’t have that much open credit available. Ultimately, it can mean delayed fulfillment, partial orders or not being able to process the order at all. Providers may resort to gray market items or ‘suspicious’ sources to fill orders they can’t process through normal channels.

Not a happy thought and this type of behaviour may force customers to revert to using ‘box pushers’ who frequently don’t have the expertise to help integrate the solutions or even specify the right products. It could ruin some smaller providers. And when the technology specialists out there go away, it puts a much greater strain on the manufacturer, who will then need to ready additional resources to supplement both pre- and post-sales expertise missing when their fair-haired ‘chosen few’ are sudden casualties of economy.

It also means that special programs such as eRate for schools and libraries will suffer. The federal monies returned to the school actually goes through the provider, or VAR. So, when a school places an eRate project order with a provider, the school usually pays the entire amount then waits for the federal eRate rebate to come back through, weeks or months later. If that provider is gone when the check comes back, the school will never lay eyes on it (or anything else for that matter).

Sad. Worse still, these funded projects are usually some of the largest dollar-wise. Who pays for it then? We all do… And eRate is just one example of a funded program, there are many others that could have the same fate, which is why it has always been imperative for public sector to use providers and VARs with a proven longevity.

Like I said, we’re fortunate. We saw this coming and made arrangements early in anticipation of this domino effect of financial yuckiness about to fall upon us all. But I worry about others in the industry, partner companies who may fall victim to this credit crunch. A long wave of financing issues could change the face of the security VAR landscape, and not in a good way.

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