Channel Partners Serving U.S. SMBs Expect Sales of US$154B Next Year; Robust 17% Growth Driven by Service Providers and Systems Integrators, Says AMI-Partners.

NEW YORK -- There's a boom on the horizon for U.S. small and medium businesses (SMBs). Channel partners serving U.S. SMBs (1-999 employees) expect to see overall sales reach US$154 billion over the next 12 months, up a robust 17% since last year. Channel partners that serve small businesses (1-99 employees) constitute over 80% of the SMB channel partner universe and derive more than 75% of their business from SBs, according to the latest study by AMI-Partners.

"SMBs are a substantial market for channel partners as most technology products and brands that SMBs buy are based on recommendations from the channel," says Avinash Arun, New York-based research analyst. "U.S.-based SMBs have a lot of confidence in channel partners and rely heavily on them to recommend, configure, install and provide service and support for IT solutions."

Service providers (xSPs) anticipate the highest revenue growth at 19%, followed by the systems/network integrators at 18%. The total number of CPs has risen 4.5% in 2006, and this surge is reflected across all channels, except VARs. The total number of VARs in the U.S. slipped from 2005 to 2006.

"The primary source of revenue for VARs comes from computing hardware," Mr. Arun says. "Their growth has been slow over the last year. However, they have the most number of customers among all the U.S. channel partners. System/network integrators derive most of their revenue from computing/networking hardware and related services. Independent service vendors generate most of their business from packaged and custom software, while service providers' chief revenue source is Internet services."

The focus of the U.S. SMB channel partners has been shifting recently from low-margin hardware and packaged software to high-margin services such as IT and internet-related services. Revenues from IT services and Internet Services now account for a larger percentage of Channel Partner revenues compared to the previous year, while revenue from the more traditional segments such as computing and networking HW is slightly down from 2005. This illustrates the trend among SMBs to purchase standard hardware and packaged software directly from vendors or Internet retailers and rely on CPs for value-added solutions and services. It is also reflective of the change in customer focus as the CPs are now turning their attention to the larger firms that utilize the higher-margin IT services. There has been a slight drop in revenues from SBs, which has been offset by an increase in the revenue from MBs. IP telephony, managed security services, CRM and ERP applications are the products and services that have shown the highest growth in SMB channel partner sales over the last year.

US Channel Partners focus on the larger states

There is a vast disparity in the CPs' revenue distribution among the various states in the US. Five states comprise more than a fourth of all US SMB CPs and constitute almost two fifths of total SMB channel partner revenues. The channel partner profile in these states is relatively different from the other states in the US. CPs in the 'Top 5' states are predominantly larger in size in terms of employees and number of locations. They also offer a larger variety of IT products and services.

These states focus more on software products and services compared to others and tend to sell more network storage and security products, which is illustrated by the gap between the 'Top 5 states' and the others in offering products such as Wi-Fi LAN, data backup and security systems.

About the Study

AMI's 2005-2006 U.S. Channel Partners Market Overview and Topline Assessment study highlights these and other major trends in the context of current/planned IT, Internet and communications usage and spending. Products and services covered include established and emerging hardware, software, applications and business process solutions. Based on AMI's annual surveys of SMBs in the US, the study tracks a broad spectrum of issues pertaining to budgets, purchase behaviors, decision influencers, channel preferences, outsourcing, service and support. Also covered are detailed firmographics and critically important technology attitudes and strategic planning priorities. These data point to key opportunities and messaging hot buttons for vendors and service providers seeking to match their offerings to SMB market requirements.

For more information about this study, AMI-Partners, or our global SMB research, please call AMI-Partners at 212-944-5100, e-mail [e-mail], or visit the AMI Web site at www.ami-partners.com.

About Access Markets International (AMI) Partners, Inc.

AMI-Partners specializes in IT, Internet, telecommunications and business services strategy, venture capital, and actionable market intelligence -- focusing on global small and medium business (SMB) enterprises. The AMI-Partners mission is to empower clients for success with the highest quality data, business planning and "go-to-market" solutions. AMI was founded in 1996 under the name of Access Media International (USA), Inc. by Andy Bose, formerly group vice president at IDC. Since its inception, the firm has built a world-class management team, each with ten to fifteen years' experience in IT, telecom, online communications or multimedia.

AMI-Partners has helped shape the go-to-market SMB strategies of more than 150 leading IT, Internet, telecommunications and business services companies over the last ten years. The firm is well known for its IT and Internet adoption-based segmentation of the SMB markets; its annual retainership services based on global SMB tracking surveys in more than 20 countries; and its proprietary database of SMBs and SMB channel partners in the Americas, Europe and Asia-Pacific. The firm invests significantly in collecting survey-based information from several thousand SMBs annually, and is considered the premier source for global SMB trends and analysis.