IDC: Importance of software resellers undiminished

The indirect sale of software by channel resellers is growing steadily despite the arrival of application service providers (ASPs) and other forms of distribution, a report by International Data Corp. says.

Channel sales will continue to play a major role in worldwide software distribution, helping end-user software spending increase to $US343 billion by 2004 compared with last year's $169 billion, a compound annual growth rate of 15 per cent, IDC said in a release issued Monday.

The news release cites IDC's Worldwide and North America Software Sales Channels Forecast and Analysis 1999-2004, published amidst signs that some software vendors have started to rethink their channel strategy as a growing number of businesses start to favour direct sales.

But Steve McHale, director of IDC's Software Partnering and Alliances program, says the emergence of new models often causes market observers to prematurely discount the role the channel plays in their evolution. In the ASP model, the need to actually sell the rented software service is often forgotten. The ASP market's ability to engage and enable the traditional channel is critical to its long-term growth, McHale said.

According to IDC, the three primary software markets - application solutions, application development/deployment, and system infrastructure software - will increase their reliance on indirect channels, and by 2004 indirect sales will comprise 44 per cent of the software market. The market that will grow its indirect-sales volume the fastest is application development/deployment, with a 1999-2004 compound average growth rate of 21 per cent. By comparison, the software markets' combined compound average growth rate is 16 per cent during the same period.

Based on its research, IDC believes the single-tier resale outlook is positive. In North America, product revenue through value-added resellers, system integrators, consultants and dealers is expected to grow from $16.3 billion in 1999 to $37.5 billion in 2004.

The growth is expected to be moderated as vendors move more of their direct relationships with resellers over to management by distributors, although the pace of this transition will be determined largely by distributors' investment in supporting more complex software products, McHale said.

Computer Associates International recently said its goal was to reach an equal ratio of indirect and direct sales.

IDC is owned by International Data Group, the parent company of IDG News Service.

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