Despite Death Knell, Channels Are the Life of Software Sales, IDC Believes
FRAMINGHAM, MA — DECEMBER 4, 2000 — The death knell for channels is ringing once again. Application service providers (ASPs), financial difficulties involving the PC integrator model, and the expanding Internet are forcing companies to reevaluate the way they conduct software business. However, this reevaluation doesn't mean new models will replace traditional channels. In fact, according to IDC, channels will continue to play a major role in worldwide software distribution, helping end-user software spending increase at a 15% compound annual growth rate (CAGR), from $169 billion in 1999 to $343 billion in 2004.
"The emergence of new models often causes market observers and participants to prematurely discount the role the channel plays in their evolution," said Steve McHale, director for IDC's Software Partnering and Alliances program. "In the ASP model, for example, people often forget about the need to actually sell the rented software service and assume new technology automatically provides entry into markets. However, the reality is the ASP market's ability to engage and enable the traditional channel is critical to its longer-term growth."
According to IDC, the three primary software markets application solutions, application development/deployment, and system infrastructure software will increase their reliance on indirect channels. By 2004, indirect sales will make up 44% of the software market. Of the three markets, application development/deployment indirect sales volumes will grow the fastest, with a 1999-2004 CAGR of 21%. By comparison, the software markets' combined CAGR is 16% during the same period.
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.
Information like the above can be found in IDC's report Worldwide and North America Software Sales Channels Forecast and Analysis, 1999-2004 (IDC #B23146). This report details the size and composition of the worldwide and North America software markets from the perspective of the sales channels used to deliver software products to market. The following primary software product markets are analyzed: application solutions, application development and deployment tools, and system infrastructure software. The report examines the relative positioning of leading firms in these markets and compares direct versus indirect sales. Additionally, the report forecasts software market end-user spending and the proportion of end-user spending through three vendor indirect sales channel models: OEM/complementary, single-tier reseller, and multitier distribution.
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IDC is the foremost global market intelligence and advisory firm helping clients gain insight into technology and ebusiness trends to develop sound business strategies. Using a combination of rigorous primary research, in-depth analysis, and client interaction, IDC forecasts worldwide markets and trends to deliver dependable service and client advice. More than 700 analysts in 43 countries provide global research with local content. IDC's customers comprise the world's leading IT suppliers, IT organizations, ebusiness companies and the financial community. Additional information can be found at www.idc.com.
IDC is a division of IDG, the world's leading IT media, research and exposition company.
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