Hey folks, its time to listen to your customer. I mean really listen to what they want and make delivering what they want your top priority. After talking with a lot of resellers, I believe too much weight is placed on what their vendor partner wants them to do. To complicate matters, I believe IT budgets are going to be doled out on a very stringent basis based on the ability to deliver on specific customer metrics. If you can deliver, even as a proof of concept or trial, you will be paid what you deserve and more. Furthermore, if you can truly listen to the customer you will provide even more value back to the vendor.

I bring this up because I believe that partnerships in this industry have fallen far from the target for quite some time. I would submit that there are many, perhaps dozens, of reasons for why vendor-reseller partnerships fail. A lot of it has to do with different goals and objectives. I'm not talking about general goals.

1. Win over more customers.
2. Increase sales and margin.
3. Keep our Competitor X.

I'm talking about hard, measurable targets that go beyond the sales and margin that each partner splits after a transaction is complete.

1. The solution is in 3 test accounts within a specific marketplace within six months.
2. A phase 1 implementation is mutually agreed upon.
3. The ROI of the overall solution is set and benchmarks are created.

These are obviously examples of partnership objectives but they should give you a flavor of what I'm referring to. Essentially, the difference between soft goals and specific goals has a lot to do with being customer driven or being vendor driven. I would suggest that many in the reseller channel remain overly vendor driven - caught up in programs and policies and NOT spending enough time talking with customers and evaluating what is and isn't working. I would further contend that there is a lot more profit in partnerships and revenue upside for everyone if you follow the customer.

Keith Newman is the Editor and Publisher of ChannelMedia - the SMB Edition. This newsletter is free, courtesy of VisionEvents and we are looking for contributors and readers. If you are interested in contributing or sponsoring an article, please contact keithn@telocity.com.

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ACP - There's $$$ For You in Refurbished Products
Since 1976 Advanced Computer Products (ACP) has created new markets for excess, class B-goods and refurbished inventory. ACP has the ability to remarket your products into 3rd tier and offshore markets thereby protecting the integrity of your present distribution channels. Give us an opportunity to show you how we can solve your inventory problems. Whether finished goods, work in process or component parts we can help. ACP has all the inventory solutions! So when your inventory problems arise give ACP a call.

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NEWS

MARK YOUR CALENDAR!

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NEWS

Channel Digest: The latest news from, Sirius, ATG, SAS, KeyTronic, Microsoft, Datavision and ServiceNet

SAS, the leader in business intelligence, announced today the company's steadfast commitment to Sun Microsystems' UNIX(R)-based platform by embracing Sun's newest edition of the Solaris(TM) Operating Environment. SAS on Solaris(TM) 9 builds on one of the most extensive UNIX-based application portfolios available with solutions that help improve industry practices and business processes. Solaris 9 marks a new generation of operating systems by combining traditional OS performance and applications with a bundled server, strengthened firewall protection and enhanced management features. Users of the powerful new system can gain increased application speeds, timesaving management functions and the increased performance necessary to help IT departments expand services while decreasing costs and risk. Continuing in the tradition of joint engineering and design, SAS and Sun have been working since January to improve SAS performance in Solaris 9. Sun engineers worked at SAS headquarters to build on the success of years of performance advancements and to help clients meet their rapidly changing technology goals.

"Working together to develop cutting-edge applications, SAS and Sun provide products that help businesses navigate through swiftly changing economic currents," said Keith Collins, senior vice president and chief technology officer at SAS. "Since Sun is the most popular UNIX-based platform for SAS software, it is important that we continue to invest in our thriving engineering partnership as it continues to create innovative products."

Since 1989, Sun and SAS have collaborated on multiple development projects to improve performance of pivotal technology programs including data warehousing, customer relationship management and several business intelligence initiatives. SAS and Sun have successfully helped clients in multiple industries improve their technological performance and increase their return on investment.

"Because performance is one of the key elements of Version 9 of SAS software, Solaris provides a solid foundation for product development to drive performance improvements and multithreaded scalability," said Collins.

ATG a leading developer of online CRM applications for commerce, portals and relationship management, today announced the members of its long standing Customer Advisory Council (CAC) for 2003. Along with leading brands such as American Airlines, Cummins Engines, ELuxury, EMC, Fidelity Investments, Handspring, J.Crew, Procter and Gamble, and Wells Fargo, ATG is pleased to announce that Classmates.com, an online community connecting friends, family, military and work colleagues also has joined the CAC and will participate in the next session, scheduled for October 29-30 at ATG headquarters in Cambridge. The council is comprised of key business leaders from a cross-section of vertical industries who will help drive new ideas on best practices and strategic issues for the long term growth and development of ATG technology.

"Building strong online relationships with customers is a critical part of our business," said Dave Towers, vice president of e-commerce, J.Crew. "A forum like this allows J.Crew to evaluate what works and what doesn't, leveraging the expertise of major industry players who have been successful in creating these lasting and meaningful relationships using ATG solutions. At the same time, we are able to present our business and technology strategy to ATG, which enables them to address our needs in future versions of the product."

The CAC creates a forum in which customers collaborate on their use of ATG technology, addressing key issues, business challenges, effective implementations and key elements for successful e-business strategies.

"Establishing a forum in which our customers can openly discuss business pain points, best practices and unique usage of our technology with one another is of tremendous benefit," said Paul Shorthose, CEO, president and chairman of ATG. "By obtaining feedback and encouraging open discussion with customers, ATG is able to better understand its customers' business and therefore make sure we are meeting their needs and addressing significant business and technology issues in our future product offerings."

Getting Sirius
Sirius Computer Solutions announced today that it has signed a definitive agreement to acquire the assets of Strategic Systems Inc. of Houston, Texas. The announcement is a clear indication of Sirius' commitment to further its expansion and solution offerings in the mid-market space. Both Sirius Computer Solutions and Strategic Systems are IBM Premier Business Partners. Strategic Systems' core product offerings are the IBM eServer product line, IBM Storage and Printing Systems, CISCO Networking solutions, and ISV enterprise software solutions. The acquisition is expected to close at the end of October 2002.

"This acquisition gives us a major presence in the Houston Area -- with a company that has been successful over the past fifteen years marketing technology solutions to customers and prospects," said Harvey Najim, Sirius' President and CEO. According to Joe Mertens, Executive Vice President, Business Development for Sirius, "We are very excited to have Strategic Systems become part of the Sirius Computer Solutions family. Strategic has a long and successful record of serving their marketplace with a high level of technical expertise and customer satisfaction. Bringing our companies together will strengthen our local support capabilities in Houston and will bring incremental value to Strategic Systems' customers through the many solution based offerings that Sirius provides in the markets it serves. We believe this acquisition will be very dynamic and beneficial for the customers of Sirius and Strategic as well as for our employees." Alan Anderson, President of Strategic Systems, said, "The resources of Sirius Computer Solutions and Strategic Systems will translate into a powerful combination for the customers we serve and for our partners."

Comdex Speakers Announced
Key3Media Group has announced a world-class roster of keynotes for COMDEX Fall 2002 that includes Microsoft, Hewlett-Packard, Sun Microsystems, National Semiconductor, AMD, News Corporation, RSA, Network Associates, VeriSign, Nokia, Internet Security Systems, Counterpane Systems, Wolfram Research and an influential US Government Official. COMDEX Fall 2002 runs November 17-21, 2002 at the Las Vegas Convention Center, Las Vegas.

"The global IT industry comes to COMDEX Fall annually because this is where IT leaders set the tone and the agenda for the coming year, where new products are launched and where buyers and sellers can meet face-to-face," said Mike Millikin, Senior Vice President, COMDEX Worldwide. "This year we have an outstanding keynote program, a multitude of new products, world-class conference programs, and a dynamic show floor to ensure that buyers and sellers enjoy the experience they have come to expect from COMDEX."

To address the IT industry's challenging times and its upcoming road to recovery, Key3Media Group has invited Carlos Bonilla, Special Assistant to the President, National Economic Council. Mr. Bonilla will participate in the keynote series on Wednesday, November 20, with reflections and comments on what lies ahead for the global IT marketplace.

Key Tronic
KeyTronic, an emerging leader in electronic manufacturing services (EMS), said that for the first quarter of fiscal 2003, Key Tronic reported total revenue of $34.0 million, compared to $34.6 million for the first quarter of fiscal 2002. Key Tronic's sales growth has been adversely impacted in recent quarters by uncertainty created by the litigation involving F&G Scrolling Mouse, LLC ("F&G"). In a separate press release today, the Company announced that it had reached a final settlement with F&G. As a result, Key Tronic reported a $12.2 million benefit in the first quarter of fiscal 2003, which reflects an adjustment to the $20.2 million of litigation expenses previously reported in fiscal year 2002. In addition, the Company has reported on its balance sheet short-term and long-term liabilities totaling approximately $7.2 million related to the settlement and associated legal costs, which will be paid to F&G in quarterly installments over the coming years.

"The litigation had an adverse impact on our business in recent quarters and we are very pleased to reach a settlement," said Jack Oehlke, President and Chief Executive Officer. "In the face of the uncertainty created by the litigation, we took the necessary steps to reduce our operating overhead and we are pleased to see the improvement in our gross margin and profitability in the first quarter of fiscal 2003."

Kemper and DataVision
One of New York City's largest independent computer/video retailers, DataVision, has signed a contract with Kemper/Service Net to sell service contracts online and at the mid-town Manhattan superstore. Contract coverage options include both break/fix and full-replacement options with duration of either one or two years after the manufacturer's warranty expires. Service Net will manage claims processing on all products sold under the program, which include desktops, laptops, TVs and all consumer electronics. As part of the agreement, DataVision will become a service partner for Service Net, providing repairs for the contracts sold through DataVision. "This partnership with Service Net will help to create the ideal customer solution," said James Garson, chief executive officer of DataVision. "Not only will our customers have excellent 24-7 support from Service Net, but they also will receive service for their products from DataVision."

Service for customers outside of DataVision's service area will be handled through Service Net's nationwide network of more than 35,000 certified and factory repair technicians.

"DataVision will be a valuable asset to our network of service technicians," said Kevin Callahan, president of Service Net. "We're always looking for ways to expand our service network, to ultimately provide more and better service to the customer."

Microsoft Reports Strong Profits
Microsoft Corp.'s profits more than doubled from a year ago as a new, controversial software licensing plan helped drive sales and insulate the company from the turmoil hitting the technology industry. The software giant also was able to stem losses from investments. For the three months ended Sept. 30, the Redmond-based software maker had a profit of $2.73 billion, or 50 cents a share, compared to net earnings of $1.28 billion, or 23 cents a share, for the same period a year ago. The results announced Thursday included one-time charges of $291 million, or 5 cents a share, related to weakness in Microsoft's investments. A year earlier, Microsoft wrote down $1.2 billion on investments. Microsoft's fiscal first-quarter revenue totaled $7.75 billion, up 27 percent from $6.1 billion in sales a year ago. The company surpassed Wall Street's expectations. Analysts surveyed by Thomson First Call had a consensus estimate of 43 cents a share on revenue of $7.1 billion. Microsoft cited a higher-than-expected enrollment in new, subscription-like licensing plans that require companies to sign multiyear agreements and pay annual fees in return for rights to software upgrades. The new plans also eliminate many discounts that companies could receive when they chose to upgrade.

"It was a blowout," said Scott McAdams, chief executive of Seattle-based investment research firm McAdams Wright Ragen. "We haven't seen a quarter like this in years," he said, attributing the strong results to the deadline for companies to adopt the new licensing agreements. But with the deadline past, coming quarters probably won't see that strength, he said. "The bad news is it may not be sustainable," McAdams said. Many businesses and government agencies complained about the new licensing programs, saying they were being forced to subscribe or face significantly higher prices when they were ready to upgrade. "We would go back and change some things about how we implemented the program, in hindsight," said chief financial officer John Connors. "Anybody that's a dissatisfied customer is a concern."

The company also announced Windows XP sales have hit 67 million since the new operating system was launched in October 2001. It also saw strong increases in revenue for its MSN Internet access service, as well as a 14 percent jump in sales for its server software and related products.

NEWS

HP Connects with Small Business

HP announced top ratings for customer satisfaction among U.S.-based small businesses and worldwide server installed brand market share according to an AMI-Partners global small business study released today.

"As technology vendors seek new avenues for meeting and exceeding their revenue goals in a challenging economic environment, expanding into the SMB market is a logical and perhaps necessary step," said Eric Shuster, managing director and executive vice president, AMI-Partners. "HP is demonstrating its ability to leverage a very broad IT portfolio, and a robust solution providers network, to swiftly and decisively deploy resources and go-to-market strategies that demonstrate a keen understanding of today's SMB customers."

"The AMI-Partners annual study is a comprehensive survey fielded to key IT decision makers across a large, nationally representative sample of SMBs worldwide," said Kyle Ranson, vice president, marketing sales programs and worldwide SMB lead, HP Personal Systems Group. "The rankings of HP products and services in this latest report match what many customers have experienced in doing business with the new HP."

HP spokesman, "As part of HP's go-to-market strategy to reach millions of SMB accounts in the US and around the world, we are committed to working with partners to reach these customers to deliver value and enable customer success."

AMI-Partners' latest rankings of global small businesses with 1-99 company employees reflect the following for PC manufacturers:

"We are very pleased with customers' views of our ability to develop and deliver products that are easy to deploy, support and maintain. Our services, which include those delivered by our partners, set us apart from competitors who focus on logistics as their value add," said Robyn West, vice president of Americas region SMB marketing, HP Personal Systems Group. "Our goal is to use both our products and our services to support small- and medium-sized customers as they work to achieve their business goals."

HP offers a broad portfolio of more than 1,000 products designed for small- and medium-sized businesses -- from customized HP PCs, handheld devices, industry-leading ProLiant servers and StorageWorks solutions to printers, scanners, digital imaging products, printing supplies and accessories. The company also offers financial services that enhance small business cash flow and business-critical support services to help small business protect their IT investments.

AMI-Partners estimates that in 2002 global small business IT spending will top $340 billion across 76 million small businesses with 1-99 employees. And, despite an uncertain economy, small businesses will spend an additional $280 billion on telecommunications products and services, giving rise to more than a half trillion dollar worldwide IT and telecom marketplace.

"This study further underscores our organization's confidence in referring HP products and services to the more than 600,000 small businesses that we consult with each year," said Don Wilson, president and chief executive officer, Association of Small Business Development Centers. "As the primary drivers of our economy, small businesses need partners like HP, who deliver convenient ways to purchase highly reliable products that help small businesses be more competitive to achieve success in their respective industries and markets."

For more information on AMI-Partners, please visit http://www.ami-partners.com/.

NEWS

Oculan Launches 2nd Year With Expanded Channel, More Awards

Oculan Corporation, developer of the channel's leading new network management platform, has kicked off its second year of operations by significantly expanding its channel while also securing its Series C funding round last summer from Soros Private Equity Partners. By April of this year, after nine months of operations, Oculan had established 100 partnerships with VARs across the nation. Now, six months later, Oculan has nearly doubled its number of partners with a total of 186 VARs currently enrolled in its channel program. Those VARs are headquartered geographically in 32 states and 14 foreign countries.

"I think it is remarkable what our team has managed to accomplish is just over one year of commercial operations," said Steve Giles, President and CEO of Oculan. "At a period in time with the technology sector struggling, the stock market in a slump, the economy sluggish and venture capital hard to find, Oculan has bucked the tide and maintained momentum across the board. We continue to experience revenue growth, channel growth, and employee growth while introducing new products and services."

One key differentiator between Oculan and typical software solutions in the industry is Oculan's monthly subscription service model. With Oculan, resellers and their customers don't have to worry about the time and cost of deploying complex network management software, installing upgrades and new releases, doing backups, training staff to operate the platform, and other related expenses. Instead, all of those costs are automatically included in the Oculan monthly subscription service with no up-front hardware or software purchase required--plus, Oculan itself remotely maintains and administers the platform. As a result, Oculan's total cost of ownership (TCO) is a fraction of the TCO associated with traditional software solutions. A second key differentiator for Oculan is the "integration" factor that makes its platform a comprehensive, easy to use solution. Traditionally, network management platforms are often not comprehensive, instead comprised of various different "point products" that require costly integration efforts on behalf of the end user. Oculan's appliance-based technology integrated previously disparate management tools and functions into one platform and one easy to use interface. This eliminates the need for multiple hardware and software purchases, multiple user interfaces, and the expensive integration efforts involving consultants, additional staff, contract work, and extensive training. Using Oculan, an entire network infrastructure can be remotely managed-from desktops to servers to network devices to security in the form of intrusion detection. Customers receive a variety of informative and actionable network reports, plus proactive email and pager alerts to network problems. For more information please contact: 919-534-0500 x243, dporter@oculan.com

This is your source for the latest, greatest news. Plus, it's free. All from your friends at Vision Events and Newman Media. To subscribe send an e-mail to channel.media@gartner.com

NEWS

PC Connection, PC Mall and Razorfish Progress Reports

PC Connection announced results for the quarter ended September 30, 2002. Net sales for the three months ended September 30, 2002 increased by $28.1 million, or 9.0% to $341.0 million from $312.9 million for the three months ended September 30, 2001. Net income for the quarter was $2.2 million, or $.09 per share, compared to $2.1 million, or $.08 per share for the three months ended September 30, 2001. Excluding the after-tax effects of restructuring costs and other special charges of $718.0 thousand and $1.2 million for the three months ended September 30, 2002 and 2001, respectively, the Company reported net income for the quarter ended September 30, 2002 of $2.6 million, or $.11 per share, compared to net income of $2.8 million, or $.11 per share, for the quarter ended September 30, 2001.

Net sales for the nine months ended September 30, 2002 were $869.3 million compared to $912.6 million for the corresponding period a year ago. Net income for the nine months ended September 30, 2002 was $383.0 thousand, or $.02 per share, compared to net income of $5.9 million, or $.24 per share for the nine months ended September 30, 2001. Excluding the after-tax effects of restructuring costs and other special charges of $1.6 million and $2.1 million for the nine months ended September 30, 2002 and 2001, respectively, the Company reported net income for the nine months ended September 30, 2002 of $1.3 million, or $.05 per share, compared to net income of $7.2 million, or $.29 per share, for the nine months ended September 30, 2001. The Company previously reported net sales of $291.1 million and net income of $.01 per share for the three months ended June 30, 2001.

Patricia Gallup, Chairman and Chief Executive Officer of PC Connection, Inc., said, "We are encouraged by the improvement in our overall performance. Sales for our public sector segment, GovConnection, Inc., aided by seasonally strong sales to the federal government and education customers, grew sequentially by 50%, to $96 million. Our large account segment, MoreDirect, Inc., grew sequentially by 31% to $70 million. Sales for our small- and medium-sized business segment (SMB), were essentially equal ($174 million) to the sales for second quarter of 2002."

As of September 30, 2002, the number of Outbound Sales Account Managers for all operating segments totaled 511 compared to 496 at September 30, 2001, and compared to 521 at June 30, 2002. Average order size for the three months ended September 30, 2002 was $1,323 compared to $1,259 in the corresponding period a year ago and $1,127 in the three months ended June 30, 2002.

Ken Koppel, President of PC Connection, Inc., said, "Our sales of enterprise server and networking products improved sequentially by 12.1% during the quarter and by 27% from the year ago period. Excluding MoreDirect, our average annualized sales productivity per account manager increased from $2 million in the second quarter of 2002 to $2.3 million for the third quarter of 2002, a 15% sequential improvement. In addition, our SMB segment improved gross profit margins by 72 basis points from 11.61% for the quarter ended June 30, 2002, to 12.33% for the quarter ended September 30, 2002."

Notebook Computer Systems was the Company's largest product category, accounting for 16.0% of net sales in the third quarter of 2002, compared to 22.5% for the corresponding period a year ago. Desktop/server systems accounted for 14.8% of net sales in the third quarter of 2002 compared to 12.0% of net sales for the corresponding period a year ago. Computer system average selling prices (ASPs) increased 2% in the third quarter compared to the corresponding period a year ago and increased 2% compared to the second quarter of 2002, resulting primarily from a 23% sequential increase in server Asps

Gross profit margins as a percentage of net sales increased to 10.9% in the third quarter of 2002 from 10.7% in the second quarter of 2002. Gross profit margins in the Company's SMB segment improved sequentially by 72 basis points while gross profit margins in our Public Sector segment decreased by 37 basis points. As stated in previous releases, the Company expects that its gross profit margin as a percentage of net sales may vary by quarter based upon vendor support programs, product mix, pricing strategies, market conditions and other factors.

Total selling, general, and administrative expenses (SG&A), as a percentage of net sales, were 9.6% in the third quarter of 2002, compared to 9.3% in the corresponding period a year ago, and 10.5% in the second quarter of 2002. The Company expects that its SG&A as a percentage of net sales may vary by quarter depending on changes in sales volume, as well as the levels of continuing investments in key growth initiatives.

Subsequent to the issuance of the Company's consolidated financial statements for the quarter ended June 30, 2002, the Company's management determined that it should have recorded revenue at the time of delivery to customers rather than upon shipment under Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB 101"). The Company implemented SAB 101, effective January 1, 1999 and, consistent with its historical practice, continued to record revenue at the time of shipment, concurrent with the passage of title under the Company's documentation with its customers. Historically, however, the Company generally covered customer losses and damage to shipments in transit. The Company established reserves each quarter to cover estimated losses and damages to in-transit goods which were included in SG&A expense. The Company recently learned of an SEC Staff interpretation of SAB 101 indicating that companies generally covering customer losses and damage to shipments in transit should record revenue at the time of delivery (the "de facto" passage of title) rather than upon shipment. Although the effects of recording revenue at time of delivery, rather than at time of shipment, are not material to any prior fiscal year or quarter, if the Company had made a cumulative retroactive adjustment in the quarter ended September 30, 2002 it would have decreased results of operations by $.02 per share and this, therefore, would have been considered material. Accordingly, the Company will amend its annual report on Form 10-K for the year ended December 31, 2001 and its reports on Form 10-Q for the periods ended March 31, 2002 and June 30, 2002 for this change in revenue recognition practice. All prior year and prior quarter comparative figures contained herein reflect this change. Schedule A attached sets forth, for each such period, the previously reported financial statements, all adjustments resulting from the change in revenue recognition practice and the financial statements reflecting this change.

Patricia Gallup, concluded, "Again, we are pleased with PC Connection's overall performance for the quarter. The investments we have made over the past year, and our efforts to improve the efficiency and effectiveness of our sales organizations, are beginning to produce results. We strongly believe we can continue to enhance our operating performance and build long-term shareholder value."

PC Mall recently reported earnings per share of $0.07 on record third quarter sales of $230 million. This compares with earnings per share for Q3 2001 of $0.05 per share on sales of $172 million. Earnings per share increased 75 percent from $0.04 per share reported in Q2 2002 on sequential sales growth of 12 percent.

Sales for the quarter increased 34 percent from Q3 2001 and 12 percent from Q2 2002. Year-over-year organic sales growth was 16 percent while sales growth from acquisitions was 18 percent. Gross profit for the quarter increased by 30 percent from the comparable quarter last year in close relation to sales.

Frank Khulusi, Chairman, President and CEO of PC Mall, said, "As was the case last quarter, we remain one of the fastest growing companies in our industry. Our market share acquisition momentum continued in Q3 2002, and we achieved record third quarter sales despite a challenging technology market environment. At the same time we increased our earnings 55 percent over Q3 2001. The strength and efficiency of our direct sales model and fulfillment systems and our aggressive spending on sales personnel have allowed us to grow sales and profits in difficult times."

Khulusi continued, "We continued to develop our Outbound small-medium business ("SMB") and PC Mall Gov sales initiatives by fine tuning our systems and processes. Outbound SMB sales rose 40 percent from last year while PC Mall Gov sales grew 29 percent in a traditionally strong government spending quarter. We also completed the acquisition of Wareforce, one of the top solutions providers in Southern California, and we are happy to report that the Wareforce acquisition was accretive to earnings in its first quarter with PC Mall."

Consolidated Q3 2002 sales increased 34 percent from Q3 2001 and 12 percent sequentially from Q2 2002 to $230 million. Core business Q3 2002 sales increased 15 percent from Q3 2001 and increased four percent from Q2 2002. Outbound business sales for Q3 2002 grew 37 percent over Q3 2001 and were up 11 percent over Q2 2002. Catalog sales increased three percent for the quarter compared to the same quarter last year. The ClubMac and Wareforce acquisitions were responsible for 18 percent of the year-over-year sales growth. eCost.com Q3 2002 sales increased 23 percent year-over-year and ten percent from Q2 2002. eLinux sales declined nearly half from Q3 2001 and Q2 2002 and were less than $1.0 million for the quarter.

Consolidated gross profit for Q3 2002 rose 30 percent from Q3 2001 and nine percent from Q2 2002. Gross margin for the quarter was 10.7 percent of sales, down slightly from 11 percent of sales in Q2 2002 and Q3 2001. Part of the decline reflects growth in lower gross-margin software license sales. The Company's gross profit percentage may vary from quarter to quarter depending on the continuation of key vendor support programs as well as product mix, pricing strategies and other factors.

Consolidated selling, general and administrative expenses as a percentage of sales for Q3 2002 declined by approximately 50 basis points from 10.5 percent in Q3 2001 to 10.0 percent. The decline in spending as a percentage of sales reflected advantages of operating leverage from increased sales, partially offset by increased spending to fund the expansion of the Outbound sales force and the SG&A from the acquisitions of ClubMac and Wareforce. Wareforce's operations remained separate from the Company throughout the quarter and, therefore, no incremental benefit from potential synergies was realized.

The Company continued to emphasize its enterprise products offerings. The Company believes that enterprise products such as networking, servers, storage and licensing products are important for acquiring and penetrating business customers. Sales of enterprise category products were up substantially from Q3 2001. Enterprise products with the highest year-over-year growth rates were licensing (up 116 percent) and servers (up 109 percent). Licensing products benefited from sales of Microsoft Upgrade Advantage, which were stronger than sales experienced in prior quarters.

PC Mall's balance sheet at the end of the quarter remained strong. Cash at the end of the quarter was $9.2 million. EBITDA (a non-GAAP measure of earnings before interest, taxes, depreciation and amortization) for the quarter was nearly $3.0 million. Borrowings under PC Mall's line of credit increased to $8.8 million as of September 30, 2002, reflecting $10.2 million in incremental borrowings to purchase the assets of Wareforce and provide working capital for its operations. Inventories increased $5.0 million from Q2 2002 due to acquisitions and special product pricing opportunities. Accounts receivable increased, up $11.9 million from Q2 2002, due to the acquisition of Wareforce.

"Our record Q3 sales performance reflects the hard work of 1,100 PC Mall employees and their dedication to providing our customers with excellent service," stated Khulusi. "As evidence of our confidence in our employees, business model and ongoing business prospects, we announced in Q3 2002 the resumption of our stock repurchase program, which permits the Company to acquire up to one million shares of its common stock. While there is no guaranty of the exact number of shares that we will ultimately repurchase under the program, we believe our shares are very attractive at current trading levels and, therefore, we plan to continue with our share repurchase program into Q4 2002 and beyond."

For its most recent quarter ended September 30, Razorfish announced revenues of $9.4 million, compared to $10.5 million in revenues before reimbursements for direct costs for the second quarter 2002. Net loss was ($0.2) million or ($0.04) per share, compared to second quarter 2002 net income of $0.3 million or $0.07 per share. Pro forma net income for the third quarter 2002 was $0.01 per share, in line with previous management guidance. This compares to pro forma net income of $0.11 per share in the second quarter 2002. "The sluggish economy and tight business spending contributed to a challenging quarter from a sales perspective," said Jean-Philippe Maheu, chief executive officer. "Despite this, we are managing our operations aggressively, and are pleased to have achieved our fourth consecutive quarter of pro forma profitability. By continuing to deliver quality web-based solutions to a solid base of blue-chip clients, we feel we are well positioned to emerge stronger when IT spending improves." Razorfish acquired several new clients during the third quarter, including MasterCard International, Key Energy, City of Cupertino, Covad Communications, and a leading investment management firm. The Company continued to win additional business or service ongoing projects from existing clients in the third quarter, some of which include Cisco Systems, Genentech, Ford Motor Company, Disney, Avaya, GlaxoSmithKline, VeriSign, Manulife Financial, Verizon Communications, Los Angeles Department of Water & Power, and Microsoft.

NEWS

Cisco's New SMB Plan

Highlighting its commitment to help drive channel partner profitability, Cisco Systems, Inc. today launched a new initiative that is focused on providing customers with a convenient method for purchasing select Cisco products online. The foundation of this new channels initiative is a web-based ordering option that quickly and easily links small business and SOHO customers with Cisco authorized online direct marketing resellers. This new online option combines the popularity of Cisco.com with the convenience of ordering from direct marketing resellers to address the purchasing needs of today's small business and SOHO customers.

"Thousands of customers come daily to our website looking for a convenient way to purchase point products that may not require the services of a systems integrator," said Surinder Brar, senior director of Worldwide Channels Marketing at Cisco Systems. "They know what they want, have the ability to install it themselves, and just want to place the order. We have created this online initiative to link these customers with our authorized channel partners who can accept these orders online. Thus making it more convenient for small business and SOHO customers to engage with partners who are capable of meeting their needs."

"Small business customers have a unique set of purchasing needs that are not easily addressed using standard channel players," said Martha Young, founder of NovaAmber, a market research firm in Golden, Colorado. "In order to succeed in today's dynamic markets, vendors need a well thought out channel strategy on how to address specific target markets as well as geographies. By developing an online strategy that connects SOHO- and SMB-centric partners with buy ready prospects, Cisco is moving in the right direction for all its stake holders."

In the past, if a small business or SOHO customer wanted to purchase a product online they first had to find the Cisco product that addressed their business needs and then had to go out to each direct market retailer web site to check for availability. This was a time consuming task that with the help of its top four, US online direct marketing resellers, CDW, Insight, PC Connection, and Micro Warehouse, Cisco is now addressing. The new Cisco ordering option provides the customer with one convenient location to gather product information, check product availability and make an online purchase, increasing customer satisfaction and productivity.

Customers have 45 different Cisco products to choose from, including the Aironet 350 and 1200 product families, Catalyst 2950 and 3950 product families, the Cisco 1700 product family, the 805 and 806 SOHO routers, the 501, 506E and 515E PIX firewalls as well as the CiscoWorks for Windows 6.1. After selecting the product, the customer will be asked if they prefer to purchase from a systems integrator or an online reseller. If the customer selects systems integrator they are then dropped into Cisco's award-winning partner locator, where they can choose a partner based on geography and specialization. If they choose online reseller, they are given a choice of CDW, Insight, PC Connection, and Micro Warehouse. To learn more or to order selected Cisco products online simply go to the ordering page of Cisco.com or www.Cisco.com/go/online.

SMB SWEET SPOT

From Product to Services: Getting There
By Steve Giles, President and CEO, Oculan

In the last issue we discussed what small to medium sized businesses (SMBs) are looking for in technology solutions. Ease of use. Ease of deployment. Keeping It Simple, Stupid (KISS). To wrap up our discussion of how to successfully attack the SMB market, we need to talk about what a VAR needs to do internally to become a successful service provider and obtain the higher margins that a services business delivers.

The Transformation to SMB Service Provider

If you are a reseller or solution provider who is considering offering an array of infrastructure management services to SMBs, there are a few other things to keep in mind. First, if you are a traditional reseller, you MUST educate your sales force to understand that your new focus is on SERVICES. That the company is redefining itself as a SERVICE PROVIDER. And that you are providing TOTAL SOLUTIONS to customers, not bits and pieces.

You are NO LONGER A PRODUCT RESELLER.

How do you accomplish that mindset? First of all, you need at least one sales rep who is the "services champion". His or her job is to sell the service packages your company wants to offer. His or her success will breed success in the rest of the sales force.

But eventually all sales reps, in every meeting with every customer, must represent themselves and your company as a trusted business consultant, an IT advisor that can provide all the services that many time- and resource-strapped SMBs simply cannot attend to-or cannot perform as well or as efficiently as you and your company.

Where do SMBs need help? In the nuts and bolts of IT management. The fire-fighting that is needed to protect their network. SMBs generally have limited resources for their IT needs, and they feel the need to focus those limited resources where they will produce the most value, i.e. strategic initiatives related to the company's core business. Still, the underlying network, the desktops, the entire IT infrastructure must be maintained and nurtured to keep critical business functions up and running, up to date, and secure. This is where you, the reseller-turned-service provider, step in.

Since the SMB itself has neither the time, expertise, or appropriate tools and solutions to maintain their own network properly, they turn to you for help. At a minimum, they need to keep their servers up and running; email functioning properly; network access; high performance levels; desktops that work and are equipped with the appropriate applications; and a level of security that will provide them with peace of mind amidst a myriad of potential security threats.

Our company and many others have begun offering tools and solutions designed to assist SMBs in these and other emerging needs of their IT infrastructure. These are tools and solutions designed specifically for the budgets and business management needs of smaller organizations. They are tools and solutions that can be applied to enhance the efficiency and effectiveness of the core business operations of any SMB, and certainly of its IT functions.

But the rub is this: a new generation of service providers must step in to fill the void for SMBs…….to take these tools and solutions and offer value-added services around them, and make them work for their SMB customers. Some of us who are developing the tools and solutions are not ourselves in the services business-we are simply enabling companies like you to enter the services business and leave behind the world of razor-thin margins and cut-throat hardware competition.

So there you have it. The opportunity is there for those willing to grab it, and many are. While IBM deals with its $97 billion services backlog, our company quietly signed up 165 partners in one year who want a piece of that pie. It's a big world out there, and the SMB market can and will accommodate a lot of new players in the years ahead. Will you be one of them?

Oculan provides an appliance-based network management platform that enables SMBs and larger organizations to manage and secure their networks at a fraction of the cost and complexity of traditional software solutions. Voted "Best New Company", "Most Innovative Networking Technology", "Best Channel Program" and numerous other awards by IT executives in 2002, Oculan provides a monthly subscription service to monitor and manage security, desktops, network devices, system, vulnerability scanning and other net management functions.

Wireless LANs: Ideal for Many SMB Installations
By P. Redman and M. Yamamoto Krammer, Gartner

Wireless LAN technology is now a viable option for small and midsize businesses (SMBs). Lower costs and solid performance make wireless LANs a networking answer in several SMB environments.

The word wireless, when associated with any data technology, commonly connotes complexity and high cost. In the case of wireless LAN technology, however, this is not the case. With support from vendors (for example, 3Com, Avaya, Cisco Systems and Symbol Technologies), wireless LANs are now an option for small and midsize businesses (SMBs), not only for complementing wired LANs for network access in midsize and large office spaces, but also for replacing the need for an extensive wired LAN network in small and home offices that typically have fewer than 100 users. Gartner research measuring total cost of ownership (TCO) shows significant savings (in time and money) in using standard wireless LAN technology instead of wired LANs.

Wireless LAN Technology Overview

The primary purpose of a wireless LAN in the enterprise is to extend network coverage to allow for in-building or campuswide communication for mobile and roaming users. Another key benefit is to provide LAN access where it is too costly or prohibited to run wired access — pulling cable and paying installation fees for unwired buildings is expensive. A wireless LAN system is typically composed of four components:

Access points convert wireless data transmitted at unlicensed frequencies (900 MHz, 2.4 GHz and 5.2 GHz) into wired data (such as Ethernet or Token Ring). In effect, an access point acts as a bridge between the wired interface (typically a LAN) and wireless clients. The access point is merely a node on the network. Wireless LANs use electromagnetic waves (radio and infrared) to transmit data without a physical connection between access points.

Users access the wireless LAN through wireless LAN NICs in notebook computers or through Industry Standard Architecture (ISA) or PCI adapters in desktop computers or handheld devices. Access points can support a small group of users in a range of several hundred feet; most access points are rated for 60 to 70 users simultaneously, but a conservative recommendation is for 25 simultaneous users.

The standard today, 802.11, was approved in 1997 by the Institute of Electrical and Electronics Engineers (IEEE). Most users are adopting 802.11b (also called Wi-Fi) with top throughput at 11 Mbps (actual is 5 Mbps to 6 Mbps because of physical layer/transmission overhead). Most vendors support this technology. We expect the newer standard, 802.11a (also called Wi-Fi5), with standard throughput at 54 Mbps, will be available from most vendors later in 2002, although only a few are available commercially today. Through 2002, we believe more 802.11a products will emerge, and they will be price-competitive with 802.11b by 2003.

SMBs should take advantage of the continuing cost decline of 802.11b products as 802.11a products are introduced. Vendors have committed support for 802.11b until approximately 2006. By 2004, low-cost wireless LAN adapter prices will fall to less than $50 (0.8 probability). The average selling price will continue to be higher because of the more fully featured units that are purchased for business use, but we expect it will fall below $50 by 2006. Many of these products will include higher-level security features, more powerful radios and better customer service support. See Figure 1 for a breakdown of the capital costs of a typical wireless LAN setup for SMBs.

Source: Gartner Research

When to Consider a Wireless LAN

For SMBs that require local networks for shared printers, Internet access, e-mail or database access, a wireless LAN offers a lower-cost alternative to installing a new wired network. The two scenarios most conducive to wireless LAN deployment are:

Wireless LAN Implementation Costs and TCO

Findings from a recent Gartner study indicate that the TCO of a wireless LAN can be less than the TCO of a wired system, including the elimination of costs to set up a full wired LAN. True costs will depend on the size and use of the implementation. Basic wired systems can be expensive, because running Ethernet to each user is time-consuming and costly. Costs increase even more in enterprises marked by high turnover and frequent employee office moves.

The first year of a wireless LAN deployment carries some of the heaviest costs due to a large technology investment in necessary equipment — such as access points, NICs, and added infrastructure for power, hubs and switches, cabling and spare parts.

For smaller (and temporary) offices, wireless LAN systems will reduce the costs of putting a group of users together on a network, eliminating much of the wired LAN costs (for example, pulling cable and setting up workstation ports). The major costs of support for small-office systems will be high, although they will be outweighed by end-user operation costs for peer support and self-support. Such support costs add to a total cost of $4,742 in the first year (see Figure 2).

Source: Gartner Research

Advice for SMBs Considering Wireless LAN Technology

Cautionary Steps

Bottom Line: SMBs should seriously look at wireless LAN in place of a wired LAN, in small offices and temporary locations where it is too costly to install a new wired system and in offices that do not have a LAN but need one. SMBs should also secure their wireless LANs by adding on extra network security options.

This is your source for the latest, greatest news. Plus, it's free. All from your friends at Vision Events and Newman Media. To subscribe send an e-mail to channel.media@gartner.com

RESEARCH

Ultra Small Form Factor PCs - Do Good Things Still Come in Small Packages?
By Toni Duboise, ARS Desktop PC Analyst

In today's corporate desktop market, it appears the only thing shrinking faster than razor-thin margins is the size of the computer itself. In homage to the mantra - "good things come in small packages"- Small Form Factor (SFF) chassis have morphed into Ultra Small Form Factors (USFF) with computer boxes no larger than a Webster's hardbound dictionary. IBM's most recent foray into the Ultra Small Desktop market gives impetus for further investigation of the minimalist phenomenon. With IBM's recent release of its condensed NetVista S42, corporate IT buyers now have a trio of USFF desktops from which to choose. The 'new HP' produces the other two - the original, newly renamed Compaq D510 e-PC (formerly HP e-PC) and the Compaq D510 Ultra Small Desktop (USD). All three companies - HP, pre-merger Compaq and IBM - introduced their USFFs to satisfy an overwhelming consumer demand for an ultra space saving alternative. This same desktop real estate conservation exercise has been previously addressed by the Ultra Small Form Factor's predecessor, the Small Form Factor, introduced in 1998.

Though any 'real estate savings' may have a welcome ring to it these days, one can only muse that it is not necessarily the dimensions of corporate cubicles that are declining during the prevailing economic hardships, but rather the scope of employee rosters and allocated budgets. It is this hypothesis that leads me to wonder why corporate IT buyers remain unsatisfied by the variable array of SFF desktop units already offered by PC manufacturers and why PC manufacturers are rushing to appease this perceived need. And, more importantly, who wins? To answer these questions, let us first examine the existing diminutive products offered. All three USFF units have a small, smart profile and are equipped with various unique features, some of which are highlighted below.

The Evo D510 e-PC offers the tiniest chassis, measuring 12.2 x 3.8 x 9.8 inches, with a one-screw lockable security solution and a companion mounting bracket assembly that allows the user to attach the minute system either under the desk, on the wall, or tuck it neatly behind a flat screen display. The omission of the floppy drive adds to the e-PC security factor.

The Evo D510 USD is the slimmest in width with 12.2 x 2.7 x 12.4 inch measurements. The Ultra Small Desktop offers wireless capabilities and swappable multi-bay optical drives that are interchangeable with select members of its corporate notebook brethren.

IBM's newcomer NetVista S42, while not quite as minute as its existing competitors at 12.2 x 3.3 x 13.6 inches, also offers wireless capabilities and is the first USFF to accommodate a full-size optical drives, two full-size PCI card slots and a CD-RW/DVD combination optical drive option. All systems target international corporate PC markets with a three-year warranty, common software images within correlating product lines, and various security and migration packages. As for the processor mix and correlating price points offered by each of the three USFF machines, they tend to vary as much as the aforementioned features. In terms of processors, the USFF systems are not nearly as limited as when first introduced with perhaps one or two processor options. The e-PC offers the broadest performance range beginning with an entry-level 1.8GHz Celeron and topping out with a high-end 2.6GHz P4. All other S42 and D510 USD units are equipped with a more narrow range of high-performance P4 processors ranging from 1.7GHz to 2.53GHz. (The e-PC is currently the only USFF offering an entry-level Intel Celeron processor option, albeit Celeron chips are included in IBM's S42 future road map.)

In terms of price, Hp's Evo D510 e-PC and USD base configurations can be purchased with 128MB RAM, 20GB hard drive and Windows XP Home for as low as $698 and $730 respectively. IBM's NetVista S42 starts at a base price of $929 based on an enhanced base component threshold, including 256MB of RAM, 40GB hard drive and Windows XP Pro. In order to provide a more comparable USFF assessment of price per performance, both the D510 e-PC and USD have been configured with similar stepped-up feature sets as reflected in the chart above. Even with similar configurations, IBM's initial S42 pricing appears to be at a premium of $100 to $111, and Hp's D510 USD is even higher still. But based on the uniqueness of each of the USFF systems, it is up to IT buyers to determine if the integrated features are reflected in value as measured by price.

Still, the most interesting price/performance comparisons are produced by comparing the USFF systems to their SFF counterparts. The chart below reflects such a comparison for the two systems offered in both USFF and SFF chassis options - IBM's NetVista and Hp's Compaq-branded Evo D510 series. IBM's NetVista series offer comparable feature sets within USFF and SFF units with USFF savings ranging between $27 and $157. Hp's Evo D510 offers much more limited USFF selection with its D510 USD, but the ultra small savings are still present at $46 for the 1.9GHz P4-powered solution. It should be duly noted that oftentimes both USFF and SFF series still command a premium over ordinary desktops offered in tower, minitower or desktop form factors.

RESEARCH

Wireless Carriers Look for Ways to Drive Data Adoption
By Weston Henderek, ARS Industry Analyst, Mobile Wireless

One of the biggest obstacles facing wireless carriers looking to gain more revenue via combined wireless voice and data services has been on the price side. While there has been little compelling data content to tempt a large audience, it is still cost uncertainty that is keeping customers from making the investment. Currently in the U.S. market most wireless carriers price combined voice/data plans in a very similar fashion to each other. The data portion of the plan is added as a "bolt-on" option sold by the megabyte, and customers have a range of options to choose from.

This structure is confusing to the average user who may be unclear as to what can be done with a megabyte of data. Since listing data by the megabyte is hard to understand and seems very arbitrary, customers always have the fear of going over their data allotment and having to pay extra money each month. Unlike voice plans where it is easy to keep track of the number of minutes used, data is difficult to track because of the variance in bandwidth usage for different applications. For example, sending and downloading pictures over a wireless data network uses a dramatically higher amount of kilobytes than sending text messages. This fear of "overage" usage prevents customers from using the service.

ARS believes that in order to drive data adoption, carriers will need to move to a flat rate usage fee. In this respect, Sprint PCS and T-Mobile have now launched converged voice and data offerings that offer unlimited wireless data usage for a fixed monthly fee.

The T-Mobile converged voice/data plan comes bundled with the new Sidekick hiptop device, and is termed the Sidekick plan. The plan includes 200 anytime national voice minutes, 1000 national weekend minutes and unlimited GPRS data access for a price of $39.99 per month. This plan will be compelling to consumers because it hits a price point sweet spot, and also eliminates the uncertainty about how much data can be used.

Sprint PCs on the other hand, has taken the concept of unlimited data one step further with the launch of a new Free & Clear rate structure on October 21, 2002. Under the new structure, Sprint is offering unlimited CDMA 20001X PCs Vision data service usage for a fixed rate of $10 per month on plans priced between $30-$60. Sprint PCs is also offering free access to the unlimited data service for the first three months on those plans. On plans above $85 per month, the unlimited PCs Vision data service is included at no additional cost for as long as the user has service.

Verizon Wireless offers a similar plan with its Express Network national plans which allow users to utilize minutes for either voice or data service. However, the combined service plans from Verizon Wireless are priced significantly higher than the comparable voice plans and do not include any off-peak minutes.

The only other offerings that appear competitive to the Sprint PCs and T-Mobile offerings from a data perspective are the RIM Blackberry devices running on Ardis and Mobitex data networks. Blackberry users generally pay a flat rate of $40 per month for unlimited data access via the RIM device. RIM Blackberry subscribers are mostly corporate users looking to access Microsoft Outlook email, whereas the T-Mobile Sidekick plan and Sprint PCs Vision Plans are targeted much more toward consumers and offer things like photo sharing (impossible with Blackberry).

With the Sprint PCs Vision plans and the T-Mobile national Sidekick rate plan, consumers will have a much more compelling reason to use data services. Not only that, but also this offering will cause all other carriers to take a closer look at their own voice/data strategies. ARS believes that other leading carriers like AT&T Wireless and Cingular will initially just watch the Sprint PCs and T-Mobile offerings to see what the reaction will be before they launch anything comparable.

ARS believes that the US Wireless industry in general is headed towards this converged offering with flat rate data. However, whether this is a good long-term strategy for the carriers remains to be seen. The downside to an unlimited offering is that customers may use a high amount of data and as a result will cause network congestion and reduce carrier revenues. This is a valid fear, especially with the advent of MMS services and perks like photo sharing and video messaging, which require a huge amount of bandwidth. If you look at the $40 price point for both the Sprint PCs and T-Mobile plans, it appears that it is comparably priced to offerings from other carriers that only offer 2 Megabytes of included data.

In this respect, Sprint PCs and T-Mobile customers must average no more than 2-8 megabytes of data usage per month for the carriers to make money. This strategy may work in the short term for carriers like Sprint PCs and T-Mobile who are looking to drive data usage and steal as much market share as possible. The "unlimited usage" pricing concept can also provide valuable insight as to what customers will pay for specific data services. In the end, the popularity in the types of next generation data services and usage patterns will dictate how much is charged for 2.5G and 3G data services. But for now, the trend will be to offer unlimited data service in order to drive adoption.

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Hits List of Top-Selling Software by NPD
Provided by NPD Techworld

List is based on units sold by twenty-three channel partners. For more information, please contact NPDTechworld at (703) 376-6200.

FROM THE COMMUNITY

Changing Channels: The Message is the Message
By Steve Cross

Many times our primary job as ambassadors for our companies is to shepherd the company's message through the various channels. The waterfall of information that comes from the company often turns into a trickle or water vapor by the time it hits the customer. At every step of the channel process, the message is touched, weakened, and diluted, unless we manage that message carefully.

Companies spend huge marketing budgets safeguarding their message, broadcasting it, pummeling the customer with it: Like a Good Neighbor, You're in Good Hands, Have it Your Way, Intel Inside. These are fabulous examples of what happens when a message is right, and is managed right.

Let's look at a bad example. Last week, the PGA tour visited my town, Las Vegas. The event was called the Invensys Las Vegas Classic. This is no crummy little Quad-Cities open (quick, name the quad cities....answer below), this is the real deal, the sixth richest tournament of the year. The winner received a check for $900,000.

After watching two hours of golf, and over 10 commercials from Invensys, I don't know what this company does. They showed the same exact commercial 10 times in two hours, and that commercial didn't have a tag line, a fixed message, or even a feel-good slogan. The company may have something to do with managing resources, however that could be human resources, water resources, energy resources...who knows?

The message is the message. How many boxes sit on retail shelves without a clear tag line? How many VAR salespeople use a different message for each client? Whose job do you think it is to make sure the message is focused? Its our job, all of us.

I once took a company to RetailVision whose VP Sales showed videos of his kids playing baseball in his boardroom sessions. Somebody tell me what exactly the message was in that guy's head? Certainly not making an impact for his company. I know none of you people out there, the fabulous readers of this column would ever consider something that dumb, but how many of you have your kid's pictures in a brochure, or on a box? Too many, I'll bet.

By the way, the Quad Cities are Moline, Rock Island, Davenport, and Bettendorf.

Steve Cross consults on sales, marketing, and channel issues. Find a free excerpt from his new book "Changing Channels" at: http://www1.xlibris.com/bookstore/bookdisplay.asp?bookid=16152. He can be reached at steve@crosschannel.com, 702-492-7472.

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FROM THE COMMUNITY

Suppose there is no IPO

Paul Harvey, a senior investment banker at Goldman Sachs, told venture capitalists gathered at EVCA's Technology Investment Conference in Barcelona yesterday that it would take another two years for the IPO market to offer them a viable exit route again.

Two years. Before the bubble burst, there wasn't much need for venture capitalists to think even this far ahead. Doing so may even have been distracting, given the pace at which the market was moving and the seemingly insatiable appetite of the public market for new issues. But those days are long gone, and Harvey's prediction wouldn't have taken anyone in the room by surprise.

Or did it? Some non-GP delegates at the conference were left wondering whether venture capitalists are in fact still in a state of denial when it comes to grading their exit prospects. Commented one: "Instead of still lamenting the closure of the IPO window or the absence of a deep and liquid pan-European stock market, they should get on with building businesses. The sooner VCs accept the fact that IPOs won't happen for some time, the better."

The point is well made. Harvey could of course be wrong, and aspiring technology companies may become floatable sooner than predicted. But by the same token, his forecast might well turn out to be overly optimistic and public equity investors may take a dim view on new issues for a lot longer. It's worth bearing in mind the debate that is currently ongoing in the US, where the more pessimistic worry that negative market sentiment combined with newly created regulatory burdens [Sarbanes Oxley in particular] on listed companies may make the public market look a very unattractive destination to both private companies and investors for a long time to come.

Either way, nobody knows, which is why venture investment strategies that don't hinge on achieving a timely IPO have something rather reassuring about them at the moment. It's not as if there are no alternative exit routes. Trade sales may currently be in the doldrums too, especially in the technology sector. But there is the argument that the big technology companies that are cutting their R&D budgets today will be facing gaps in their intellectual property inventories tomorrow. When the downturn is over, these gaps will have to be plugged, and the technology conglomerates will get shopping - which should be the moment for M&A advisors to start to close in on venture-backed acquisition targets.

Now this does sound like something venture capitalists should be planning for - instead of waiting for the IPO market to return - and that means concentrating on helping to build robust businesses with substantive P&Ls derived from real customers.

We're always keen to hear from our audience - please drop us a line: info@privateequityonline.com

FROM THE COMMUNITY

Creating A Wireless Market Leader Through Multi-Pronged Distribution Development
SPANworks ImmediaNet™ Wireless Networking Solutions Will Change What Connectivity Means for Consumers and Businesses Alike
By Rock McKinley, Vice President of Sales & Marketing, SPANworks

It seems that everyday brings new validation that the future for mobile wireless computing solutions is infinite. The market research firm IDC recently released a study stating that mobile and wireless technologies will grow at a compound annual growth rate of 58.5% by 2006. No one doubts that with the proliferation of new wireless connectivity standards (Wi-Fi™ and Bluetooth™), the growth in mobile computing options (PDAs, tablet PCs and smaller, sleeker notebooks) and the now affordable pricing models for these wirelessly enabled devices, that this 'holy trinity' is poised for a push to create this new nirvana. However, two questions remain unanswered: "How will all of this be used differently than what's available today?" and "How will these tools successfully reach the mass adoption stage?'

Until these questions are easily answered, the mobile computing revolution will continue to creep rather than sprint forward.

Many companies offer 'part' of the solution culminating in the need to 'partner' with other companies. At SPANworks (www.spanworks.com), we have been demonstrating that we are building a complete solution oriented business. The company's wireless networking solutions answer the questions asked above and offer the financial results that investments and partnerships are supposed to achieve.

SPANworks is a leading provider of software technology and applications for the mobile computing market. The company has trademarked ImmediaNet™ as its brand for delivering spontaneous connectivity and communication (ad hoc networking) among digital devices. By utilizing Wi-Fi adapters or Bluetooth wireless communication cards in conjunction with our patented ImmediaNet™ technology, a user is able to communicate and exchange data in a dynamic wireless environment, sans the traditional WLAN or wired solutions. These collaborative exchanges can be one-to-one, one-to-many, many-to-many, and use many of today's standard business productivity software applications.

Envision walking into a brainstorming meeting with your laptop and instantly being able to collaborate real-time with other attendees and leave the session with a completed document. There are an estimated 11 million task-oriented meetings a day in the United States. This conservatively adds up to an astonishing daily cost of $5 billion in meetings. ImmediaNet technology offers a productivity gain for all meeting attendees whether through planning, sharing data, and/or, instantaneous scheduling. Or imagine waiting for a delayed airline flight in an airport terminal and being able to immediately pull out your PDA and begin competing in an 'spontaneous' digital game of Hearts or War with other passengers on the fly (excuse the pun).

These are just two examples of the potential of ad hoc networking. Overall, the opportunities are only as limited as a software developer's imagination, and we intend to take advantage of each and every successful idea and resulting product through our business model.

These visions of the future are enticing, but futile if the standards and tools are not pervasive. This is why SPANworks has created a three-tier business model that allows us to expand the marketplace and successfully remain in the leadership position:

And with other business tools, such as direct sales opportunities through e-commerce application downloads from www.spanworks.com and push technologies (free usage of an application for a short period of time to create user demand), SPANworks can empower the individual digital device user to deploy the applications that best fit his or her computing wants and needs.

We are already seeing fruition from this business model. Recently SPANworks signed a partnership agreement with the Cosmi Corporation, (www.cosmi.com), the leading designer, developer and manufacturer of value-priced computer software in the United States. Through a third party developer (utilizing the SDK), Cosmi will distribute games such as War and Hearts for the SPANworks platform throughout its retail distribution channels. Such relationships allow us to execute on our business strategy of achieving broad, pervasive distribution to many different consumer markets.

For the ad hoc networking market to succeed, SPANworks has to answer both questions through broad, easy-to-use applications and multi-faceted distribution channels that are financially rewarding to developers, OEMs and other partners and customers. We believe we are executing on our strategy and are well positioned versus our competition in this nascent marketplace. In the future, when you hear the term ad-hoc networking, hopefully it will be synonymous with ImmediaNet. And if this is indeed the case, you can chalk much of our success up to strong channel distribution and market development business models.

Rock McKinley is Vice President of Sales and Licensing for San Ramon-based SPANworks. He can be reached directly at rmckinley@spanworks.com or 925.327.7170, x175.