NPD Report Finds Hardware Still Matters

These days there’s no shortage of opinions when it comes to partners potentially changing their business models. But a new report from NPD Group finds that not only does traditional hardware continue to account for 75 percent of channel sales in the third quarter, but it also turns out hardware revenues grew eight percent.

The same report also notes that while software grew at a much faster rate of 14 percent, software itself accounts still accounts for only 26 percent of revenue flowing through the channel.

The important thing for partners to remember is that all software running inside and out of the cloud needs to be accessed by a hardware device, says Michael Diamond, director, of industry analysis for B2B Technology for The NPD Group.

“The market is still driven by PCs,” says Diamond. “Hardware is the beachhead.”

The good news for the channel is that as the economy has improved sales of PCs into business environments has increased. Couple that with increased adoption of Windows 10, and it becomes simpler to understand why PC sales are up, says Diamond.

In fact, Diamond notes channel partners may not be doing enough to leverage hardware sales to drive additional application and services revenues. Partners need to invest more in market and business development expertise to sell more solutions per customer, says Diamond.

With the advent of subscription licensing and cloud services, there is a movement afoot to drive recurring revenue from software that used to come embedded with a box. As that transition continues to gain momentum many solution providers will need to over time adjust their economics models, adds Diamond.

Longer term, Diamond says larger solution providers will have to add application development capabilities that will enable to develop unique intellectual property, while smaller partners might thrive by delivering integration consulting services on top of a box platform.

Of course, there’s no one path to success in the channel. But the NPD report would suggest that the most common way to succeed in the channel still starts with hardware.