While hardware sales continue to drive the bulk of the revenue for solution providers, software sales are continuing to grow at a faster rate. The latest U.S. B2B Software and Cloud Tracking Service report from the market research firm NPD Group finds software sales for the January through May period of 2019 grew 6% with cloud infrastructure and platform as a service, business applications, and cyber security software driving the largest gains.
Cybersecurity especially is driving major gains for the channel as organizations large and small allocated more resources to combat threats that are increasing in both volume and sophistication. The NPD report notes that security software has grown at a 13% compound annual growth rate (CAGR) from 2016 to 2018, compared to a 9% CAGR growth rate for non-security software during the same time period. At the end of 2018, security software made up 22 percent of B2B software sales, the NPD report finds.
The NPD report identifies security information & event management (SIEM) (26%) and identity and access management (18%) are the two fastest growing segments of the cybersecurity software sector.
The challenge many channel partners face when trying to rely more on software to drive revenue is acquiring the skills and expertise required. Most hardware solutions are horizontal in nature compared to software sales that either requires expertise in either the cloud, cybersecurity management or business applications that are deployed in a specific vertical industry sector, notes Michael Diamond, director of industry analysis for B2B technology for The NPD Group.
“Channel partners need to turn into consultants,” says Diamond.
Even with that increased focus on software, however, software revenue won’t overtake hardware sales in the channel any time soon, adds Diamond. Even in spite of the rise of the cloud, hardware sales continue to increase because there are now more devices being acquired to access cloud applications. In fact, the challenge partners really face is figuring out what software applications and services can pull the largest amount of additional hardware revenue behind them.
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