CDN 2005 Top 100 Solution Providers

By today’s standard, 2005 was a strong year for the Canadian channel. After posting a decline in revenues in 2003 of 11 per cent, followed by a virtually flat year in 2004, the industry is finally seeing some growth. Reported revenues are $5.58 billion, up five per cent from $5.29 billion in 2004. However, while the improvement is welcome, revenue levels are still below where they were in 2002 and many challenges remain.

There was also significant consolidation in 2005. Eight companies with revenues exceeding $30 million were sold last year to other vendors, including several in the top 15. The combined revenue for acquired companies was $880 million. In most cases, the acquired firms were strong in professional and managed services. The biggest buyers were telcos, who are facing commoditization of their bread and butter carrier services and are looking to add higher margin services.

As was the case last year, revenues for the 10 largest players declined as a whole – the 2005 decline was nine per cent. Much of the slack was picked up by smaller companies. However, the fastest growth came from the second group of 10, which averaged growth of nearly 29 per cent.

Of the 15 most rapidly growing companies, eight are focused on managed services that include a telecommunications component. The most common of these are network management, Web and e-mail hosting, and desktop support services. The remainder concentrated on high-end professional service solutions, specialized services such as storage and printing and system building.

Service providers continued to be frustrated by a reluctance of customers to commit to strategic projects. What was seen instead was a variety of tactical projects that could no longer be put off. To fulfill these, many companies bought low margin “body shop” type services, as opposed to the comprehensive solutions that bring in higher margins. As well, many service providers are expressing a frustration with large vendors selling services directly to smaller and smaller clients.

A trend to watch will be how the infiltration of Bell and other telcos in the IT services market plays out in 2006. Through the acquisition of mature managed IT service providers, they hope to finally crack the IT services market that has eluded them for the past few years. Given their historical focus on mass-marketed services, this challenge will be significant – IT needs tend to be much more organization-specific than traditional telco needs.

Managed services
The role of telcos will also evolve as Wi-Fi hotspots grow from a coffee-shop phenomenon to much broader use. Wireless broadband offerings from Bell and Telus, and Toronto Hydro Telecom’s implementation of a two square-kilometre hotspot in Toronto’s downtown core, will move this trend forward.

Overall, managed services show promise, but there will fierce competition at the low end. Companies such as Bell have attractive fixed-price offerings for offices with 25 people or less. Microsoft is also planning to target this sector with services such as hosted MS Exchange. Also lurking the background are purported plans of Google and Yahoo to enter the managed service business through a new avenue – the hosted desktop application. Google is said to be planning an online suite equivalent to MS Office by the end of 2006. The long-term ramifications of this could be significant, although not likely to take effect until 2008.

On the other hand, there is room at the top of the SMB sector. Canadian organizations of all sizes are struggling to align an increasingly complex IT with business needs, but the hardest hit group has been the larger SMB. This is especially true for those with a significant online presence, or companies running enterprise applications such as Customer Relationship Management or Enterprise Resource Planning in Wintel environments. A particular problem is that these applications don’t scale well for the mid-market, and customization is a frequent requirement. Large vendors, however, are not well-geared to service this sector. The challenges are considerable, but VARs who are effective in this sector can enjoy significant growth in 2006.

Top five solution providers:
1. SoftChoice Corp.
2. NexInnovations Inc.
3. Xwave Solutions
4. Compugen Inc.
5. Software Spectrum Canada Ltd.

The fastest riser:

MediSolution Ltd.

Newcomer of the year:

Voda Computer Group

For a PDF of the list below, click here.

Top 100 for 2005