Consulting services grow as IT industry evolves

Information-technology companies are finding new ways to adapt to an industry that's always shifting.

"If there's any constant in IT, it's that everything changes," said Alejandro Rosado, president of 12:34 MicroTechnologies Inc.

The future is in software and hardware as services, consultants say. That will give IT companies a way to remain profitable in a changing market. It will also provide necessities, such as computers, servers and security software at lower cost to small businesses.

Large computer manufacturers, such as Dell, put small hardware makers out of business when they started selling directly to the public. The days of building your own machines are gone, Rosado said.

Small IT companies adapted. They partnered with large manufacturers and software companies, such as Microsoft Corp. and Apple Inc., to offer clients applications, hardware and support.

IT companies are looking toward the next shift. They are relying more on software and services, blended with hardware sales , to give clients a complete package. The profit margin on hardware alone is not enough to sustain a business, consultants say.

"The product (hardware) is a catalyst," Rosado said. "I sell product because I have to, not because I want to."

Because profit margins on hardware sales are about 8 percent or less, he said, companies are increasing service and software offerings. Last year, roughly 70 percent of Manheim Township, Lancaster County-based 12:34's business was hardware sales, Rosado said. This year, it's 60 percent.

Lamar Weaver, president of TCW Computer Systems Inc., began the company in Rapho Township, Lancaster County, by polishing used business computers for resale to the general public. That was the mainstay of his business in the early 1990s. Today he only sells about 300 recycled computers per year, but it doesn't mean hardware sales are disappearing altogether. TCW does more work with business systems and servers.

"(Hardware) is still a significant part of our business, and it goes hand-in-hand with our consulting," Weaver said.

TCW, like other consultants, tries to balance and diversify its business. Sixty percent is hardware sales, including computers, servers, work stations and connections. Consulting, software and other services are growing, Weaver said.

"We've put together amodel that works for us," he said.

TCW plans to offer hardware as a service in the future. TCW would own the computers, and businesses would lease them. That prevents small businesses from having to constantly buy and update their computer systems. The consulting firm would take care ofthat as part of the service.

TCW also offers consulting and installation services for high-end audio and visual systems as part of its diversification.

Rosado said a similar trend is hitting the software markets. IT and software firms will use Web-based software services more. The client pays a subscription fee to use programs, such as accounting software. That is more cost-effective for small businesses because they don't buy expensive software licenses. IT firms will buy the licenses and charge a subscription for their use.

Alliance Computers Inc., based in Swatara Township, Dauphin County, still offers hardware repair service to its clients. The company has between five and 10technicians on the road every day, President Dale Nagle said.

Few firms offer repair work anymore because computers are made better, and it's more likely they will need to be upgraded before tliey break down, consultants said.

Last year, hardware and service sales evenly split Alliance's business, Nagle said. Today, sales are 60 percent hardware. Hardware has been consistent, but it's not growing, he said.

"ft used to be more like 90 (percent hardware), 10 (percent services)," he said. "It's not so much the hardware decreased as it is services increased."

While Nagle's business caters mostly to small and medium-sized companies, he's doing more work for big companies. Data storage and off-site data backup are growing services.

"A lot more big companies are outsourcing their IT, and that's good for us," he said.

Years ago, hardware sales alone could keep a company profitable because computers were extremely expensive, Nagle said.

As computers became better, faster and cheaper, the per-device profit decreased. Most IT companies branched out into services. Alliance did, too. It also responded by increasing its geographic coverage area, which today includes three retail locations and most of Pennsylvania for service. Remote monitoring of client systems helped expand the area, too.

These changes weren't always easy for companies. Most said it takes time to shift business focus and strategy. However, if you monitor industry trends, you can stay ahead of the curve, TCWs Weaver said. That's the way IT consultants stay ahead of client computer problems - monitor the system.

"You have to learn how to adapt," Weaver said. "You have to be able to see what's coming down the pike to know when to jump or not."