Managed Services: Threat or Opportunity?

I asked the executive, "Why should these solution providers sell your product rather than your competitor's?"

He provided an impressive set of reasons, including superior features, lower prices, better support programs and innovative joint sales programs.

I then asked solution providers, "Assuming everything you just heard was more than true but his products could not be managed within your managed services technology and business model, and his competitor's could, which product would you sell?"

The response was unanimous: They would sell the competitor's product.

A lively discussion followed on the real needs of solution providers and how vendors can best exploit this emerging opportunity. There will be hundreds of conversations like this across the country in 2006 among all the participants in the SMB (small and midsize business) channel.

The results of these discussions will determine the winners and losers, as managed services becomes the defining technology transition of the decade.

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In the mid-1980s client/server computing gave birth to the channel as we know it today, with many solution providers tracing their roots to those early days.

In the mid-1990s the Internet changed the business of many solution providers from product-centric to services-driven, as a result of collapsing product margins and the challenges of managing the complexity of IT in the Internet age.

In the 2000s managed services is radically transforming the channel, as once again new threats and opportunities emerge for everyone—solutions providers, vendors, and distributors—with the only sure winner being end customers themselves.

Today's $15 billion SMB IT services market is owned by 50,000 solution providers, or VARs, whose success is based on their well-earned role as trusted advisors.

VARs are beginning to move aggressively to transform their services businesses to take advantage of high-margin recurring revenues, optimized services costs and enhanced customer satisfaction, all now easily within reach for even the smallest services providers and applicable to end customers of all sizes.

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Rather than keep it as a special new service for their elite customers, solution providers are using the proactive managed services model as the basis for their entire service delivery model, capturing the major cost savings in new value-based pricing models that free them from traditional reactive cost-based billing models.

SMBs purchase $200 billion of technology goods and services and, whether VARs recommend or purchase for resale, they clearly influence the lion's share of this purchasing. Many channel participants are beginning to realize that managed services will have a major impact on how this $200 billion prize is shared in the future.

Remote monitoring and management, the underlying technology for the managed services revolution, makes it possible for anyone, anywhere, to know the intimate details and health of every device and application installed at the SMB site as well as details of the interactions of these devices, user behavior, and external threats to the performance and security of the network.

With all this information suddenly available, and the potential value that it represents, who will be the trusted advisor in the future?

Vendors such as IBM and Cisco Systems are now asking VARs to resell their managed services, hoping to let them participate in new services opportunities as well as opening the door to more direct end-customer access. Other vendors are offering their own managed services directly, bypassing solution providers.

It is only a matter of time before Dell, with no channel to offend, will find the lure of new services revenue and account control irresistible.

The fact that Synnex (with operations in Bangalore) and ScanSource have announced similar offerings suggests the distributors also see an opportunity. Direct marketers such as CDW, Insight and PC Connection have all announced early-stage offerings.

Read more here about how to move to a managed services model.

And don't forget the telephone companies. They have the brand, customer reach and ability to provide a low-cost centralized service as well as the motivation to provide converged products and services with end-to-end management. Will solution providers be reduced to becoming someone else's fulfillment arm, or use this opportunity to deliver enhanced value to their customers and rapidly grow their businesses?

Everyone can win in this next-generation services delivery model, and the solution provider is currently positioned to be the biggest winner of all. Winning solution providers will continue to "own" their SMB customers by extending their trust relationship through managed services.

Seizing the lead, these providers will orchestrate other services, be it offshore help desk, vendor warranty services, VOIP services, or partnering with distributors and other solution providers, while delivering much higher value to their SMB customers.

No matter where they are in the channel, participants that understand the shift to new collaborative service models will lead the industry in the new managed services era. And those who establish a managed services relationship first will drive this evolution to their advantage.

Peter Sandiford is CEO of Level Platforms Inc., which provides remote monitoring and management software and managed services training programs to more than 1,200 solution providers. His 30-plus years of experience in the channel include 10 years as president of SHL Systemhouse, a $1 billion systems integrator that was sold to MCI in 1995.