Fear and Loathing of Managed Services

By Michael Vizard  |  Print this article Print


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Managed services are coming, whether VARs like it or not. The trick to success will be providing higher-margin services alongside lower-end offerings.

At the Ziff-Davis Enterprise Channel Summit held in Dallas last week, it became pretty apparent that there is a lot of anxiety about what effect the move to managed services is going to have on the channel economy as a whole.

At the core of that fear is a recognition that the move to managed services is going to automate a lot of the functions that solution providers use technicians to deliver today. Given that most of these services demand a lot of high touch from trained technicians, solution providers have been able to charge healthy margins for those services. If they become automated it’s only a matter of time before vendors such as Dell and Microsoft begin to offer aggressively priced managed services as part of their bids to gain market share and additional streams of revenue.

Given this development, some channel players reason that it’s only a matter of time before these companies drive the profitability out of services in much the same way they have driven profitability out of product sales for solution providers.

There is much truth in this line of reasoning but it also glosses over some inconvenient facts when it comes to buying and consuming managed services. First of all, unless a customer is willing to base their IT operations on the products of a single vendor, they are always going to need multiple sets of managed services to function. And the good news is that not all of these services are going to be priced equally. So while a desktop management service may be a low margin offering, a complementary set of database management services is always going to provide VARs with a significant margin opportunity.

The challenge for solution providers will be aligning all these different managed services into a compelling offering. To make that happen they will probably have to rely on a mix of home-grown, higher-margin managed services delivered alongside low-margin services that they are basically reselling. The company furthest along in terms of delivering this hybrid model for managed services is Tech Data. The distributor is creating a managed services platform that not only gives solution providers multiple options when it comes to what specific platform they want to use to deliver the service, but will also present a series of services that will allow solution providers to pick and choose from any number of services. Those offerings will include -- but not be limited to -- desktop management, security and online storage to give customers the broadest range of options possible in the most cost-effective manner possible.

Click here to listen to a podcast with Tech Data CEO Bob Dutkowsky

What all this means for solution providers is that they should always be able to deliver any number of higher value differentiated services at competitive price points against anything that the likes of Dell or Microsoft can bring to market. The challenge will be to make sure they include in that mix a significant number of higher-margin services that ultimately will determine the profitability of the whole enterprise.

Of course, the other option would be to just bury your head in the sand and hope this whole managed services thing blows over. But the odds of that happening, given the current state of the economy combined with the general shortage of trained IT people, are slim to none.

So either you can choose to get in front of the parade now or simply wait for the mass of people moving in this direction to walk over you later.


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