IT Services Revenue at Heart of Most Channel ConflictBy Michael Vizard | Print
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Vendors that don't have structured approach to managing services engagements create recipe for inevitable conflict
By and measure the delivery of services is by far and away the single most profitable segment of a solution provider’s business. The question then becomes what vendors and technologies drive the most amount of high-margin services revenue on behalf of the solution provider.
According to Rob Sturgeon, chief delivery officer for ServiceSource, a provider of an application that helps vendors manage recurring revenue streams, services revenue is the primary metric that solution providers should be using to judge the value of the relationship they have within any given vendor. Naturally, that means the vendor should have some systematic approach in place that optimizes the management of services opportunities.
ServiceSource counts amongst its customers EMC, Adobe, Microsoft, F5 Networks, NetApp and Riverbed Technology, all of which have a pretty solid reputation in the channel when it comes to driving services revenue. The reason for this, says Sturgeon, is that the companies leverage ServiceSource to automate the process of managing the recurring revenue generated by services. Those services typically have margins in the 85 to 90 percent range, notes Sturgeon.
The important thing for solution providers to remember is to continue to sell the ongoing value of those high margin services. Otherwise, customers will tend to either simply forget by renewing them or start to look for a lower cost provider. Done right, Sturgeon says tIT services are as close to being recession proof as anything in IT, which is one of the reasons that Wall Street tends to reward companies that have recurring revenue streams generated by services.
The major challenge with anything having to do with services, of course, is account control. Many vendors appear to want to take control of the customer by delivering services directly themselves either intentionally or simply from the want of a set of clear policies for determining who will deliver what types of services when. That fundamental issue, says Sturgeon, is at the core of most of the contention in the channel between solution providers and vendors. All things being equal, Sturgeon says solution providers should ask vendors to detail what specific mechanisms have they put in place to manage services revenue. Chances are the vendor that can detail those mechanisms is going to be a better partner because the amount of time spent squabbling over who should be recognized for what services revenue is going to be sharply reduced.
What Sturgeon is really getting out is that given the sophistication of the applications that available today for managing transactions across the channel, there really should not be as much friction in the channel as there is today. The truth of the matter is that it’s not that anybody is trying to steal credit for revenue. It's a lack of clarity in the policies being applied to the recognition of services revenues that winds up almost inevitably creating all the bad will between solution provider and partner.
Many solution providers and vendors simply chalk all that contention up to the cost of doing business in the channel. The reality, however, is that it doesn’t have to be that way. Things, of course, will never be perfect. But when you think about all the tales of when one solution provider was unfairly cheated out of something by one vendor or another; it becomes pretty clear just how much room for improvement there really is.