Managed Services Does Not Replace Hardware and Software Sales

By Lawrence Walsh  |  Print this article Print


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If you want to succeed in services, you must understand the dynamics and limitations of the managed services market. These laws are the starting point.

4) Managed Services Does Not Replace Hardware and Software Sales

When managed services were first introduced to the channel, advocates proposed that remote monitoring and response would replace hardware and software sales, and even traditional break/fix services. Ahem, not so fast. New research by Channel Insider finds that hardware and software sales, as well as the sale of professional services, increase following the introduction of managed services. Further, the average selling price of hardware and software actually remains steady or increases when sold in conjunction with managed services. True, hardware and software prices and margins have been declining for years, but managed services is proving a valuable vehicle for expanding the total footprint of a solution provider in a customer account.

5) End Users Don't Buy Managed Services, and Not All Should

Vendors, distributors and solution providers fret over what a managed service is, by definition. I'm sorry to report that it's pretty much irrelevant since end users don't buy managed services. They buy off-site backup, network monitoring and maintenance, security monitoring and response, network optimization, and help desk services. MSPs can talk about their managed services, but they'll likely get more marketplace traction by branding their services and remote capabilities as something that prospects will more easily understand. Oh, and remember, end users won't care about the vendor brands that you use to deliver the managed service—they'll only care that the service delivers what you promise. While every potential IT user is a candidate for managed services, not all need it. MSPs are beginning to discover that some prospects make poor candidates for managed services because they are either better off using automation tools to improve their existing manpower and infrastructure capabilities or they have such unrealistic expectations that they'll break the backs of their providers.

6) Capacity Must Always Exceed Peak Demand

One of the thorniest issues facing the fledging managed services market is capacity planning. Early providers likened managed services to flying an empty 747 that picked up passengers until it was half full; at that point the provider would need a second jetliner. In other words, the provider always needed nonrevenue producing capacity to accommodate spikes in demand and the eventuality of adding new clients. This law made the cost of entry to the managed services market very high and out of reach of many solution providers. There's just no getting around the need for excess capacity, which has given rise to distributors (Ingram Micro, Tech Data, Synnex) and specialty services (Zenith Infotech, The Utility Company), providing the infrastructure that solution providers can private label as their own managed service. Many solution providers that invested in building out infrastructure capacity are now offering their excess capacity to smaller partners. The build-as-you-grow model simply doesn't work.

Lawrence Walsh Lawrence Walsh is editor of Baseline magazine, overseeing print and online editorial content and the strategic direction of the publication. He is also a regular columnist for Ziff Davis Enterprise's Channel Insider. Mr. Walsh is well versed in IT technology and issues, and he is an expert in IT security technologies and policies, managed services, business intelligence software and IT reseller channels. An award-winning journalist, Mr. Walsh has served as editor of CMP Technology's VARBusiness and GovernmentVAR magazines, and TechTarget's Information Security magazine. He has written hundreds of articles, analyses and commentaries on the development of reseller businesses, the IT marketplace and managed services, as well as information security policy, strategy and technology. Prior to his magazine career, Mr. Walsh was a newspaper editor and reporter, having held editorial positions at the Boston Globe, MetroWest Daily News, Brockton Enterprise and Community Newspaper Company.

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