Hardware Leasing Completes Managed Service ModelBy Pedro Pereira | Posted 2005-12-30 Email Print
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Even though managed services have gained respectable momentum this year, one question looms: How does hardware fit in? N-Able's answer: Lease the equipment and charge customers for it as part of the monthly fees paid providers for IT monitoring.Hardware is the elephant in the room of managed services. It's the unanswered critical question capable of stunting adoption of the model unless someone comes up with a workable answer soon.
The folks at N-Able Technologies Inc., a managed services platform vendor in Ottawa, believe they've got it. And the company is taking the lead in trying to talk providers of managed services into adopting its plan to deliver hardware as a service.
Under N-Able's plan, providers would negotiate the cost of hardware installations and upgrades as part of their overall managed services contracts with customers.
Hardware as a service, Scott said, is the next phase in the natural evolution of the delivery of IT services. The first phase was software as a service, followed by the remote monitoring and management functions that have become known as managed services, he said.
As a concept, hardware as a service is easy enough to grasp. The trick is to put it into practice.
Currently, a business that needs to replace a piece of hardware engages in a fairly straightforward transaction. An order is placed with a supplier, who, after sourcing the equipment from a distributor or vendor, delivers it and, if necessary, configures and installs it. The customer receives an invoice and payment presumably follows.
But with hardware as a service, who puts up the capital? If the customer is paying for the equipment in installments as part of the managed services contract, someone has to float the purchase when the hardware is delivered.
Enter the leasing companies.
"They've been dying to get into this market because, historically, IT products have not been leased," said Mike Cullen, N-Able's vice president of sales.
That is about to change. N-Able is negotiating with leasing companies to develop financing facilities that would be woven into managed services contracts.
It's a type of financial arrangement that has worked for years in the copier business, and to a very limited extent, with some big-ticket hardware equipment. Companies generally don't buy copiers, leasing them instead for a number of years and paying fees calculated on a per-copy basis. Cullen, who has worked in the copier business, said he believes the model makes perfect sense for managed services.
"To date, managed services has been a partial outsourcing of services only," Cullen said. "It doesn't make sense; you've got to outsource the whole thing."
N-Able expects to enter a partnership with a leasing company within weeks, at which point the vendor will offer managed services providers using its platform the option of using this financing vehicle for customers, Cullen said.
A different type of sale.
To date, managed services providers have either completely shied away from handling hardware or have done it on a per-project basis.
Shying away forces the customer to deal with another supplier, unless the provider brings in a product reseller.
But since most managed services providers have evolved from a product-focused model of reselling and integration, they generally handle the hardware projects themselves.
The problem, from the customer's perspective, is that a hardware replacement or upgrade is an additional cost. And because customers become comfortable with the predictability of monthly fees, they may balk at the extra fees.
The hardware-as-service model would eliminate the unforeseen costs.
"It only makes sense to view the product depreciation as part of the service cost," said Scott Goemmel, executive vice president at PMV Technologies, of Troy, Mich., one of the early adopters of the managed services model.
PMV, he said, is just starting to incorporate product costs into managed services contracts.
Goemmel, who is also president of the VentureTech Network, a group of elite resellers affiliated with distributor Ingram Micro Inc., said the SMB marketplace increasingly wants a total managed services solution because of cost predictability.
"Reliable and cost-effective IT infrastructures are critical not only to business survival, but in many cases, also create or sustain a competitive advantage for our customers," he said.
Another provider exploring the addition of hardware costs to its managed services contracts is All Covered Inc. of Redwood City, Calif.
"It's a different sale for sure," CEO Kevin Laughlin said. "All of a sudden it puts us in the financing business. There's obviously a capital requirement, or at least a financing component."
All Covered was founded eight years ago strictly as a services company and has been moving into the managed services model. As such, it has never physically handled hardware, though the company facilitates hardware purchases for customers by working with equipment suppliers, Laughlin said.
Do IT Smarter Inc., a managed services provider in San Diego, works with a partner when fulfilling product for customers, be it hardware or software. The company puts out a request for proposal and its partner handles the product transaction, President Lane Smith said.
Partnerships between service providers and product suppliers would still be possible with the leasing arrangements that N-Able envisions, though company executives said they believe a well-rounded offering would have providers doing it all.
For large VARs that have been hesitant to adopt the managed services model, N-Able's Scott said, the hardware leasing model may be just the thing.
"I actually see software as service and hardware as service as things that the product-centric VARs out there can embrace," he said.
To promote its hardware-as-service approach to providers, N-Able executives plan to do a road show starting in February.