Services First

By Pedro Pereira  |  Print this article Print


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Despite signs of a weakening economy, solution providers in a recent poll by Ziff Davis Enterprise said they feel good about their profitability prospects for this ye


Services first

Mike Novotny, president and CEO of InterTech Computer Products, said he is projecting 15 to 18 percent revenue and 20 percent net income growth as his company continues to put more energy into expanding its services business, now at 40 percent of overall revenue.

"Our real net new customer growth is coming as a result of leading with professional services, with managed services being part of our professional services portfolio," Novotny said. Managed services make up about half of the company's overall services, he added.

But not everyone in the channel has figured out the managed services opportunity. Many VARs remain reactionary, rather than proactive, about services, Bova said. "Whether VARs are delivering real managed services, such as remote monitoring and patch management, outside of their traditional break/fix contracts, is still a question," she said.

Krakora said managed services can be tough for channel players to get into because of the change in business model, supporting SLAs (service- level agreements) and lack of customer readiness to accept the model. "Managed services is an opportunity to increase profitability, but 2008 is likely to still be a transition year," she said.

Ian Cook, CEO of solution provider Logicalis, said it is challenging for VARs to achieve the right mix of managed services with their traditional business model. However, Cook added that the U.S payroll is the lowest it has been since 2004, so managed services is there because VARs are managing IT systems without companies having to employ staff.

"As the complexity of IT infrastructures increases, companies are saying more and more that they need someone to come in and look after it on their behalf," Cook said.

In addition to the focus on services, some providers may also be planning to add customers as a result of mergers and acquisitions. According to Outlook 2008, one in six channel companies is likely to be acquiring another business in the coming year, with 62 percent of those expecting to acquire saying that new customers are the first priority for acquisitions.

Other objectives were adding new products and technical capabilities, expanding geographic reach and improving existing services.

Logicalis is one of the companies that has publicly stated its intentions to grow through acquisitions next year.

But Cook saw imbalance with this approach, saying that finding new customers through acquisition works only if the acquiring solution provider has something to offer the customers. "If you do have something to offer the customers, then why not just approach that customer anyway," he said. "Acquisitions should be done really to gain new areas of expertise and new skills sets, so long as you can hang onto the staff."

Furthermore, Krakora said there should be three primary reasons for buying a company. "Talent is the No. 1 reason," she said. "Second is the methodology or product sets, and third is the customer base."

Krakora said providers should not assume customers will remain with an acquired company. Acquisitions can often inspire them to look around or attempt to change their contracts, she said. Customers often worry if the management changes, and technology changes can make them nervous, opening them up to exploring other options.



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