Dawn of Solutions as a Service

If there’s going to be an “IT 3.0” or a “Channel 3.0,” the marketplace masters will be those companies that crack the code for “solutions as a service.”

Two years ago while working at the now defunct VARBusiness, I coined the term “Channel 2.0.” At the time, the channel was already showing shifts in the way IT technology product and service delivery was conducted, the relationship between vendors and solution providers, and the needs of the business-technology consumers. Channel 2.0 intended to look five years into the future to divine the shape of the channel of the future.

Little did any of us know how rapidly the world—and the technology marketplace—would change. Services were always an important part of the mix, but it was difficult to say how important services would become to vendors, solution providers and end users.

Fast-forward to the present day, and services are evidently the future of the technology market. Vendors such as Microsoft, Symantec, Dell and IBM are delivering services through the cloud, but SAAS (software-as-a-service) experiments such as Salesforce.com and NetSuite are proving to be the model for future delivery and distribution of software applications. Solution providers are no longer confined to delivering remote management services of IT infrastructure; they have choices for building or representing host-based applications. And, as Channel Insider’s research has shown, the introduction of managed services into a customer environment leads to a dramatic increase in professional (consultation, integration, migration and staff augmentation) service engagements.

Services, though, are a nascent market and business model. Everyone from Microsoft to the local solution provider is trying to figure out how to deliver services and what impact it will have on conventional hardware and software sales that generate billions of dollars in revenue annually.

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Vendors should be more concerned about the product-to-services transition, since it’s not a one-to-one exchange of product dollars for services dollars. Solution providers, however, report a much different problem: transitioning their business in terms of the model, the value proposition and the staff culture. These are vexing problems, since they will slow down the transition to services and cause hiccups in the successful and profitable delivery of services.

One of the biggest obstacles, in my humble opinion, is the entire proposition of having to change the value proposition and, consequently, the sales model. For years, solution providers have been told that managed services—and now software as a service—will necessitate changing their business model and adjusting their value propositions. True, a service business that operates on a subscription or recurring fee structure has a different cash flow issue than the transactional sale business of a product-based sales organization. But does having the billing cycle have any real impact on value propositions?

The headwinds slowing down services in the channel is the false belief that the value proposition must change—that solution providers need a separate model for selling tangible products and another model for selling cloud-based services. One of Channel Insider’s "Seven Laws of Managed Services" is end users do not buy services. That law remains true, but the meaning is changing. End-user exposure to the concept of services is making them more aware that they are consuming services, but they’re still more interested in one thing: the resolution of a business problem or the enhancement of business capacity through automation. In other words, they want solutions.

As the technology and channel marketplace evolves to a services orientation, solution providers will need to abandon the notion that services are a separate and distinct offering and develop hybrid packaging the treats the combination of hardware, software and services as holistic solutions. Solution providers may want to think of themselves as services companies that identify the needs of their customers and craft solutions that bring the best mix on on-premises, remote management, professional engagement and cloud-based applications.

As Channel Insider’s research into managed services shows, the introduction of managed services into a customer environment results in a 60 percent increase in additional managed and software services and a 70 percent increase in professional services (Read: "Managed Services Evolution in the IT Reseller Channel" — click here). By leading with services and packaging services and product as a holistic solution set, solution providers will ensure they have a lasting value proposition and relevancy to the customer.

Lawrence M. Walsh is vice president and group publisher of Channel Insider. Read more of his research reports at CI: Perspectives.


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