My phone rang at 4 a.m. Pacific
time. On the other end was a VAR tortured by
insomnia (fortunately for me, it was at least 7
a.m. in New York). He
had been up all night racking his brain—and for good reason—over the quandary
known as managed services.
Now, you would think that this is a pretty straightforward proposition: Buy
the products to establish a presence in managed services, convert existing
customers to a monthly recurring revenue plan and watch the profits roll in.
OK, it’s not as simple as that, but you get the idea.
As an industry, we’ve preached to VARs for years to convert all or part of
their business to managed services, which boasted healthy margins and
predictable revenue streams. The logic for getting into managed services is
self-evident: Hardware margins have been declining for years and sales were
anemic through the recession; and software margins—which have been slipping as
well—are being disrupted by the cloud computing phenomenon.
Now this VAR, we’ll call him Steve,
hasn’t seen these problems among his customers. His customers continue to buy
from his hardware and software portfolio, and rely on his services for
maintenance and support. It’s a relatively simple business model that has
worked well for the better part of a decade.
The problem with which Steve suffered through that night is integrating the
value propositions that several managed services enablement vendors had
presented. He was, in his words, “being badgered” by four vendors—one
professional services automation software vendor, two remote monitoring and
management tools vendors, and one master managed service provider. Given this
was December, each vendor acted like the ghosts in Dickens’ "A Christmas
Carol"; they professed to show him his sins and then the path to managed
services enlightenment.
Here’s where Steve got confused.
The first vendor approached him with a tale of how its solutions would get
him in the managed services business, solve all his worries and make him a rich
soul.
The second vendor came in and presented a very similar pitch, but added that
everything the first vendor said was dead wrong. The only solution, of course,
was its.
The third vendor arrived bearing tidings in the form of the promise of
managed services profits that could only be achieved by using its tools as the
underlying platform. Of course, everything the first two vendors said was
completely and utterly wrong.
And the fourth vendor, the master MSP, had the role of Christmas Future in
which it said there was no need to build a network operations center or hire
the staff to provide the services. Partnering with it would provide Steve with
everything he needed to be a managed service provider. Oh, of course,
everything the first three vendors said was bunk.
Scrooge only had to suffer one visit each by three ghosts in one night.
Steve had the misfortune of these vendors revisiting him numerous times with
the same tale of woe. And, with each visit, they came armed with new and
creative explanations for why the last guy was wrong. The other thing they all
had in common is the solution for integrating their managed services model with
Steve’s business model: Add servers.
Here is Steve’s problem: Like many VARs and IT solution providers, he built
his business to service and support VSBs—very small businesses. His company
does slightly more than $1 million annually by catering to the IT needs of
dozens of small businesses—many of which are either one- and two-man shops—in
his greater metro area. They mostly have laptops, desktops, digital modems, wireless
routers and perhaps a firewall. And, of course, he services and repairs
everything he installs.
Managed services, each of the aforementioned vendors told Steve, would make
his business wildly more profitable, since he wouldn’t have to roll a truck each
time one of his customers suffered the Blue Screen of Death. He would be able
to monitor the health of their network and remote into each client via the
local server.
Ah, therein lies the problem for Steve. His clients don’t have servers. In
Steve’s model, customer interaction is an in-person proposition—the majority of
his clients bring their machines to him for service. No problem, said each of
these vendors, just drop in an HP home server running Windows and you’re home
free. But that creates more problems in his world, since his customers don’t
have the need for a server; a server—even an inexpensive home server—would add
costs and complicate their lives.
So why was this keeping Steve up at night? Well, that’s our fault—and I mean
the collective “our.” Because the industry—vendors, press, analysts, etc.—have
breached the virtues of managed services and warned that failing to act would
result in dire consequences, Steve thought that it was nothing less than an
imperative that he figure out this problem.
Adopting managed services would require Steve to either abandon his existing
client base or develop a new practice that catered to a different set of
clientele—both expensive propositions. Yes, he has other options in acting as
an agent of cloud services that don’t require the customer to have a server,
but that doesn’t address the break/fix model he lives on today.
I’m sure Steve’s story isn’t unique. Small VARs that service small
businesses are peppered with advice and best practices that apply to larger
businesses or businesses that have larger customers. “The industry” may say a
lot of things, but choice and logic remain on the side of the VAR.
If your business model is working well and producing the revenue and margins
you expect, is there really a need to change just because analysts, press and
vendors catering to a general partner base tell you so?
In some cases, VARs should follow what Steve ultimately decided: “if it
ain’t broke, don’t fix it.” Steve knows he has to evolve his business, but he
needs sound advice and guidance; not just hype and wishful thinking. Until
then, he’s going to keep taking meetings with those vendors; he gets a free pen
and t-shirt every time.
Are you like Steve?
Click here to share your experiences with us.
Lawrence M. Walsh is vice president and group publisher of Channel Insider. Click here to read his blog, Secure Channel, for the latest insights on security technology and policy trends affecting solution providers.
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