The managed services model gets a lot of attention these days in the IT channel, but how much revenue it actually generates for service providers is a big question.
Companies with managed services as a main focus remain a minority. And even though platform vendors such as N-Able Technologies and Level Platforms are adding channel partners at dizzying rates, managed services remains a small percentage of the business for the vast majority.
But some companies that have overcome the technical and business hurdles of adopting the model have started to rake in millions of dollars in annual revenue. Eight of them were recognized recently by SilverBack Technologies, a managed services platform vendor in Billerica, Mass., for reaching or surpassing the $10 million mark.
“That’s hardcore dollars,” said Jim Hare, vice president of business development at SilverBack.
To recognize the achievement, the vendor gave them the “800-Pound Gorilla” award.
Together the eight “gorillas” have generated managed services annual revenue adding up to more than $100 million, according to the vendor.
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Rather than racing to boost its partner ranks as some competitors have done, SilverBack has focused on a core group. Hare said members of that core group work to get as much of their customers’ IT environments as possible on the SilverBack platform for management and monitoring purposes, whereas competitors’ partners focus on monitoring and managing limited numbers of devices.
“For us to grow, we have to continue to scale, and for us to scale, it’s through leveraging a tool like the SilverBack tool,” said Ian D. Sutcliffe, president of Champion Solutions Group, in Boca Raton, Fla., one of SilverBack’s gorillas.
Reaching the $10 million milestone requires a sharp focus on the model by an MSP (managed services provider), a change in thinking that could potentially turn every single sale a company hopes to close into a managed services deal, Hare said.
“If you talk to these guys, it is the foundation of everything they do,” Hare said. “For instance, they don’t just sell routers, they sell managed routers.”
When negotiating a deal with a customer, the savvy MSP will evaluate the customer’s needs and start making suggestions. Taking a solution-selling approach, the MSP can make a case for applications and equipment that would enhance the customer’s computing environment and, while doing so, bring up the benefits of a managed services arrangement.
Click here to read more about SilverBack’s managed services partner base.
Under managed services, providers take over some or all of a customer’s IT functions, remotely monitoring and managing the customer’s systems. The approach shifts the role of the IT services provider to prevention from remediation, adding predictability and stability to the customer’s experience. The provider benefits by putting customers on utility-like billing plans that generate predictable recurring revenue.
For VARs and integrators brought up on the feast-or-famine model of project revenue and break/fix revenue, the recurring-revenue model has undeniable appeal. But shifting to the managed services model isn’t easy.
“It’s a behavior change and it takes time,” Hare said.
Champion Solutions Group made the transition to managed services gradually. It started in 2000 with Champion’s taking over the IT maintenance contracts of customers and giving them access to relevant information through a Web portal, said Champion President Ian D. Sutcliffe.
Then the company took over data backups for customers, which led to taking control of their storage networks, which eventually led to a full managed services offering.
An IBM partner, Champion uses the vendor’s systems management technology for some of the work, but the company partnered with SilverBack for a more comprehensive set of managed services, which Sutcliffe said revolved around providing the customers with availability, productivity and process improvement.
Managed services accounts for about 38 percent of Champion’s overall business, Sutcliffe said. To sell managed services, the company has a sales force that focuses only on the model, though Sutcliffe said the entire sales staff is gradually learning how to pitch managed services.
Getting buy-in from the sales staff for the model is a challenge for VARs making the transition to managed services, Hare said. “The single most difficult thing is getting the sales guy to really go in and pitch this every time … Senior management has to enforce this and senior management has to participate in the critical sales.”
One way to persuade sales representatives to embrace the model is to create paperwork for them. If they have to fill out five-page forms explaining why they didn’t add managed services to a deal, Hare said, the sales reps at some point will get the message. Not all do, however, and that’s when they get replaced.
“In managed services, you’re almost selling a philosophy,” he said.
It’s a philosophy that another SilverBack gorilla, Netivity Solutions, of Waltham, Mass., has fully embraced. So much so that when the company makes an acquisition, one of its first priorities is to convert the customers of the acquired company to the managed services model, said Skip Tappen, Netivity’s vice president of managed services.
Netivity’s business is about 50 percent managed services, and its offerings include management of data and voice network devices, desktop support and what Tappen called “proactive monitoring.”
“We have customers as small as 10 users and as large as about 1,200 users,” Tappen said.
Winning customers over to the model requires a clear explanation of the value proposition, he said, value that includes reducing the cost of the customer’s IT staff and leveraging the full range of Netivity’s technology capabilities.