How can resellers crack managed services?

Talk of managed services and the opportunities in the sector are rife across the IT industry.

Managed service providers (MSP) offer the delivery and management of network-based services, applications and equipment to organisations, and vendors are scrambling to expand their managed services capabilities.

In July, PC giant Dell acquired managed services platform provider SilverBack Technologies and threw itself into the MSP market as it seeks to expand its remote service and management line-up.

Bearing in mind this is not a company which has previously touted its abilities to provide services, it highlights quite a shift in market dynamics.

Another vendor keen to exploit the managed services landscape is security player SurfControl, which last July added managed services to its portfolio by acquiring BlackSpider Technologies.

When recently announcing its results, SurfControl said its entry into the managed services market last year is paying off in the form of an earlier-than-expected profit. SurfControl said its managed services revenue jumped 40 percent during its fiscal third quarter ended 31 March.

Where the vendors go is often where the channel will follow, and there is little doubt managed services is a hot topic at the moment. However how can resellers make the move into the burgeoning sector?

Enterprises crave managed services
Enterprises continue to cite cost savings pressures as one
of the primary reasons to engage in managed services, according to IDC’s annual IT Services and Managed Services End-User Survey.

The research house found that the APEJ Enterprise ICT Outsourcing and Managed Services market totalled US$23.3 billion in 2006 and is expected to reach US$36.2 billion in 2012. Value-added managed services are expected to grow from US$6.4 billion to US$12.6 billion during the same period.

“Our surveys have shown that squeezing out more cost savings continue to be an obsession of many enterprises this year,” said Adrian Dominic Ho, research manager for IDC’s Asia Pacific Managed Services and Enterprise Networks. “Enterprises are recognising that a managed services engagement not only leads to cost savings but also gives them access to technology that enables them to transform their IT infrastructure that can drive productivity and increase their business competitiveness.”

The findings are published in the recently updated IDC report, Enterprise’s Insatiable Need for Cost Savings, Putting The Best Case Forward For A Dose Of Managed Services.

Diagnosis 1
Tim Dickinson
Country manager A/NZ at MS provider Kaseya:

This is the most exciting time to be in the business of providing IT support services since the inception of the personal computer in the early eighties.

Smart resellers are rapidly making the transition away from the traditional break/fix, reactive business model where revenue is generated by charging customers by an hourly rate. The hourly rate charged by most integrators has not changed over the past 10 years but the cost of skilled technicians has in some instances more than tripled. With declining margins on hardware many integrators have been forced out of business.

Managed services is quite simply a business model that has been used by “Tier 1” system integrators for many years. Instead of charging customers an hourly rate for IT support services, clients are charged a fixed monthly fee per device or user with a service level agreement (SLA) that defines both parties’ responsibilities. With fixed monthly income any productivity improvements by the reseller deliver immediate profitability gains. Set-up can now be completed 100 percent remotely and the cost per seat can work out at less than one percent of the overall monthly services income generated per device.

For resellers to make money in this market they need to rapidly increase their knowledge on the managed services business model and trial software that delivers significant productivity improvements within their business. This market is maturing rapidly and Kaseya now has more than 100 MSP partners in A/NZ.

Diagnosis 2
Mathew Dickerson
Senior network consultant at MS reseller Axxis:

The reseller community is in a state of transition at the moment. Resellers that have traditional hardware sales and break/fix models are finding it increasingly difficult to compete and be profitable. With hardware margins shrinking and ticket prices reducing, the logical solution is to increase services revenue and managed services deliver a minimum guaranteed flow of income.

There are a number of steps required to smoothly transition your business. Firstly, design a managed services model that is going to work for you and your client base. Secondly, ensure you have the tools behind the model to support your approach. Lastly, and most importantly, believe in the model. Make sure all of your staff have buy-in on the model and understand where you are taking the
organisation. Select key people within your organisation to drive the model and talk about the model with clients and other staff.

The market has now matured to the point where IT systems are more often than not mission critical. The market expects their IT provider to have a well-designed SLA — if your company doesn’t offer the solution there are plenty of others that will.

We have seen a sweet spot in the market at the moment with managed services. We have designed a solution that we sell to IT providers across the world and we have now sold that to IT providers across the world who have implemented a mature SLA overnight. The results from these companies once they have a managed services offering has been nothing short of outstanding.