NOC, NOC, who’s there?

It’s a tough choice to make for any reseller. When your business is humming along nicely and there’s a little extra cash in the kitty, maybe it’s time to consider expanding into new areas. If it goes nowhere, there’s some lost capital and gained embarrassment to suffer through. But if it’s a hit, it could be the beginning of a healthy new source of profit.

Klikon Solutions found itself in this position a year ago and decided to try out the newest fad, managed services. But instead of rebadging one of the big telcos’ products, the 37-staff integrator was considering doing it in-house. Klikon had been experimenting with remote monitoring shareware and providing band-aid solutions to its customers, whom it had quizzed about their most pressing needs.

A common theme was network blindness – customers knew nothing about their IT infrastructure’s capacity until it had exceeded it.

“The [customers’] biggest pain point was that they had absolutely no visibility of their network, so everything they did was reactive. Someone’s Citrix server was almost at capacity, or the print server had run out of disk space. [IT staff would] get a call from the general manager who’d say, ‘what’s happened with the network, why’s it gone down, IT’s stuffed, heads are going to roll,’” said David Abouhaidar, Klikon’s director.

Some customers had isolated monitoring software, such as proprietary programs attached to HP or IBM servers, but no cohesive approach.

“We wanted to provide an A to Z solution for these guys. We saw an opportunity there.”

In January 2007, Klikon undertook a serious evaluation of the “Rolls Royces” of network operations centres (NOCs), and judged them on their ability to meet their customers’ desire for network visibility.

IBM’s Tivoli, HP’s OpenView and CA’s Unison were put through their paces; Klikon went with a $1.5 million (retail price) CA solution.

Abouhaidar said one reason behind the decision was the quality and ease of use of the software. The Unison “was far superior [to] the other two”. CA’s eHealth product “was just one of the most phenomenal reporting and live time monitoring pieces of software that the guys had ever seen.”

The second factor was CA sales which Abouhaidar said were “absolutely fantastic”. “They really walked us through it, answered nearly every single one of our questions, and went down to the absolute mechanics of the application. We just felt much more confident with their product.”

After a couple of months learning the ropes of the NOC and seven months in the field, Abouhaidar said that managed services is clearly the most profitable in the Klikon stable, which includes infrastructure solutions and information security.

Klikon found a customer who was “more than happy” to play the guinea pig, and provided the training experience for Klikon’s staff. There are now 12 companies using managed services - all existing customers - representing 10 percent of the customer base, which includes health care, tier-two finance and legal, up to 2000 seats. The FY09 target is to stretch that to 60 percent.

Klikon is adding yet another arrow to their quiver, this time a little ahead of the pack: Green IT. The reseller has just completed its first job doing a green server room, with water-cooling racks and other energy efficient options ticked.

Abouhaidar admits there is a good margin in Green IT as the gear is still expensive, although prices are dropping. However, the entry requirements will ensure that not every reseller will jump on the bandwagon.

“The green concept is really starting to take off, I think that’s still going to be the next wave. [However] I don’t envisage every reseller under the sun doing the same thing; you’ve really got to have that certification in place.”
Customers are starting to ask for the environmental option. Although the upfront cost is higher, the electricity savings can be as high as 30 percent, said Abouhaidar.

The new fronts in managed services and Green IT are a welcome addition as decreases in hardware pricing make traditional infrastructure and networking provisioning less profitable. Klikon has managed to maintain its margins in its infrastructure business, largely due to its higher levels of service,
said Abouhaidar.

“If we are two or three points more expensive than somebody on a desktop, [customers] are not going to bother [going elsewhere]. There’s just no point. If they’re going to deal with us, they’re going to get what they need, when they need it.”

Vendor tactics aren’t helping, however. The ITS 2007 contract with Lenovo and HP sets low, non-negotiable margins which forces the hand of resellers.

“I wouldn’t say it exactly works for us, but it serves a purpose. We’ve obviously got revenue targets that are set by these vendors and sometimes it helps get you across the line, which can lead to other things like marketing dollars, and whatever else.”

More damaging is the practice of new entrants attracting business by selling hardware with as little as two or three percent margin.

“I think people need to win customers on merit as opposed to price. Obviously there has to be cost savings in there for the customer, but there is no point throwing away hardware at zero or one or two percent margin. I think it cheapens the industry.”

Abouhaidar said he would prefer set margins “on pretty much everything”. A single RRP guarantees the reseller the margin on the backend, and organisations which are required to get several quotes would receive the same price and could then deal on merit rather than being forced to choose the cheapest bid.

Vendors dumping product at the end of the month to meet their sales targets may give resellers a good deal once in a while, but the overall effect is negative.

“It cheapens the product. If someone is going to offer you a 40 percent discount at the end of the month, people are going to expect that every day of the month. Those prices filter out into the market and it just ruins things for the first week of the next month.

“There should be a certain price point that they shouldn’t really go past. Unfortunately, it’s survival of the fittest - whoever buys the most stock gets the best price.”

Despite the recent expansion, Klikon follows a very cautious approach to gaining size. The company has passed up acquisition offers and focused instead on organic growth.

Abouhaidar said some oversized resellers run into trouble finding enough work to pay salaries. In an industry facing yet another round of consolidation, Klikon’s priority is to make sure that it survives to see the next day.

”We would rather grow at our own pace. At least that way we know we’ve got a job to come to tomorrow and we can pay the bills at home. We’ve got 37 families here that we have to feed, and they come before anything.”