Insight, Avnet, Arrow, Thomas Duryea Logicalis and The Missing Link on getting services right

Panel speakers:
Darren Adams - Vice president and general manager, Avnet Australia and New Zealand
Nick Verykios - Managing director, Arrow ECS Australia and New Zealand
Andrea Della Mattea - Senior vice president and managing director, Insight Asia Pacific
Micah Smith - Principal consultant and co-founder, Thomas Duryea Logicalis
Karen Drewitt - General manager, The Missing Link Network Integration
Host: Steven Kiernan - Editor, CRN

Micah Smith, Thomas Duryea Logicalis: We spent a lot of time investing in a managed services business and then also a cloud business, so really building out the annuity streams. We started from a base of pretty much zero in 2008 and moved through to where we are today: a bit over 40 percent annuity services this year. It’s really taking a lot of our internal share away from the product and software and hardware.

It’s been a big journey and we’ll get to a 50:50 mix I think, as our revenues increase. It’ll make us a lot more comfortable and hardy in the years to come.

We had to put a lot of time into it. In our younger years we were very much sales-driven: sell some hardware and some services every month. We saw that we had to change our models to get consistent revenue and leverage that trust we had with our customers, and say, “Don’t just trust us for your projects, trust us with managing your infrastructure and running your infrastructure on our cloud as well.”

Steven Kiernan, CRN: You built your own service provider cloud a few years ago. Given how competitive that market is today, would you recommend others do this?

Micah Smith: We chose to build a service provider cloud at the time, years ago. Would we do it again today? I think we’d look at a lot of the other options out there through either distribution or hyperscale clouds or other partners as well. We’ve still got a huge amount of demand for our own cloud from customers, both our existing customers and new customers.

We’re still spending a huge amount of time helping customers move to hyperscale clouds and finding other options for them as well. We’re seeing some people move back. We’re seeing a lot of customers going, “We’re just going to deploy some hyperconverged so we can manage our on-premises, or a service provider can manage it for us, and then we’re going to push another workload out to the software-as-a-service or hyperscale cloud.”

Steven Kiernan: Insight recently acquired a former Fast50 company, Ignia. What does that acquisition say about the kind of services that customers are asking for?

Andrea Della Mattea, Insight: We started investing in consulting services a few years ago organically. It’s our longer-term growth strategy. The acquisition of Ignia helped accelerate and bring that strategy to market a lot faster.

If I bring it back to client demand, we’re seeing clients that have an incredible relationship in the core of our business, and they’re looking for us to be able to help them drive these outcomes in other areas of the organisation.

Steven Kiernan: What are the consulting opportunities?

Andrea Della Mattea: It doesn’t really matter which event you go to, you’re going to hear about the same types of technologies. You’re going to hear about the requirements around mobility, predictive, big data, social, cloud and hyperconvergence.

The technologies that the partners are talking about tend to be the areas that the clients are looking for today. There’s a plethora of new technology opportunities that are out there, so it’s for organisations to consider the types of technology they want to invest in and what their strategic differentiation needs to be to be able to take a value cost to market.

Nick Verykios, Arrow ECS:
Services do expire. They do have short lives in terms of what is profitable for you. That doesn’t mean the services go away – the services become commoditised. When they become commoditised, you need to break bulk on them and get some kind of volume. That usually can be best associated with a value-based distributor who can provide those services for you on your paper and allow you to present a more complete, more profitable solution to your customers.

That’s always going to change. The services that we’re doing at the moment, particularly the very complex multi-vendor architectural designs, they’ll be commodity in about three or four years’ time. It starts with us, where you offload to us, then you become really expert at it and you can make a lot more money offloading it back to us.

Darren Adams, Avnet:
We all know the market’s changing, but I don’t think the role of the distributor, in terms of the supply chain, is fundamentally changing at the top level.

We are always the service provider to channel partners. In the past we might have provided a product with a physical asset, so we have to quote it, configure it, perhaps guarantee the supply chain, timeline and delivery. In the new world you can still be a distributor providing a service. I see our job as augmenting what channel partners do. If you have a great capability, you have great customer relationships, our job is to help you be more efficient. If you make money, we make money.

I think this applies whether you’re selling a physical asset or whether you’re selling a service. We have built a managed services business through the acquisition of ITX. We have 1100 end users that we service through 200 partners today. We bill $9 million or $10 million a year.

There are new partners who see us as being the service provider to them and helping them out with capital. At the end of the day, who really wants to own the physical asset? There’s better ways to spend your money. Go invest in the stock market; even buying a car depreciates more slowly than a computer. I think distribution’s role in the new world is to look for ways to help partners make more money.

Steven Kiernan:
Is there opportunity for channel partners to build service provider cloud with the competition from public cloud?

Nick Verykios:
It’s important to understand that it’s the prime contractor that delivers the managed service. It’s not the distributor, it’s not the vendor. All we’re doing is enabling.

We’re enabling through three very relevant pathways. The first one is on-premises; that has service attached and it will always have service attached. There is a massive market for that. Then there is the managed services side of it, which has the services embedded.

There’s a massive services opportunity there. Then there’s cloud, which has services implied and we’re all trying to work out what those implied services are. All three are relevant, based on how you decide as the primary contractor how you’re actually going to solve that customer’s problem. The best way to solve that customer’s problem can be very different each and every time. It’s not necessarily blueprinted.

All three of those are important: services attached, implied or embedded. You build that business based on what kind of problems your customer has got, not what kind of technology you can throw at it. That’s the wrong way to go about it. The important thing to remember is you do services well by doing product well.

Andrea Della Mattea:
You have to be really clear on what your value proposition is, what you want to be known for. You have to ensure that you’ve invested critically to build strategic differentiation.

You have to have a lot of competitive advantage to set yourself apart from other organisations, because at the end of the day you have to be able to clearly articulate why you want the client to choose to do business with you versus another organisation.

Where should you invest? You should be investing in your core. Ideally your core is the area that is driving the bulk of the profitability to your organisation. Where should you partner? They tend to be in adjacencies or complementary areas that might be peripheral to the solution that you’re taking to market.

Darren Adams:
In terms of managed services and cloud, I think there are three winners, maybe four if we talk about the partner. The main winners are going to be the hyperscale guys: Amazon, Google, Azure, CenturyLink and maybe a few others that come along. They have sheer scale, they actually buy their own widgets and make their own computers.

Then you have the vendors who have IP. They own cool ways of doing things that we have to somehow get access to and make something work really well. I think the third group are the plumbers – which are the telcos. If you own the pipe, in this world you’ve got to have the pipe.

The channel stays the same. We’ve got to work out how to play in that new world. I think it’s all about understanding what’s core to your business and what’s context and having companies like ours solve the context problem for you.

Micah Smith:
We tried to stick to that core. We would only sell what we knew that we could deliver and deliver well, because part of our culture was technical excellence and having strong relationships. We’d also chose our partners really carefully, so we had a number of partners over the years; we date and then we have a few extra dates and then we go on honeymoon and then we make sure they’re working with us.

We have had some really good and mutually profitable partnerships with a number of vendors. We were probably trying to control it as much as we could, which probably made sure we didn’t grow as fast, but it also took a lot of the risk out of running the business.

We wanted to make sure that the top two levels in our projects were filled by our full-time staff and they had the skills and the experience to do it. Then over time we would push outsourced packages of that as much as we could.

Karen Drewitt, The Missing Link: I think businesses need to understand at what point to move on from core. It’s a delicate balance of what you’re investing in in the future. What was core two years ago might not be core in two years’ time. Four-year business plan? Well, I’m not sure about that!

It’s about that evolution. This is what core is right now but making sure that we’re putting the right investments into what the future might look like. And some of that is hedging your bets, frankly.

Steven Kiernan:
How can you balance the demand for a fixed-price managed service model with the fluctuating costs of cloud and still protect your margin?

Karen Drewitt:
It’s just being really, really familiar with what your inputs are. There’s no magic to it. There are so many inputs. But that complexity is part of why we’re around. If it was easy and the clients wanted to do it themselves, then they would.

So taking those various inputs and turning them into something that’s nice for them to consume is obviously part of the value and an incredibly important part of the value in my opinion.

Micah Smith:
We’ve got hyperscale customers that are avoiding putting more workloads out there because they’re so worried about bill shock. They’re re-architecting their environments to take advantage of new AWS features that come out every month.

We have a customer that budgeted nearly $200,000 a year and based on their best internal assessment on how they’ll consume they could see that that might blow out by 50 or 100 percent.

They came to us, we did a free architecting calculation for them and they now spend about $35,000 per year.