Managed Services A Mixed Opportunity for VARs

Many channel partners see the chance to build a new revenue stream. However, others are put off by the challenge of changing their business model and some fear the looming presence of hardware vendors in the market. (Part three in a series)

Love them or hate them, managed services are here to stay.

The Managed Services Provider (MSP) model is very attractive for traditional VARs burned out from selling low-margin products, doing one-off projects and receiving unpredictable revenue from break-fix maintenance gigs.

The chief lures of being an MSP are high margins, recurring revenue, strong differentiation, strong account control, and the low cost of acquiring new accounts.

But often, VARs are unprepared for the reality of switching roles. Many lack the business expertise and technology infrastructure to move from a manual to an automated service delivery model.

Aside from those issues, VARs must chew over the million-dollar question on many minds: will managed services ultimately help or hurt my business if Dell, Hewlett-Packard and other major hardware vendors decide to pre-load managed services on their PCs and servers?

The imminent possibility of Dell and HP doing the above is closer to reality than you might think.

Dell is well positioned to make a big splash in this market. Last year, it acquired: Everdream, a SaaS provider of automated service management and helpdesk solutions for desktop and mobile devices; Silverback Technologies, a provider of remote server management capabilities; and EqualLogic, an automated iSCSI SAN (storage area network) solutions provider with technology geared toward virtualization environments.

This May, HP bought EDS, a long-time IT services kingpin, in an effort to bolster its poor services revenue. While HP hasn’t done much in the managed services space, it allayed the worst fears of the VAR community in April 2008 by joining MSP Partners, a vendor-driven organization that educates users and VARs about managed services.

So far, Dell and HP have been very quiet on the managed services front. Still, VARs have good reasons to be wary of investing too much time or money in this market.

“Dell and HP could offer managed services at a fraction of the cost that we can now,” said Dan Evans, president of Nexus Information Systems, a solution provider in Minnetonka, Minn.

While Nexus offers a limited range of managed services, mostly covering network, systems and application monitory and problem resolution, Evans is leery about expanding the company’s managed services because of what Dell and HP might do.

“The next logical step for these vendors is to pre-load managed services agents on their machines,” said Evans. “I’ll be shocked if they don’t do this.”

Nexus, a reseller of Dell and HP, believes partnering with vendors for basic services and providing additional services on top might be the way to go.

Another path for VARs is to partner with a Master Managed Service Provider (MMSP), said Amy Luby, CEO of Mobilize SMB, an MMSP in Omaha, Nebraska.

“VARs don’t need to be afraid of Dell, because this business is all about service, service to the VAR and to the end-user customer,” said Luby, noting that her 12-person company focuses on giving VARs excellent pricing and excellent service.

Mobilize SMB, which used to be a struggling MSP, knows the challenges VARs face in entering the market, said Luby.

Two of their biggest challenges are dealing with vendors’ rigid licensing agreements and having to load all their client data into each managed service database, she said. MMSPs can help with those issues, said Luby.

“Our value-add for VARs is that we offer licensing agreements that are more flexible than those of the vendors, we have lower prices, and we pre-configure the product’s database for the VAR,” she said.

Small VARs eager to tap into the managed services market, but leery of high upfront costs are the main customers of Do IT Smarter, a San Diego-based MMSP.

Do IT Smarter offers a low-risk, pay-as-you-go MSP program that incorporates key services such as remote monitoring, enterprise help desk, email and internet security, and remote backup. The program gives VARs the opportunity to sell a suite of managed services for a monthly fee that starts at $299 after they pay a sign-up fee of $1999.

The sign-up fee includes a training program designed to help VARs learn about managed services, how to succeed, and how to tailor managed services to their business, said Don Begg, the company’s CEO.

Begg added that VARs receive technology training and learn about establishing SLAs, marketing, collateral, pricing, help desk, contracts, and selling their services. “In return, VARs gain the opportunity to earn between 30 and 60 percent margins,” said Begg.

“Our managed services business has quadrupled since last May and is worth about $14,000 a month,” said Paul Byrne, CEO, ReadyTECH, a San Diego-based VAR that only uses managed services from Do IT Smarter.

(This is the last in a three-part series about the impact of managed services on the channel.)

TAGS: virtualization,Dell,HP,managed services,VARs

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