It’s time to build your managed services business

The phrase “managed service provider” (MSP) may conjure images of large data centres with 24-by-7 support, a daunting proposition and expensive investment for many solution providers. Particularly when a long-term customer with whom you’ve painstakingly built a trusted advisor relationship drops the “m-word” in casual conversation.

In reality, building and running your own data centre is today only one route to becoming a full-fledged MSP. There are a number of models that allow partners to leverage a hosting provider while providing other associated services to their customers. What is clear though is that, as the interest grows in cloud computing and IT as a utility models, if partners want to continue to own those customer relationships they’ll need to add managed services to their portfolios. If not, customers may turn elsewhere.

Selling and delivering managed services isn’t as easy though as building a data centre or partnering with a master managed services provider (MMSP). Managed services means a whole new way of going to market, from the selling to the revenue model to the technical expertise required to support the business.

James Alexander, senior vice-president with the London, Ont-based Info Tech Research Group, says there is growing customer interest in managed services but many of the partners that hold trusted advisor relationships today don’t understand how to make money in the MSP space.

“It’s a precursor of some of the (channel evolution) we’ll see with cloud computing,” says Alexander. “The value proposition of managed services is different from the value proposition they’re used to selling, and the economic model is not the one they’re intimately used to operating under.”

The value-proposition of managed services is more around business than technology, says Alexander. You need to be able to quantify the return on investment of reducing downtime, explain how this will create greater business continuity, and have a business-level discussion around that. In a traditional break-fix model, he says many companies don’t have a plan for what happens when something breaks, they just call for IT. So they don’t put a value on that. To sell managed services, you need to define that value, since that service is what you’re selling.

It requires a business discussion, something many vendors are trying to help their partners learn to have. Cisco’s small business partner program and HP’s Partner One program are putting a lot of emphasis on training partners to have that business conversation, and IBM is also building partner competencies in this area.

That’s only half the battle though, says Alexander.

“The other half is that, today, a lot of partners live in a world where they buy something for 90 cents and sell it for $1.05, collect the money up front, and then sell services on an as-required basis,” says Alexander.

Running an MSP business requires an entirely new billing and business process where you don’t actually sell anything up-front, but collect a monthly fee per device. A recurring revenue model is ultimately a better way to run a business, says Alexander, but it does require some challenging adjustments and careful revenue and capital investment management. Another key issue is how you compensate sales staff used to big one-time commissions.

“Getting into MSP isn’t trivial,” says Alexander.

He identifies three main models for building an MSP business:

1) Build-out your own infrastructure and write your own policies for software and management. That’s what companies did 10 years ago, but it’s a big investment, and a risky one.

2) Build-out your own infrastructure and buy pre-existing tools to help you manage it. For example, N-able offers a suite of software that can be attached by a partner to run their own data centre as an MSP. It’s an easier solution, but you still need to invest in the hardware and software, and the staff for 24-by-7 monitoring, meaning you can’t just do it for one customer.

3) The third model is attaching yourself to an MMSP, such as Ingram Micro’s Seismic offering, reselling their service to your own customers and bundling your own value-add around it.

It’s the third model that Alexander sees most VARs adopting as it involves the least “fuss and muss” for those partners unwilling to make the infrastructure investments themselves. They’ll have to deal with the fact though that someone else is proving service to their customers, and be confident they won’t try to poach the relationship.

“There are ways to mitigate that. They can add their owns services to the offering, the last mile services a VAR can do best, so it’s not possible for the vendor to disintermediate them,” says Alexander.

There are other models for managed services, however, and many partners are finding hybrid models that best suit their customers’ needs, and the partners’ own business goals. Oakville, Ont.-based service provider Unis Lumin Inc. has built a thriving managed services business and Mauro Lollo, co-founder and chief technology officer, says the most common engagement for them is one where the infrastructure is customer-owned, usually at their own site, but the operation and management of the infrastructure is outsourced to Unis Lumin. As much as possible, they’ll do that management remotely.

“I think that’s a typical model,” says Lollo, pointing to partial outsourcing as the preferred choice for most clients. They want to maintain control over core strategic business functions such as applications, while outsourcing the less strategic IT functions in a managed services model.

“A lot of organizations tend to prefer selective outsourcing, allowing them to focus on the core task at hand.”

Building a managed services business has been a long-term investment for Unis Lumin, says Lollo. It has taken time to develop the technical expertise and to develop the repeatable, ITIL-based processes and in-house capacity to deliver services on a repeatable, consistent basis.

It has also meant changes in how they sell to their clients, and how they earn revenue and manage expenses.

“If we take on a particular contract we’d have to acquire the resources to support that contract, the human capital, the technical resources, and those costs have to be amortized over a certain period of time,” says Lollo.

Rather than a break-fix heritage, IT Weapons came into the managed services business from the consulting side, particularly around Citrix-based solutions and the centralization of services. This made getting into managed services a natural says Mike Dabner, director of managed services for the Brampton, Ont.-based solutions provider.

Growing the business over about six years to today, IT Weapons invested in data centre hosting and management, building the in-house expertise and infrastructure to scale-up and support a robust managed service offering. On the technical side, that meant a data centre, remote monitoring, and professional services automation. And on the people side, they’ve invested in sales training and getting their staff used to selling services instead of just products, as well as building a help desk and NOC services and hiring a data centre manager.

“You need to spend a lot more time understanding their business strategically,” says Dabner. “We try not just to engage technical people, but also c-level people so we can understand strategically where they’re going. That’s how we’re training our sales staff.”

Dabner also notes IT Weapons doesn’t believe in commission-based sales, preferring to provide other incentives for their sales staff and encouraging them to focus on providing the best solutions for each customer case.

Today, IT Weapons offers a variety of managed services, including networking infrastructure management, call centre, NOC management, storage management, security management, server and desktop virtualization, VoIP, business continuity and disaster recovery, and cloud computing.

Rather than partner with a MMSP, Dabner says IT Weapons’ philosophy is to do everything internally. It does require more investment, but it also provides greater control and the benefits exceed the costs.

“You have people who are in your culture, they learn how you want to do business,” says Dabner.

“One of the key differentiators in our business is building trust with the customer, and that means expertise and integrity. We’re asking a customer to enter into a long-term business partnership with us to the point where we’re the single point of contact for their entire infrastructure. For a business to take that leap there’s got to be trust there.”

Managed services, says Unis Lumin’s Lollo, is going through a second renaissance. While outsourcing was once thought of as turning over everything, the idea of selective outsourcing in a managed services model, so they can focus on what delivers core business value, is really on the upswing.

“Particularly when you look at things such as virtualization and cloud computing, which are putting a new twist on what managed services is today,” says Lollo. “New technologies are creating new business models.”

Another big reason for the increasing popularity of managed services is because of how IT is breaking down silos within organizations says Darryl Wilson, area practice director at Dimension Data Canada, which is investing in building-out its own managed services business.

He sees unified communications as a good example. Rather than seeing IT and telephony as separate, breaking down those silos with UC, and particularly managed UC, is creating new efficiencies for organizations.

“Organizations are moving from a siloed approach to wanting to have their voice managed and have it done with one company, so they have one throat to choke,” says Wilson. “Managed voice is definitely something we’re seeing a lot of interest in.”

Follow Jeff Jedras on Twitter: @JeffJedrasCDN.

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Jeff Jedras
Jeff Jedras
A veteran technology and business journalist, Jeff Jedras began his career in technology journalism in the late 1990s, covering the booming (and later busting) Ottawa technology sector for Silicon Valley North and the Ottawa Business Journal, as well as everything from municipal politics to real estate. He later covered the technology scene in Vancouver before joining IT World Canada in Toronto in 2005, covering enterprise IT for ComputerWorld Canada. He would go on to cover the channel as an assistant editor with CDN. His writing has appeared in the Vancouver Sun, the Ottawa Citizen and a wide range of industry trade publications.

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